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The Honolulu Advertiser
Posted on: Saturday, November 16, 2002

New WorldCom chairman prepared to restore order

By Brian Bergstein
Associated Press

NEW YORK — Freshly named the new chairman and chief executive of WorldCom Inc., Michael Capellas promised yesterday to improve ethics at the scandal-plagued telecommunications company and pledged to lead it out of bankruptcy without selling off huge chunks of assets.

Michael Capellas, new WorldCom chairman, was most recently president of Hewlett-Packard Co.

Associated Press

Capellas, 48, comes to WorldCom after wrestling with another knotty business challenge: serving as president of Hewlett-Packard Co. after its $19 billion acquisition of Compaq Computer Corp. He had been Compaq's boss for nearly three years.

When he officially takes over at Clinton, Miss.-based WorldCom on Dec. 2, he will have to rebuild the company's image, reassure uneasy customers and 60,000 employees, and satisfy the creditors, court-appointed monitor and other parties associated with the biggest bankruptcy in U.S. history.

"I'm actually pretty jazzed about this," Capellas said. "If there's one thing I can commit to you: I'll have some things to learn, but nobody else will ever work harder."

As CEO, Capellas replaces John Sidgmore, who was named interim replacement in April for Bernard Ebbers, who used dozens of acquisitions to build WorldCom from a small phone company into a telecom giant. As chairman, Capellas takes over for Bert Roberts, who came to WorldCom through its 1997 takeover of long-distance carrier MCI.

Sidgmore said it was too soon to tell whether he and Roberts will remain on the board. Capellas said that he does not intend to replace the full management team but in some cases will bring in "people I'm comfortable with and have a relationship with."

Sidgmore said he will stay with WorldCom, first to advise Capellas and then in a technology position that suits him better, such as "chief strategist."

"I don't really care what my job title is," he said before suggesting, with a huge laugh, that it might as well be "Free at last."

John Sidgmore, right, the former interim WorldCom CEO who took over for the disgraced Bernard Ebbers in April, will stay with WorldCom. He will advise new chief Michael Capellas, then move to a technology position.

Associated Press

The changes at the top come as WorldCom is making a concerted effort to turn attention beyond its $9 billion accounting fraud, which has led to criminal charges against five former executives and federal investigations of the company.

WorldCom has been running newspaper ads detailing its improved financial condition, and Sidgmore said WorldCom had become cash-flow positive and had $1.5 billion in the bank.

"I think this is one of the world's great companies," Sidgmore said. "That's going to be proven over the next couple of years."

Capellas said he wants to maintain WorldCom's large presence in the phone, Internet and data networking businesses and would not have taken the job if WorldCom's creditors were mainly interested in liquidating its valuable assets.

"There is no intention of breaking up the company and selling its parts," he said. "The value of the company is as a whole. The company will be a world-class competitor."

Some analysts said Capellas had no choice but to make such a claim.

"If people start to believe WorldCom is going to be broken up and not emerge from bankruptcy, then they will lose all their best customers," said James Speta, a telecom expert at Northwestern University's law school.

Capellas said he learned during the arduous proxy fight over the HP-Compaq deal how to get employees to have fun even in stressful circumstances, and will try to spread that to WorldCom as part of his attempt to change the company's culture.

"We will have an unwavering commitment to the highest possible standards of integrity, and that will be evident in everything we do," Capellas said.

"I have a policy that I've followed my entire management career, called zero tolerance: If there's ever a doubt, or an act that was not compatible with our values, then that employee is not an employee in the morning. People like it and will respond to it."

Capellas, who walks away from HP with a $14.5 million severance bonus, is getting more than $1 million in salary at WorldCom, with a similar amount in signing and annual bonuses, according to published reports. The package must be approved by a federal judge.

Capellas' career includes 16 years in technology positions with oil services giant Schlumberger Ltd., stops at SAP America and Oracle Corp. and a stint as Compaq's chief information officer.

Capellas dismissed any suggestion that he will be hindered by his lack of direct telecom experience, saying his old computing field is intertwined with networking in this age of "convergence."

He said that WorldCom appealed to him not only because he can be a CEO again, but also because nearly everyone in the company agrees changes have to be made.

He said he began thinking about the position in late September after several WorldCom employees he met at a birthday party in California encouraged him to come to WorldCom. He said he didn't seek out the position directly after that, but was ready when a WorldCom recruiter called him last month.

"We think he's got the best job in America today," said Ken McGee, a research fellow at Gartner Inc., a technology consulting firm. "It's impossible for anyone to make WorldCom fail more than it has."