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The Honolulu Advertiser
Posted on: Tuesday, February 5, 2008

Hawaiian Telcom calls in new chief executive

StoryChat: Comment on this story

By Rick Daysog
Advertiser Staff Writer

Hawaii news photo - The Honolulu Advertiser

Stephen Cooper

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Hawaii news photo - The Honolulu Advertiser

Michael Ruley

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One of the nation's top turnaround experts, who led Enron Corp. during its bankruptcy, has been named the new chief executive officer of Hawaiian Telcom.

Stephen Cooper, chairman of New York management and consulting firm Kroll Zolfo Cooper, replaces Michael Ruley, whose tenure as head of the state's largest phone company abruptly ended yesterday.

The 61-year-old Cooper will take over a troubled Hawaiian Telcom, which has struggled since the Washington, D.C.-based Carlyle Group bought it from Verizon Communications Inc. for $1.6 billion in May 2005. Since then Hawaiian Telcom has lost thousands of customers, tens of millions of dollars and is under investigation by the state Public Utilities Commission for poor customer service.

Cooper, who is often called in to revive failing companies, said the situation at Hawaiian Telcom is not that dire.

"This is not what one would categorize as a distressed company," Cooper said in a telephone interview.

"What we've been asked to do is to provide leadership and support to (Hawaiian Telcom's) management team and focus on critical operations improvements," Cooper said.

Cooper, who co-founded Kroll Zolfo Cooper in 1985, has worked on more than 750 corporate turnarounds.

He served as chief executive officer of Enron, where he oversaw the wind down of the Houston-based energy trader between 2002 and 2005. Cooper replaced former Enron CEO Jeffrey Skilling, who was later convicted on federal fraud charges.

Cooper also served as CEO of Krispy Kreme Doughnuts Inc. which, like Enron, was embroiled in a major accounting scandal.

At Hawaiian Telcom, Cooper will take over a company that has underperformed since its new owner took over in 2005.

After the sale, Hawaiian Telcom spent $100 million moving human resource, finance, marketing, information technology and other Mainland-based jobs to Hawai'i.


The switch to a locally run telephone company was supposed to improve service, produce new products and bring a net increase of about 150 jobs to the state. But the transition in ownership from Verizon Communications Inc. to Hawaiian Telcom was fraught with difficulty.

The PUC investigation is focused on Hawaiian Telcom's decision to switch to its new in-house "back office" support systems in April 2006, even though those systems weren't yet fully functional. That resulted in erroneous bills, recurring billing problems, missed installation and repair appointments, and long waits for customer service.

Since October, the company has eliminated more than 100 management jobs.

The 1,600-employee company has lost a total of $137.2 million during the past two years in the wake of stiff competition from wireless, cable and Internet companies.

Cooper said he will bring in three new managers, including Kroll Zolfo Cooper senior director Kevin Nystrom, who will serve as the local phone company's chief operating officer. The other two have not been identified.

Also Stephen Gray, a Hawaiian Telcom board member since 2006, will become the company's vice chairman.

Cooper's predecessor, Ruley, could not be reached for comment yesterday.

Ruley's tenure had been the subject of speculation since last month when Hawaiian Telcom announced management cuts.


Ruley's Kahala Avenue home was listed for sale at $6.5 million in early January. When asked last week if the listing indicated Ruley may be leaving Hawai'i, company spokeswoman Ann Nishida said no changes were planned. Nishida said yesterday the decision was made late Friday or over the weekend.

Ruley received about $1.1 million in compensation in 2006, according to company filings with the Securities and Exchange Commission. Figures for 2007 are not yet available.

He was named to the post in October 2004.

A Hawaiian Telcom spokes- man said he did not know Ruley's plans.

Cooper declined to disclose his compensation, saying his pay will eventually be a matter of public record.

Cooper made headlines during the Enron bankruptcy when he asked for a $25 million bonus, or "success fee," for his efforts. He later cut his request in half to $12.5 million after the U.S. Justice Department opposed the bonus.

Excluding the bonus, Cooper's firm received more than $100 million for its work on the Enron bankruptcy, according to Bloomberg News. Cooper's firm raised about $12.8 billion for Enron creditors by selling off former Enron properties.

Cooper graduated from Occidental College and the University of Pennsylvania's Wharton School. Cooper was a financial consulting partner of the firm now known as Deloitte & Touche.

"We look forward to working with Steve and Hawaiian Telcom's employees to improve customer service and to continue offering new products and services to the Hawai'i telecommunications market," said James Attwood, who heads Carlyle's telecommunications and media group and is a member of Hawaiian Telcom's board.

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.

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