WorldCom Taps Capellas as CEO

By Jeffrey Burt  |  Posted 2002-11-18

WorldCom Inc. last week continued to distance itself not only from its own scandal-ridden recent past but also from the telecommunications business itself by naming former Hewlett-Packard Co. President Michael Capellas to its chief executive spot. A strong figure in IT but a relative stranger to telecommunications, Capellas gives the carrier a distinctly new look and feel.

The move is seen by many as both symbolic and substantive, as prospects for growth at the major interexchange carriers lie not in traditional consumer voice services but in business data services. Even before its accounting scandals, the Clinton, Miss., company had begun efforts to shed low-profit units, including its wireless properties, and focus on growth areas. As such, choosing an executive rooted in the world of IT with strong ties to enterprises may represent an attempt at the long- predicted convergence of IT and telecom, analysts said.

"In industry trends, there is convergence," said Danny Zito, an analyst with Legg Mason Inc., in Baltimore.

With a background in both the financial and technology areas, Capellas, who resigned from HP last week (see story, right), has a good grasp of customer needs, said Crawford Del Prete, an analyst with International Data Corp., in Framingham, Mass. "[Capellas] has a unique ability to ingratiate himself and instill confidence," Del Prete said.

Some in the industry are skeptical that Capellas will be able to lend the necessary strength to a company that has come to represent—along with Enron Corp.—the worst of corporate America.

"Capellas is a technologist who is a decent leader and manager, but he is not a visionary nor a salesperson," said Cal Braunstein, chairman and CEO of Robert Frances Group Inc., in Westport, Conn. "Capellas is also the wrong person to head WorldCom and, if selected, will not be the one to turn the ship around. For that, you need vision and charisma and leadership."

Regardless of industry background, the new CEO who will lead WorldCom out of bankruptcy must appear, above all, untainted by the culture of corruption that has enmeshed so many chief executives in the past year. "Obviously, they would be looking for somebody who is above reproach. Apparently, [Capellas] fits the bill," Legg Masons Zito said. "He could bring an air of credibility and show theyre willing to start fresh."

WorldCom is trying to lose its past not only by cleaning out its executive ranks but also by revamping its board of directors. Recently, the company has taken the resignations of James Allen and Stiles Kellett, who was linked closely with some of former CEO Bernie Ebbers more egregious excesses. In turn, it elected Dennis Beresford, an accounting professor; Nicholas Katzenbach, a private attorney; and C.B. Rogers, former CEO of Equifax Inc.

In his first speech as the new CEO, Capellas said he wants to focus on convergence and fixing the company. "If you can tell me where the network starts, where the computer starts, and where it begins and ends, youre a better man than I. Its all converging," he said. "There is no intention of breaking up the company; the goal is to come out intact.

"Do I like taking tough stuff on? You bet. If I didnt believe [it], I wouldnt have taken the last two or three."

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