WorldCom Hires Capellas

Former HP president says he will "rebuild WorldCom into a model of good corporate governance and management integrity."

WorldCom Inc. said today that it has hired Michael Capellas, former president of Hewlett-Packard Co., as chairman and CEO.

One of Capellas main challenges will be to help the bankrupt company overcome an image of corruption engendered by its record-breaking accounting scandal revealed over the past several months.

Capellas said he and his new colleagues "will rebuild WorldCom into a model of good corporate governance and management integrity."

The bankruptcy court must still approve Capellas salary and other compensation.

In his first speech as the new WorldCom CEO, Capellas said that he wants to focus on convergence, customers and integrity. "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 because its all converging."

Capellas stressed that his goal is not a breakup of the carrier. "There is no intention of breaking up the company and selling the parts," he said. "It was very important to me that that was established. ... The goal is to come out intact. Is the intention to replace the entire management team? The answer is no. Will we be adding some people? Of course."

The move comes as WorldCom has begun in earnest to distance itself not only from its own scandal-ridden, book-cooking heritage but also from its traditional telecommunications business itself by courting Capellas for its chief executive spot. A strong figure in information technology but a stranger to telecom, Capellas will give the bankrupt long-distance carrier a brand-new look and feel.

The remodeling at WorldCom is not only symbolic but also substantive, because prospects for high growth at the major interexchange carriers lie not in traditional consumer voice services but in business data services instead. Even before its accounting scandals were revealed, the Clinton, Miss., company began efforts to shed low-profit units, including its wireless properties, and focus on growth areas. By huddling with an executive rooted in the world of IT with strong ties to enterprises, WorldCom may represent an attempt at the convergence between IT and telecom long predicted, analysts said.

"In terms of industry trends, there is some convergence going on," said Danny Zito, analyst with Legg Mason Inc. in Baltimore. "And remember, the strength of WorldCom really is in the enterprise customers, who have more complex, IT-driven needs [than residential consumers]."

With a background in both the financial and technology areas, Capellas has a good grasp of customer needs, said Crawford Del Prete, an analyst with International Data Corp. in Framingham, Mass. "Michael has a unique ability to really ingratiate himself and to instill a confidence that, I think, is probably in dire need at WorldCom right now," Del Prete said.

However, some analysts 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 or the Robert Frances Group in Westport, Conn. "Capellas is also the wrong person to head WorldCom and, if selected, will not be the one to successfully turn the ship around. For that you need vision and charisma and leadership on the sales, marketing and PR side. These are his weak points."

Regardless of industry background, whoever leads WorldCom out of bankruptcy will have to 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 potentially could bring an air of credibility back to the company and show that 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. In recent weeks, 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 brought on board Dennis Beresford, an accounting professor, Nicholas Katzenback, a private attorney, and C.B. Rogers, former CEO of Equifax Inc.

Capellas stressed that the company will become more customer focused as well as dilligent about breaking with the corruption of the past. "Were going to go out and chase the customers and do the right things. Were going to go out and energize the employees--and do the right things. Customer first, customer first, customer first, and if you didnt hear that, go back to customer first."

He also balked at the idea that the job at the ailing WorldCom is a no-lose situation for him. "Weve got a lot to lose. There are a lot of folks who have a lot at stake here.

"Do I like taking tough stuff on?" he said. "You bet. If I didnt believe in taking tough jobs on, I wouldnt have taken the last two or three."

(Editors Note: This story has been updated since its original posting to include comments from Michael Capellas.)