- The Washington Times - Tuesday, August 26, 2003


Shareholders will gain an unusual amount of power at the former WorldCom Inc. and the board will be more closely restricted under rules set down yesterday by a court-appointed monitor trying to turn the scandal-tarnished telecommunications company into a model of good governance.

With the company now doing business as MCI and expected to emerge from bankruptcy shortly, the 150-page report by former Securities and Exchange Commission Chairman Richard C. Breeden will be the basis for a new MCI corporate charter that can be changed only with shareholder consent.

“The old WorldCom has already disappeared from the scene,” Mr. Breeden wrote. “In its place, the new MCI is embarked on a journey — still far from complete — to establishing a very different corporate culture in which values of transparency and integrity are cornerstones of its renewal and rebirth.”

Business governance experts praised Mr. Breeden for giving shareholders more say, though they offered mixed assessments of his plan’s merits.

MCI’s chairman and chief executive, Michael Capellas, and the company’s directors — all installed after WorldCom’s $11 billion accounting scandal and the biggest bankruptcy in American history — said they unanimously supported Mr. Breeden’s recommendations.

“We know we have to do even more to regain public trust,” Mr. Capellas said in a statement.

Mr. Breeden set down 78 principles covering everything from how directors should be picked to how the company ought to report financial results.

Among the more unusual requirements is that the Ashburn, Va., company establish an electronic “town hall” that will let investors communicate with the board and propose resolutions to be put to shareholders’ votes.

Directors can stay for no more than 10 years, and one new director must be elected each year. Shareholders can nominate their own candidates.

Mr. Breeden wants the board to be fully independent, with the exception of the CEO — who cannot also serve as chairman or sit on other corporate boards. Even the independent directors should be prohibited from serving on more than two other boards, he said.

Board members will not get outright stock grants, but their pay will be bumped to a relatively high $150,000. They will be expected to spend 25 percent of that on MCI stock that they must hold until they leave the board.

Mr. Breeden recommended a $15 million maximum for any MCI executive’s compensation, a ban on retention bonuses and strict limits on severance payouts. No stock options should be granted for five years, and only after shareholder approval.

MCI also should shell out 25 percent of its net income to shareholders as dividends, Mr. Breeden said.

Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, particularly praised the dividend rule and the requirement that directors be independent and buy MCI stock with one-fourth of their pay.

But he said directors should get even more of their compensation in stock, to make them more vigilant in protecting shareholders’ interests. He also said separating the chairman and chief executive positions can backfire by making other directors less diligent, if they believe the chairman is the main CEO watchdog.

In fact, WorldCom had a separate chairman, Bert Roberts, and chief executive, Bernard Ebbers, during its astonishing rise and fall.

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