- The Washington Times - Friday, October 10, 2003

Still another out-of-control, dysfunctional institution recently joined the wolf pack seeking to devour MCI to advance their own narrow special interests. Oklahoma Attorney General Drew Edmondson announced criminal charges last month not only against six long-gone former company executives responsible for a massive accounting fraud at the company. He announced criminal charges against the company itself as well.

Headline-grabbing state attorneys general with visions of higher office have become another broken component of our increasingly abusive legal system. Mr. Edmondson’s grandstanding, unilateral action was harshly criticized by Justice Department and Securities and Exchange Commission officials handling criminal charges and punishment for the case.

Mr. Edmondson joins far-left unions like the Communications Workers of America and the International Brotherhood of Electrical Workers seeking to use the accounting scandal to shut down MCI because the company’s workers have repeatedly refused unionization.

MCI’s corporate competitors have joined in calling for MCI’s demise as well to eliminate one of their fiercest competitors. They have financed a gaggle of front groups to echo their cause, including such notables as the Grey Panthers, Friends of the Earth, Arianna Huffington and the United Church of Christ.

This collective circus has heavily pressured the federal government to terminate the more than $1 billion a year in federal contracts serviced by MCI, and to yank the FCC licenses the company needs to service its private customers. In response to this pressure, the General Services Administration temporarily suspended MCI on July 31 from bidding on new federal contracts, until all necessary reforms at the company have been implemented.

What this chorus won’t tell you is that it was the company itself that discovered and publicly revealed the accounting fraud, which overstated the company’s profits by $11 billion over a three-year period, even though that revelation forced the company into bankruptcy just a few weeks later. The company also immediately dismissed its top financial officers involved in the scandal, and cooperated fully in all investigations and prosecutions.

The company has also now replaced its entire former board of directors. Among the new independent directors are former U.S. Attorney General Nicholas Katzenbach, Dennis Bereshad, former head of the Financial Accounting Standards Board, and Jack Rogers, former CEO of Equifax. The new CEO of the company is Michael Capellas, formerly president of Hewlitt Packard, and CEO of Compaq Computer Corp.

The entire former corporate leadership has been replaced as well, including the president, chief operating officer, chief financial officer, general counsel, and director of internal controls. The former finance and accounting department has been closed and 400 new finance and accounting personnel have been hired.

Former SEC Chairman Richard Breeden also heads an oversight team appointed by the bankruptcy court. In the past few weeks, MCI has adopted 78 recommendations for reform from that team. This includes innovations such as term limits of 10 years for board members, a ceiling on executive pay without a shareholder vote, an all independent board comprised of members from outside the company, except for the CEO, and greatly increased shareholder control through a greater ability to nominate board members and offer binding shareholder resolutions.

Mr. Breeden told reporters these reforms would make MCI a model of corporate governance going “well beyond what any other major company would have.”

MCI continues to operate a tremendous, highly successful business. It provides telecommunications services to almost every federal agency, with more than 1,000 federal, state and local contracts. These include the most sensitive and sophisticated services for the Defense Department, the U.S. Navy, the State Department, the FBI, the CIA and the Department of Homeland Security.

MCI is also the nation’s second-largest long-distance phone service provider. Through its UUNET division, the company carries about half of all Internet traffic worldwide.

The top executives who committed the accounting fraud deserve full punishment. But shutting down the company itself would hurt just about everyone else, except those narrow special interests advocating such an absurd policy.

Millions of consumers would lose their preferred service, and face less choice and higher costs as a result of reduced competition. This would include federal, state and local governments, resulting in higher costs for taxpayers. The nation’s defense agencies and forces would lose their long-term telecommunications service company, intimately familiar with their needs and missions, even while our troops are under fire.

The 60,000 MCI employees would also lose their jobs. The company’s creditors and shareholders who were the chief victims of their original accounting fraud would just be robbed again.

The free market position is to punish the individual wrongdoers and leave the fate of the company to the marketplace. MCI has already settled federal charges against the company and paid stiff fines. Soon, GSA will lift the suspension on new contracts, the bankruptcy proceedings will be completed, and the Oklahoma criminal charges against the company will be dismissed.

The company will then be more fit than ever to serve consumers. That is what the competitors and their debilitating unions are afraid of.

Peter Ferrara is director of the International Center for Law and Economics.

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