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Corporate Monitor of WorldCom Slams Ebbers

BOSTON -- Richard Breeden, the man appointed to put WorldCom (which now goes by MCI) on ethical footing, doesn't mince words assessing the telecom's former CEO.

"Bernie Ebbers was as incompetent and unqualified to be a CEO as anyone who has ever held that post," Breeden said at the Compliance Solutions trade show.

WorldCom directors, who gradually ceded power to Ebbers and overlooked or ignored fraud of historic proportions, did not escape Breeden's wrath either. Few could claim to be independent, he said. One was apparently only inserted in the post because he was Ebbers' neighbor.

What were their priorities? Consider this. In WorldCom's final year, directors met four times for an hour to 90 minutes each session, while the compensation committee met 17 times, approving, among other things, a $238 million "sack of cash" that Ebbers could distribute to employees at will as "retention bonuses," Breeden said.

The legal department, usually a check against corporate wrongdoing, was so diluted and geographically dispersed by Ebbers (whose disdain for the profession was well known within the company), that it was unable to get a handle on the problem.

These failures were repeated at nearly every level. In most cases, there were no procedures to catch problems. When they were, those in charge let greed block them from acting, Breeden said.

The result of WorldCom's failure (as well as Enron and others) was ruinous for employees, business partners and stockholders and a black eye on the entire capital system. Meanwhile, Ebbers and other WorldCom executives, face criminal fraud charges in Oklahoma.

Learning from WorldCom

As bankruptcy monitor for WorldCom, Breeden devised a 78-point plan that will be enforced by the court. It must be executed before the company emerges from bankruptcy -- probably in Jan. 2, 2004. MCI, now lead by former Compaq chief Michael Capellas, has accepted the plan in full.

Recommendations in the report, titled "Restoring Trust," range from the simple (a list of company goals on every ID card, and ethics pledge for the CEO and all employees) to the complex (standardization of accounting rules and compatibility of IT systems).

Breeden, said while no company is as bad as WorldCom, many need to upgrade their governance and reporting procedures and the 78-point plan can serve as a guide.

"You can't just pass a resolution, have board adopt it and say, 'We're all set.' " Breeden said. "One of the most significant business challenges is to match a dynamic company in a rough-and-tumble of competition . . . with ever growing rules and regulations."

In addition to an ethical tone that starts from the top, Breeden detailed three areas to focus on.

Publishing cash flow information for investors and employees is a good way to present the health of a company. Also, MCI will pay 25 percent of its net income as a dividend. "Dividends don't lie, either a company has a the cash they say or they don't," Breeden said.

Finally, Breeden said companies need to be more "transparent" in their dealing with investors and the press. He noted that when WorldCom was about to announce -- for the second time -- that it discovered several billion dollars in fraud on its books, executives also planned to insert glowing quotes about its earnings to offset the damage.

"Avoid entirely attempts to hype or manage the balance sheet," Breeden said. "There is too much hoopla."