UPDATE: WorldCom names Capellas as chairman and CEO

ITworld.com –

WorldCom Inc. on Friday named Michael Capellas chairman and chief executive officer (CEO), ending a week of speculation about the appointment of the former Hewlett-Packard Co. (HP) president as the head of the telecommunications company.

Capellas resigned his post as president of HP earlier this week, on the same day that it was reported that the former Compaq chairman and CEO was the top candidate to lead WorldCom. [See "Report: HP President Capellas eyed as CEO of WorldCom," Nov. 11.] Compaq was acquired by HP earlier this year.

WorldCom, which filed for Chapter 11 bankruptcy protection in July, is mired in a US$9 billion accounting scandal, the largest in U.S. history. The Clinton, Mississippi, carrier faces fraud charges brought by the U.S. Securities and Exchange Commission, several shareholder lawsuits and Congressional investigations.

But despite these difficulties, Capellas is optimistic. At a press conference held in New York Friday, the new company head said he plans to set the company back on track by focusing on customers, energizing WorldCom employees and demonstrating "unwavering integrity."

"We will be a role model of governance," Capellas said, adding that he feels "enormous responsibility" to help redeem the role of the CEO in the U.S., which has been tarnished by a series of recent corporate accounting scandals, including that of WorldCom.

Capellas is convinced that WorldCom has the assets, the customers and the people to regain a leadership role in this industry, he said in a statement issued by WorldCom.

"Today we are launching a new company, one that will reclaim the strengths of its past and focus on a promising future," Capellas said in the statement.

To achieve this, the company will install a customer advisory board, establish a sophisticated sales force, and Capellas himself plans to hit the road, visiting customers and getting their feedback. Although the new CEO said that there will be some additional management changes, he added that there "will not be a complete rebuild of the management team."

In September, WorldCom started looking for a new CEO to replace John Sidgmore, who took over the role in April after Bernard Ebbers' abrupt departure.

Sidgmore was previously vice chairman and said he would fall back into that role when a replacement was found. Sidgmore led the CEO search and said Capellas was the top candidate.

Speaking at the conference Friday, Sidgmore said that Capellas, who is due to take the helm Dec. 2, was the company's "absolute top choice" for chairman and CEO.

Sidgmore added that, despite its problems, WorldCom is regaining footing and has achieved positive cash flow in the last few months, building up over US$1.5 billion in cash, and has yet to touch another $1 billion credit line it has acquired.

Capellas said that he intends to bring the company out of bankruptcy and dismissed speculation that he might attempt to sell it.

"I have no intention of breaking up the company and selling the parts. I would not have taken the job if I did not intend to take it out of bankruptcy," he said.

Capellas said that he liked a challenge, saying "I take the tough jobs; there's no question that challenge intrigues me."

Although WorldCom did not disclose how much Capellas would be paid for taking on the challenge, reports published in the Wall Street Journal this week cited an annual salary in the $1 million to $1.5 million range, with the same amount set aside for a yearly bonus and starting bonus.

The terms of Capellas' compensation are subject to court approval, which WorldCom expects to seek as early as today, it said.

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