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Anastasia Kelly loves a challenge. But in her 22-year career as a lawyer, she has never faced a mess like the one surrounding her new employer. As the new general counsel of MCI, the 53-year-old Kelly is charged with guiding the company over legal hurdles placed in its way by its $11 billion accounting scandal and its emergence from bankruptcy. Kelly also faces the considerable task of reordering the company’s fragmented staff of 175 in-house lawyers. She is already considering consolidating more of MCI’s legal personnel in its Ashburn, Va., headquarters. And she plans to take a hard look at the telecom carrier’s relationships with its outside law firms, keeping some and shedding others. As for the state of bankrupt MCI, Kelly is upbeat. “The challenges we have are not unlike those other companies have. We just have them all — and all together,” says Kelly with a laugh. But Kelly is no stranger to companies — and legal departments — in flux. Previously, she headed the law divisions at Sears, Roebuck and Co. and Fannie Mae. At both institutions, her tenure as general counsel was marked by the reorganization of the legal departments. As Kelly settles in at MCI, former colleagues call her appointment an apt pick for a company that needs to convince government regulators, federal investigators, and investors that its internal controls are adequate. “She’s about working hard to get a client where they want to be, but never in a questionable way,” says Fannie Mae Vice President and Deputy General Counsel for Corporate Compliance Deborah House. “It’s that unique balance.” Robert Blumenthal, a name partner in Carrington, Coleman, Sloman & Blumenthal, the Dallas firm where Kelly first worked after graduating from law school, expresses confidence in Kelly — and wry caution about the struggling telecom giant. “She’s getting into a bunch of trouble,” says Blumenthal half-jokingly. “But she can take on anything.” LEGAL EPICENTER Named to the post at MCI on Aug. 4, Kelly replaces Michael Salsbury, who resigned June 10 after two investigative reports chronicling the company’s management pitfalls became public. The reports, one by Kirkpatrick & Lockhart of counsel and former U.S. Attorney General Dick Thornburgh, and the other by lawyers from Wilmer, Cutler & Pickering for an MCI audit committee, revealed patterns of inadequate oversight by the legal department. Thornburgh, who was appointed last August as an examiner by the judge overseeing the bankruptcy case, singled out Salsbury for his involvement in a troubled merger deal with InterMedia, but didn’t fault him for overt breaches of conduct. The Wilmer report was gentler on Salsbury, but described the legal department he headed as an “agglomeration of carry-overs from various mergers” and characterized its role in decision making as insufficient. Kelly faces a raft of immediate issues, such as MCI’s suspension from government contracts and accusations that the company improperly routed calls and hid details of long-distance calls to evade fees for connecting to competitors’ networks. Last week, the Oklahoma attorney general’s office filed criminal charges against the company and several former executives, alleging violations of state securities laws. But that’s not all she has on her plate. Kelly also has big plans for the in-house department at MCI, which is still legally named WorldCom until it emerges from Chapter 11 bankruptcy. Kelly is based in the company’s Ashburn headquarters. The Loudon County city will become the epicenter of the company’s previously decentralized in-house legal decision making, says Kelly. Currently, 15 lawyers are located in Ashburn and 45 in the District, with the remainder spread from San Francisco to Atlanta to Brussels. Regulatory work will keep some of MCI’s attorneys in D.C. and others will remain in branch offices, but with “a strong relationship back to the Ashburn offices,” Kelly says. “My inclination is that the lawyers should be where they need to be for the best support of the business and to ensure consistency and cohesiveness of the law department as a whole,” says Kelly, who adds it is an undertaking she probably will not begin to tackle until the second quarter of next year, when she plans to bring all of the company’s lawyers together for a meeting in Virginia. “They might be a little nervous,” acknowledges Kelly, but stresses that she’s committed to integrating MCI’s dispersed cadre of in-house lawyers. She also plans to review MCI’s outside counsel in 2004, a list that includes Weil, Gotshal & Manges; Simpson Thacher & Bartlett; Piper Rudnick; and Wilmer, Cutler, where Kelly was once a partner. “We’ll be adding some and not using some we’ve used in the past,” says Kelly. “Sometimes you need a big powerful Washington firm, and sometimes you don’t.” MCI declines to say how much it typically spends on outside firms. EXPERIENCE COUNTS Kelly served as general counsel of Fannie Mae from 1995 through 1999. During that time, she reorganized an in-house staff spread throughout five locations and oversaw the legal work in connection with the company’s 1996 stock split. She also cultivated a strong relationship between the company’s legal department and business operations, says Deborah House, who arrived at the mortgage financier in 1995 as associate general counsel for multifamily affordable housing. It’s a partnership that has endured at the company years after Kelly’s departure, House adds. House, who has followed the travails of WorldCom and read the Wilmer report, says Kelly “will need to go in there and bring the legal department to the forefront and reinstitute the respect that it deserves,” she says. In March 1999, Kelly was recruited as the general counsel for Sears — her first experience as the top in-house lawyer for a beleaguered company. Shortly before her arrival, the Chicago-based retailer had agreed to plead guilty to a charge of criminal bankruptcy fraud and to pay nearly $150 million to settle a class action contending that it had fraudulently increased credit card rates. Bobbie Gregg, a Sears deputy general counsel under Kelly who is now head of compliance at the Bank One Corp., says her former boss provided stability to a department that was in an extended transition period after the series of legal woes. “She solicited information in a way that made people want to provide it,” says Gregg. “She was probing but not confrontational.” Sears Chief Compliance Officer Paul Shay describes Kelly as practical and tough-minded. “She was a very effective manager and a good strategist who made very tough decisions in terms of resources,” says Shay. While at Sears, Kelly organized its lawyers into four practice areas; brought litigation, which had been largely handled by outside counsel, back in-house; and achieved what she calls “dramatic” cost savings. However, Sears’ 80-lawyer law department and Kelly’s leadership there garnered mixed reviews in the 2002 Quality of Life Survey by Corporate Counsel, a monthly magazine affiliated with Legal Times. Of the 24 Sears lawyers who responded to the survey, only 37 percent expressed “strong respect” for their law department’s management or were satisfied with their relationships with outside counsel. In 2000, Alan Lacy replaced Arthur Martinez as CEO of Sears and ousted a slew of the retailer’s top executives. By mutual agreement with Lacy, Kelly resigned in January 2003. Lacy was not available for comment. Looking forward to a year off with her husband and 14-year-old twin boys after her stint at Sears, Kelly cut short her hiatus when she was tapped by a recruiter to apply for the GC spot at MCI. When she met MCI Chief Executive Officer Michael Capellas in a marathon interview session earlier this summer, Kelly says she fell in “professional love” for the second time. (The first was with former Sears CEO Martinez, who hired her.) It follows that Kelly, who says her due diligence reporting on Capellas brought up a clean slate, places great weight on the relationship between MCI’s executives and herself. Her official start date wasn’t until Aug. 24, but Kelly cut short a family vacation in Alaska to be on hand in Ashburn when the call-routing allegations broke several weeks ago. Although she has no experience in telecom, Scott Blake Harris, name partner in the telecom boutique Harris, Wiltshire & Grannis, says that shouldn’t put her at a disadvantage. “A smart generalist can and will pick up the regulatory issues over time,” Harris says. “The best person to be general counsel is someone who has had a wide range of experience.” Kelly says she is convinced of MCI’s commitment to an ethical and compliant culture. The carrier recently hired a new president, Richard Roscitt, who joins MCI Sept. 1. His hiring marks the fifth high-level executive change at MCI in the seven months since Capellas, the former president of Hewlett-Packard, became CEO and chairman. The company, which is being investigated by the the Federal Bureau of Investigation and the Federal Communications Commission on the allegations of improper call routing, also announced plans to bring on a chief ethics officer, whom Kelly says she expects to work with closely. Early last month, MCI won approval from a bankruptcy judge to settle Securities and Exchange Commission fraud charges and pay a record $750 million fine. BUILDING BRIDGES Longtime friend and Wilmer business transactions partner Russell Bruemmer says Kelly’s previous tenures as general counsel are proof of a talent for building bridges between corporate managers and in-house lawyers. “She knows how to integrate a legal department into the business process in a way that the business people don’t resent,” says Bruemmer, who met Kelly through her husband, Tom, with whom he worked at the FBI in the late 1970s. During that time, Kelly, a Boston native who goes by the nickname Stasia, was attending George Washington University Law School. She made law review, and in 1981 graduated third in her class. Kelly jokes that despite a harried schedule now, she was even busier during law school, when she was also working full time for Lockheed Martin Corp., then the Martin Marietta Corp., on ERISA matters as part of the company’s human resources department. Kelly had expected to join Wilmer as an associate after graduation, but her plans were derailed when her husband was transferred to Dallas to head the FBI field office there. In Texas, Kelly joined 76-lawyer Carrington, Coleman, where she impressed senior lawyers as poised and not easily dissuaded. “Someone was trying to get her to change her mind on something and she looked up at them and batted her eyes and said, ‘I ain’t one of those girls,’ ” Blumenthal recalls. By 1985, Kelly and her husband had returned to D.C., he as deputy administrator at the Drug Enforcement Administration and she to Wilmer as an associate in the financial institutions group. She made partner in 1989, and found that she enjoyed managing associates. It wasn’t a glamorous mission, she says, but gave her the experience that helped pave the road to in-house work. Bruemmer wasn’t surprised that Kelly, who is a godmother to his 11-year-old daughter, took the job as MCI’s general counsel, despite the professional risks involved. And according to House at Fannie Mae, Kelly’s track record for scrupulousness could be the right medicine for MCI. House recalls a situation during Kelly’s tenure at Fannie Mae regarding a property the mortgage lender had invested in that had fallen into disrepair. Even though House says Fannie Mae didn’t have a legal obligation to make repairs, Kelly insisted that the property be brought up to par. Says House: “She has a terrific sense of what’s right to do without being on the borderline about simply the legally right thing to do.” Indeed, Kelly is already fiercely peddling the concept of a revamped MCI. “We want to return to the roots of MCI as a foundation, which is totally different from the WorldCom that has been the subject of the fraud and bankruptcy investigations,” says Kelly. “We want to do things right and will do things right. When we see something that’s wrong, we’ll fix it, and when we’re doing it right, we’ll be the first to stand up and defend ourselves.”

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