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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 Tuesday 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,” 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 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 Breeden’s recommendations. “We know we have to do even more to regain public trust,” Capellas said in a statement. 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.-based 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. 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, Breeden said. Board members will not get outright stock grants, but their pay will be bumped to a relatively high $150,000 and they will be expected to spend 25 percent of that on MCI stock that they must hold until they leave the board. 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 shareholders approve. MCI also should shell out 25 percent of its net income to shareholders as dividends, 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. James Owers, a corporate structure expert at Georgia State University’s Robinson College of Business, added that having the CEO as the only executive on the board could reduce the perspectives from inside the company that board members hear, essentially giving the CEO more power. Breeden’s plan is “a dramatic improvement” for WorldCom but “clearly, it’s not without areas of potential vulnerability,” Owers said. Breeden’s report, delivered to U.S. District Court Judge Jed Rakoff, adds to the tower of investigations that have plumbed WorldCom’s misdeeds. In June, former Attorney General Richard Thornburgh and attorney William McLucas each detailed how Ebbers and other top executives enriched themselves and made questionable decisions with the help of intimidated underlings and a rubber-stamp board. The SEC cited WorldCom’s wrongdoings as it agreed to a $750 million settlement that will be paid as restitution to WorldCom shareholders. And the General Services Administration has suspended MCI from winning new federal government business. Breeden did not directly address recent allegations that MCI has manipulated its routing of long-distance calls to avoid paying access fees to local phone carriers. The complaints have led to a federal investigation. However, Breeden said MCI’s competitors “may be working in a coordinated fashion” to keep the company from emerging from bankruptcy or to force it to submit to a takeover at an “artificially low price.” MCI’s main rival, AT&T Corp., said Breeden’s description was off base. AT&T spokesman Paul Kranhold pointed out that it got involved in the call-routing allegations only after a whistleblower went to federal prosecutors, who in turn contacted AT&T. In another sign of the magnitude of WorldCom’s accounting fraud, Breeden said that in addition to the estimated $11 billion overstatement of WorldCom’s income, the company’s assets after it completes bankruptcy will be worth one-fifth of their supposed value before the scandal broke. WorldCom declared in 2002 that its assets were worth $104 billion. Of that, $45 billion was considered goodwill — value that may not ever have existed. Ultimately, Breeden wrote, WorldCom’s assets will be valued around $20 billion, meaning everything else “turned out to be accounting helium rather than tangible sources of net worth.” Copyright 2003 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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