Michael Capellas was formally named Friday as the new chairman and CEO of WorldCom Inc in a move designed to bring some credibility to a company whose bankruptcy and re-statements of revenue had made it synonymous with corporate deception.
But while 48-year-old Capellas’s reign as chairman and CEO of Compaq Computer Corp has made him a figure above reproach, there have to be questions as to his judgement in wanting to head WorldCom.
It may have been humiliating for a former top executive to be number-two to CEO Carly Fiorina after the merger with Hewlett-Packard Co. But taking back market share from Dell Computer Corp would be a breeze compared with the challenge of getting WorldCom back into the black at a time when rivals are biting chunks out of its market share during a huge downturn for the industry.
WorldCom is still under Chapter 11 protection and the board has to go before a judge to get approval for the ample remuneration package necessary to lure Capellas on to the board. Not only does he have to get the company out of the scrutiny of the courts, but even with a balance sheet strengthened by a reorganization, Capellas has to find a way forward for a lumbering giant with a 60,000-strong workforce.
On his appointment, Capellas said that WorldCom was founded on a vision of the convergence of computers and the internet, and having been at the forefront of this trend, will continue to lead it. However, a CEO’s role is to make money for the investors, something that Capellas’ predecessors have signally failed to achieve. The vision that billions of computers would be exchanging data on the internet persuaded WorldCom, and just about every other carrier in the world, to invest in such an excess of capacity that the business has yet to make money.
A glance at his rivals would show Capellas the task he faces. AT&T Corp, the company WorldCom trails, reported revenue for its September quarter down 8.3% at $11.9bn, and this was buoyed up by 6.4% growth at its soon to be spun-out broadband division. In the same period, Sprint Corp’s wireline operation reported revenue down 7% at $3.8bn. Yet both these companies have been trumpeting their success in winning business off WorldCom.