Giuliani Makes WorldCom Control an Issue

WorldCom Inc.’s incoming Chairman and Chief Executive Michael Capellas may not have realized that control of the scandal-plagued telecom giant was still up for grabs when he took the job.

With former New York Mayor Rudolph W. Giuliani’s name being tossed about as a possible chairman, some industry experts say former Hewlett-Packard Co. President Capellas might walk away if the issue of who will be chairman isn’t settled soon.

“This is a bigger-than-life soap opera and awkward for Capellas because it’s difficult to have two strong captains on the bridge, which is why Capellas left HP,” said Jeff Kagan, a telecommunications analyst.

Although Giuliani said it’s premature to talk about his candidacy for chairmanship, he said Wednesday that WorldCom should have a separate chairman and CEO. He also said that his Giuliani Partners consulting firm is advising on how WorldCom should be reorganized.

Meanwhile, Capellas, who was only named to lead WorldCom on Friday, is being quizzed less about his turnaround plan than he is about Giuliani and Giuliani’s backer, bond investor David Matlin.

Matlin reportedly wants to use his newly acquired status as one of WorldCom’s biggest stakeholders to install Giuliani as chairman. That would deny Capellas a coveted title he had been promised and would raise questions about who’s actually going to control WorldCom.

“If this issue gets to be bigger than it should be, Capellas could say, ‘I didn’t get all that was agreed to,’ and he could exit stage left,” said Frank Dzubeck, a telecom industry consultant.

One thing is certain: WorldCom’s governance and power structure is complicated and unsettled.

The company operates under the eye of two federal judges, a court-appointed monitor and a creditors’ committee. And it’s unclear who will hold the bulk of equity in WorldCom if it emerges from bankruptcy protection: Some of the creditors who own a piece of the company’s $41-billion debt are likely to get a stake.

“You have an incredibly complex kaleidoscope of governance and an incoming CEO who is wondering what in the world he’s in control of,” said Jeffrey Sonnenfeld, associate dean at Yale University School of Management.

Capellas is outlining his game plan this week in meetings with customers and employees and couldn’t be reached.