From WorldCom to MCI

Case Study From WorldCom to MCI Satish C. Pandey* and Pramod Verma** Introduction On June 25, 2002, the world was shocked by the discovery of a $ 3.8 billion accounting fraud at leading US telecom company WorldCom Inc. This incident led to the termination of its CFO Scott Sullivan and Controller David Myers, and resulted in the biggest stock market crash at that time. Angry investors filed suits against the company in different courts and 17,000 employees lost their jobs. Later, on July 21, 2002, the company filed for the bankruptcy protection under Chapter 11 of US Bankruptcy code. Under this protection, the company was allowed to operate under court supervision and implement financial and organizational restructuring for improving its internal systems and processes. For the CEO, John Sidgmore and his executive board members, this opportunity was a silver lining behind the dark clouds. In the US market, the image of WorldCom had been tarnished, its integrity lost and faith shattered. So the board decided to carry out its operations with highest integrity and regain financial strength and focus. As a significant step to this direction, the board appointed Greg Rayburn as Chief Restructuring Officer and John Dubel as Chief Financial Officer.1 On September 10, John Sidgmore formally declared his intention to look for the new CEO to carry out the reorganization process further. On October 1, the bankruptcy court for the Southern District of New York approved WorldCom’s request to pay full severance and benefits to former employees whose severance had previously been limited under the company’s Chapter 11 filing. Also Jonathan Crane rejoined company as President, Sales and Service with responsibility for U.S. Sales, Global Accounts, Customer Service, and Business Marketing. On October 15, 2002, the Bankruptcy * Assoicate Professor, Organizational Behaviour, Mudra Institute of Communications, Ahmedabad (MICA), Ahmedabad, e-mail: satish@mica.ac.in, satishpandey_99@yahoo.com * * Professor (Retd.) of Personnel Management and Industrial Relations, Indian Institute of Management, Ahmedabad. Currently assoicated with ICFAI Business School, Ahmedabad, Gandhi Labour Institute, Ahmedabad and various other academic bodies as Honourary Professor. e-mail: pramodverma36@yahoo.co.in. The authors sincerely acnowledge Prof Sridhar Chari, Visiting Professor (Finance), MICA, Dr. Seema Gupta, Assistant Professor (Marketing Management) and Director, MICA and Rishikesha Krishnan, Professor (Corporate Strategy), IIM, Bangalore for their valuable comments and suggestions at various stages of case development. 1 Source: ‘Why WorldCom Will Thrive?’, 2002, available at www.worldcom.com Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 142 Court for the Southern District of New York approved up $ 1 billion in Debtor-inPossession (DIP) financing for WorldCom under Chapter 11. In order to revive its already tarnished image in the mindset of its customers, investors and the general public, the company launched an advertising campaign in November 2002 titled as, “WorldCom Wants You to Know”, the full story regarding the substantial financial progress toward a healthy emergence from Chapter 11, their continued exemplary service and support to customers, and important strides in the area of corporate governance.2 The Arrival of Michael Capellas On November 15, 2002 WorldCom Executive Board appointed Michael D. Capellas as Chairman and CEO. Prior to joining WorldCom, Mr. Capellas had been the former president of Hewlett-Packard Company and Chairman and CEO of Compaq Computer Corporation. This was an important milestone in WorldCom’s efforts toward a successful exit of Chapter 11. The new CEO Capellas announced his mission in a press release: Today we are launching a new company, one that will reclaim the strengths of its past and focus on a promising future. I took this job because I am convinced that WorldCom has the assets, the customers and the people to regain a leadership role in the industry. In order to do this, we must first regain trust and win respect. Accordingly, together we will rebuild WorldCom into a model of good corporate governance and management integrity. In order to support Michael Capellas in the restructuring process, majority of WorldCom Board members offered their resignations. Departing Board members included Carl J. Aycock, Max E. Bobbitt, Franceso Galesi, Gordon S. Macklin, Judith Areen, Bert C. Roberts, Jr. and John W. Sidgmore. Only recently appointed Board member remained, including Nicholas deB Katzenbach, former U.S. Attorney General, Dennis Beresford, former chairman of the Financial Accounting Standards Board, and C.B. Rogers, Jr., former chairman and CEO of Equifax. Now, there were only four members in the board, Chairman and CEO Michael Capellas and three independent directors.There was also few changes in the executive team. The new executive team is given in Exhibit 1. Moving Forward: Capellas’s 100 Days Action Plan3 On January 14, 2003, in a press release, Michael Capellas made public his key initiatives for the next 100 days. He emphasized the company’s commitment to corporate integrity 2 3 Ibid. ‘WorldCom announces key initiatives for first 100 days-Plan emphasizes new prodcuts, corporate integrity’, WorldCom Press Release, January 14, 2003. Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 143 and rebuilding trust in the marketplace, with employees and with the public. He pointed to the company’s new Board of Directors, the recent creation of a Corporate Ethics Office, an enhanced Code of Ethics, and new employee financial reporting and ethics training initiatives as examples. He addressed his employees4 : When I took this job, I committed myself to the highest ethical standards. Each member of our executive management team has made the same pledge, and we will work to institute these standards throughout the company. Everyone should know that our company will do the right thing because it’s the right thing to do. The assets are in place; our customers are supportive. We have a lot of hard work to do. Today we are injecting clear focus and an outrageous sense of urgency into the mix which will drive us to achieve great things in a short amount of time. Throughout the next 100 days, the company will launch new products appealing to both businesses and consumers. There will be a strong focus on its award-winning product, The WorldCom Connection, which is based on the convergence of the company’s voice and data networks - delivering more products to businesses for better value. On the consumer side, Capellas announced a series of initiatives to address the local and long-distance markets, including the expansion of its integrated offering, ‘The Neighborhood built by MCI’, as well as new stand-alone long-distance products. Capellas expressed his expectations that the division would generate 1 million new ‘Neighborhood’ sales and 2.5 million new consumer long-distance sales over the next 100 days. With a targeted action plan and disciplined execution, we have the opportunity to attack the marketplace like never before. We are going to equip our sales forces with the tools they need, and the products our customers want, to be successful. Our management team has the experience, vision and knowledge to lead the company forward. Today we have a fresh start; we have a plan; and we have our priorities straight - customers first, customers second, customers third. The First Milestone (February 3, 2003)5 WorldCom’s Cost Reduction Plan 4 5 ‘WorldCom to broadcast employee address by chairman and CEO Michael Capellas regarding company priorities for the next 100 days.’ WorldCom Press Release, January 14, 2003. ‘WorldCom achieves first milestone in 100-day plan’, WorldCom Press Release, February 3, 2003. Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 144 WorldCom announced its cost reduction plan targeted to reduce line costs by an additional 12.5 percent and ‘sales, general and administrative’ (SG&A) expenses by 13 percent (expected annualized cost savings up to $ 2.5 billion). This plan was focused on three major areas: • Line cost savings of $1.5 billion, primarily generated through network integration and efficiencies, improved technologies, and the renegotiation of more than 2,600 supplier contracts. • Facility consolidation, reducing total square footage by 8.7 million square feeta 26 percent reduction. The company will maintain a major presence in Alpharetta, Ga.; Ashburn, Va.; Cary, NC; Clinton, Miss.; Denver and Colorado Springs, Co.; Hong Kong; Reading, UK; Richardson, Tex.; and Tulsa, Okla., and continue to have a significant presence throughout the world. • Workforce reduction of 5,000 positions, primarily from corporate and administrative functions. The reduction does not affect the company’s quota-bearing sales force or essential Operations & Technology functions. While explaining his cost reduction plan to media, Capellas said: This plan is an important milestone in our efforts to restructure WorldCom, file our plan of reorganization in April and emerge from Chapter 11 protection later this year. The steps we are taking will not only produce significant savings for the company but will benefit our customers by optimizing network performance and eliminating redundancies. We continue to have the best service levels in the industry. While we are moving aggressively and responsibly to reduce our line costs and consolidate facilities, it is also necessary for us to reduce our workforce to meet the difficult demands of our industry and the global economy as a whole. A workforce reduction is always a difficult decision, but we are confident that our overall cost reduction plan will help us emerge from Chapter 11 and make us more competitive in the marketplace in the long run. The Second Milestone (March 13, 2003)6 Assessment of Financial Strength till December 2002 WorldCom announced that it has completed a preliminary review of its goodwill and other intangible assets and property and equipments (PP&E) accounts. This review 6 ‘WorldCom completes preliminary review of goodwill, intangibles and property equipment’, WorldCom Press Release, March 13, 2003. Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 145 resulted in the write-off of all existing goodwill and a substantial write-down of the carrying value of PP&E and other intangible assets following an impairment analysis and other adjustments in accordance with generally-accepted accounting principles (GAAP). Specifics include: • The value of goodwill reflected on the Company’s last reported balance sheet, $45 billion, is impaired and will be written off completely; and • The value of PP&E and other intangible assets reflected on the Company’s last reported balance sheet, $39.2 billion and $5.6 billion, respectively, is impaired and will be adjusted to a value of approximately $10 billion as of December 31, 2002. These adjustments reduced the Company’s depreciation and amortization expenses for December 2002 from approximately $480 million to $143 million. The adjustments also positively affected the Monthly Operating Reports filed by the Company for July through November 2002. The Third Milestone (March 17, 2003)7 Success of The ‘Neighborhood’ and ‘The WorldCom Connection’ WorldCom Inc. announced that it had achieved two important milestones for its flagship products - MCI’s ‘The Neighborhood’ and ‘The WorldCom Connection.’ On this day, ‘The Neighborhood’ was available in all 48 contiguous states plus Washington, DC, making MCI the first nationwide local Phone Company. Another flagship product ‘The WorldCom Connection’ was now available in all 94 metropolitan service areas where WorldCom had owned-local service facilities, enabling more business customers to immediately benefit from converged local, long distance and data services. Both the products, ‘The Neighborhood’ and ‘The WorldCom Connection’ were focused on offering innovative choice to customers through integrated services, single source billing and support, and unlimited use flat rate pricing. The Fourth Milestone (March 26, 2003) WorldCom declared profit first time8 WorldCom announced its operating results for the month of January 2003, showing the company profitable. During the month of January, WorldCom recorded $2.16 billion in revenue versus $2.20 billion in December 2002 and income from continuing operations of $188 million versus a loss of $47 million in December. Net income for January was 7 8 ‘WorldCom continues to deliver on 100-day plan.’ WorldCom Press Release, March 17, 2003. ‘WorldCom January 2003 monthly operating results show company profitable.’ WorldCom Press Release, March 26, 2003. Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 146 $155 million versus a net loss of $580 million in December 2002. The Completion of 100 Days Plan9 On April 14, 2003, WorldCom announced the completion of its 100 Days Plan. During the 100 days, the company implemented a number of new corporate governance measures. The company restructured its Board of Directors and installed a new leadership team. It had an active Ethics Office that, among other things, planned to conduct ethics and financial reporting training and enforce a new Code of Ethics and Business Conduct. In March, the company had achieved the target of being the first nationwide local phone company, expanding its NeighborhoodSM offering to 48 contiguous states and Washington, D.C. Also, its integrated voice, data and Internet enterprise offering, MCI AdvantageSM, more than doubled its reach to serve all 94 U.S. metropolitan areas in which MCI has owned local service facilities. The Next Move-WorldCom changed its name to MCI On April 14, 2003, WorldCom executive board announced the appointment of Robert T. Blakely as its Executive Vice-President and Chief Financial Officer, effective from the date, in place of Victoria Harker, former Acting CFO. On this date, attorneys representing WorldCom and substantially all of its active U.S. subsidiaries submitted a business plan of reorganization to its creditors and the Bankruptcy Court for the Southern District of New York. The plan included a three-year business plan outlining the future plans for WorldCom (Exhibit 2). WorldCom also changed its name from WorldCom to MCI and started mentioning the company as MCI in all documents and its webiste (www.mci.com). MCI relocated its corporate headquarters office from Clinton, Mississippi to Ashburn, Virginia (VA)10 . Corporate Governance Reforms at WorldCom (MCI) In order to establish corporate governance at MCI, Capellas and the company board implemented suggestions of Richard Breeden, Corporate Monitor of MCI Inc. In his report, ‘Restoring Trust’ Breeden suggested 78 recommendations to enforce corporate governance at MCI Inc. He strongly recommended the shift in the balance to power to the shareholders in order to save interests of large groups of shareholders. In view of WorldCom’s history, Breeden recommended strict limits on discretionary powers of the management and the board of directors. Some Key recommendations have been summarized in the Exhibit 3. As per advice of Breeden, the company board took 9 ‘WorldCom files for reorganizaiton and changes brand name to MCI.’ WorldCom Press Release, April 14, 2003. 10 Ibid. Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 147 various steps in order to enforce corporate governance. A summary of these initiatives is given in Exhibit 4. The company also formulated its corporate governance policy as per advice of Richard Breeden. Exhibit 5 presents the corporate governance policy document approved by the board of directors. Breeden, report indicated satisfaction on the progress of corporate governance reforms at MCI. In August 2003, Richard Roscitt was nominated by the company board as the President and Chief Operating Officer and the board appointed five new members and increased the size of the board to nine. These new members were W. Grant Gregory, Judith Haberkorn, Laurence E. Harris, Eric Holdner and David Matfin. It was also decided that the new board would be effective on the day; the company would emerge from Chapter 11.11 In January 2004, two more members Glenn Hutchins and Mark Neporent joined the MCI board. In March 2004, the company took a major decision when the board decided to separate roles of chairman and chief executive officer; the board elected Nicholas Katzenbach as non-executive Chairman and Capellas was assigned the role of President and CEO. Exhibit 6 presents the new corporate structure of the company after the implementation of governance reforms. In order to build an ethical work culture at MCI, Capellas created a Corporate Ethics Office, enforced a new code of ethics and started ethics training for 55,000 staff working at all levels in different US-based offices of MCI and its US-based contractors in collaboration with New York University and the University of Virginia. Capellas also enforced ‘Zero-Tolerance Policy’ dictating that any suspected violation of MCI’s Code of Ethics and Business Conduct will be fully investigated and dealt with immediately. Capellas enforced new MCI values in its work culture. These values have been given in the Exhibit 7(A). In order to enforce his Policy on Corporate Ethics, on October 14, 2003, Capellas appointed Nancy Higgins, with 10-years proven track record in designing and enforcing corporate ethics programs, as Chief Ethics Officer. Prior to joining MCI, Higgins had been Vice-President-Ethics and Business Conduct, Lockheed Martin and director of corporate ethics policy at Boeing Corporation. MCI also started a confidential ‘Ethics Hotline’ that allows employees to raise ethics or business conduct concerns. In addition to this company’s top 100 executives signed an ethics pledge committing to uphold high standards of integrity, as well as transparency in financial reporting.12 Further, in order to improve diversity throughout its business, on November 7, 2003, MCI collaborated with The Greenlining Institute, a California-based organization committed to promoting corporate diversity and philanthropy on a five-year contract. 11 12 ‘MCI appoints new board members’. MCI Press Release, August 29, 2003. ‘MCI names Nancy Higgins as Chief Ethics Officer’, MCI Press Release, October 14, 2003. Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 148 Under terms of this contract, MCI agreed to spend US $ 15 million in philanthropic activities for benefiting racial and ethnic minority groups, low income and underserved communities in California and setting up a minority consumer council. MCI also committed to maintain racial, ethnic and gender diversity in its workforce as well as suppliers and vendors. It set up its primary goal to award at least 25 to 30 persent of its contracts to vendors of different minorities and will try to make it possible including up to 50 persent of board positions to minorities. MCI and Greenling also decided to check the performance of the company in relation to achieving its goals on a semiannual basis. Exhibit 7 (B) presents MCI’s commitment to managing diversity at all levels. External Challenges to the Reorganization Process at WorldCom WorldCom’s reorganization process was full of hurdles. In April 2003, its CEO Michael Capellas struck a deal with bondholders to slash the company’s debt from $41 billion to $ 5 billion for equity.13 In May 2003, WorldCom agreed to pay $ 500 million against the proposed fine of $ 1.51 billion.14 Further, in July 2003, federal Judge Jack Rakoff approved MCI’s plan to settle fraud charges by paying $750 million to SEC ($ 500 million in cash and $ 250 million in common stock). On July 28, AT & T alleged MCI for violating federal anti-racketeering laws. Rivals (including AT &T, SBC and Verizon) alleged that MCI had avoided hundreds of millions of dollars in fees over a decade by disguising long-distance calls as local calls or as calls originated by a long-distance competitor AT &T.15 MCI’s rivals lobbied together to influence SEC and federal court to liquidate MCI. Rivals also alleged that reducing WorldCom’s debt from $41 billion to $5 was an easy way out to the company.16 Besides, the consumer longdistance business was declining at the rate of 10% in 2003 and MCI’s profit margin was just 15% as compared to 26% in case of AT&T. Under these tough conditions, Capellas had plan to maintain 4.5% growth rate for his $ 24.6 billion worth company.17 In August 2003, criminal charges were filed against the company and its former management led by Ebbers. These legal troubles delayed the bankruptcy process because of there were many cases in different states against the company.18 In October 2003, bankruptcy court Okayed MCI’s reorganization plan and in November 2003, 13 ‘For Mike Capellas’s next trick…’. Business Week, May 26, 2003.p. 92-93. ‘WorldCom agrees to pay $ 500 million: Settlement with SEC would benefit investors’, May 20, 2003, Source: www.washingtonpost.com) 15 ‘MCI is under a new cloud, but it can weather the storm’. Business Week, August 11, 2003. p. 31. 16 ‘WorldCom must still fix ‘material weaknesses’-SEC’, June 6, 2003. Reuters. ‘Judge approves record WorldCom settlement’, July 7, 2003. Reuters. 17 ‘For Mike Capellas’s next trick…’. Business Week, May 26, 2003.p. 92-93. 18 ‘MCI legal troubles mount; bankruptcy complicated’. August 27, 2003. Reuters 14 Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 149 MCI successfully completed acquisition of Digex Inc. In February 2004, MCI and AT&T settled an out-of-court resolution. The agreement included resolution of AT&T’s call routing claims against MCI and MCI’s dismissal of its contempt of court motion against AT&T.19 In March 2004, MCI settled reversal of criminal charges filed by Oklahoma Attorney General Edmondson in August 2003.20 Under Capellas’s regime, MCI had been successful in retaining many of its customers including federal departments, state departments and other corporations. Despite all these external challenges, Capellas managed to achieve the target of Chapter 11 exit in a period of seventeen months (As per original reorganization plan, the company had set target to exit from Chapter 11 by July 2003.). A brief chronology of all major events in relation to accounting scandal, bankruptcy and recovery process is given in the Exhibit 8. To look further into the whole picture, the consolidated financial data regarding company’s operating expenses (from July 2002 to December 2003) are given in Exhibit 9. The consolidated historical annual data (from 1997 to 2001, as per company’s annual report of the year 2001) are given in Exhibit 10. Court Cases against Ebbers, Sullivan and Others On June 9, 2003, two independent monitors, the internal investigator appointed by WorldCom, William McLucas (former Enforcement Director, SEC) and the courtappointed examiner Richard Thournburgh released their investigative reports on the accounting fraud. These reports charged the former CEO Bernard Ebbers and the former CFO Scott Sullivan, and also two new names-Treasurer Susan Mayer and Michael Salsbury, General Counsel. After disclosure of these reports, Mayer and Salsbury resigned from their posts. On this issue Capellas said, “no one even arguably associated with the past wrongdoing continues to work at the company”.21 These reports charged Mayer and Salsbury for preparing improper loan documents to seek loans from bankers. These documents presented distorted picture of WorldCom’s financial health, for example-these documents didn’t mention anything about $ 408 million loan given by the company to Ebbers.22 On August 2003, first time the Oklahoma Attorney General W.A. Drew Edmondson filed criminal charges against Bernard Ebbers, Scott Sulliavan and four others David Myers (former Controller), Buford Yates (former Director, General Accounting), Betty Vinson (former Director, Management Reporting) and Troy Normand (former Director, 19 ‘AT&T, MCI Agree to Resolve All Claims Against Each Other’, MCI Press Release, February 23, 2004. ‘MCI Statement on Settlement with Oklahoma Attorney General’, MCI Press Release, March 12, 2004. 21 ‘WorldCom Treasurer, Counsel resign’. June 11, 2003. Reuters 22 ‘WorldCom Treasurer filed improper documents-report’. June 10, 2003. Reuters 20 Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 150 Legal Entity Accounting) for fraud, conspiracy and making false statements about the financial health of WorldCom. Edmondson also said to media, “I don’t think this company has been punished, I think it has been rewarded for its bad acts and I intend to prosecute it criminally”.23 On September 3, 2003, Ebbers pleaded himself not guilty in the Okalhoma court.24 Scott Sullivan, the ex-CFO, and other four admitted to court on filed charges of accounting fraud and started supporting the court.25 On the other side, Citigroup and its star financial analyst Jack Grubman, were also charged by angry investors with misleading them in relation to WorldCom stocks. Citigroup settled state and federal regulatory charges by paying US $ 400 million towards the US $ 1.4 billion industrywide settlement brokered between Wall Street and regulators. Grubman paid US $ 15 million and was barred from securities trading and research for life as part of his settlement.26 Later, Citigroup also settled another class-action suit with WorldCom shareholders by paying them US $ 2.7 billion, against the charges of misleading investors with tainted research.27 As a lesson from WorldCom fraud, Citigroup separated its research arm from investment banking, stopped allocating IPO shares to executives at public companies, and instituted other policies to avoid even the appearance of conflict of interest28 In his report released in January, 2004, Thornburgh clearly pointed his finger to Bernard Ebbers (the former CEO), Scott Sullivan (the former CFO), Arthur Andersen (the formal external auditor) and Citigroup’s Investment Research arm (Salomon Smith Barney) in relation to the accounting fraud and financial loss to WorldCom investors. The report also accused the current auditor KPMG of helping WorldCom avoid US $ 100-350 million in state taxes from 1998-2001. On this issue, both MCI and KPMG justified MCI’s tax-saving strategy as being very commonly used by other companies too. The report also suggested that MCI could sue its former CEO, CFO, Citigroup, Andersen and others in relation to accounting fraud.29 The Emergence April 20, 2004 was perhaps the greatest day in the history of WorldCom when its CEO Michael D. Capellas announced its emergence from chapter 11 bankruptcy protection and the new company was now officially designated as MCI Inc.23 ‘Oklahoma charges MCI, ex-CEO with fraud’. August 27, 2003. Reuters. ‘Ex-WorldCom CEO Pleads Innocent to Fraud’. September 3, 2003. Reuters. 25 ‘Oklahoma charges MCI, ex-CEO with fraud’. August 27, 2003. Reuters.; ‘Ex-CEO Ebbers charges in WorldCom Scandal’. Reuters, March 3, 2004. 26 ‘Investors win arbitrations against Grubman on WorldCom’, Dow Jones Newswires, 04-15-041519ET) 27 ‘Rainy Day-Citigroup settles a class-action suit with WorldCom shareholders’, Economist, May 15, 2004, Vol. 371, Issue 8375 28 ‘MCI can sue former CEO, Citigroup, others’. January 27, 2004, Reuters. 29 Ibid. “Spotlight on KPMG”. January 27, 2004. Reuters. 24 Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 151 MCI turnaround is a tribute to human spirit and the amazing will of our 50,000 dedicated employees. We are emerging with a new board and management team, a sound financial position, unmatched global assets, a strong customer base and industry-leading service quality. This is a symbolic day for MCI employees, who have remained committed to serving our customers. I feel a great sense of pride for all we’ve accomplished together: Capellas said further: The telecommunications industry is going through a period of transformation. Increased competition, wireless displacement, regulatory restrictions and technological changes make for a tough industry climate. Despite seismic shifts in the telecom industry, Internet usage is still increasing, people are communicating more often and in more ways and computing and communications are converging. This convergence unquestionably plays to MCI’s core strengths. The real winner will be whoever is able to provide simple, converged products and services that can manage digitized content on a global IP network securely and reliably,” said Capellas. “MCI is uniquely positioned to do just that, with an end-to-end global communications network spanning 150 countries on six continents.” Our emergence is not a finish line; it’s the beginning of a new race. Somewhere between telecommunications and computing there’s a new kind of company, and that’s what MCI will be.30 The company also claimed in the press release that it had now support of big corporate customers like DaimlerChrysler, NASDAQ, Emerson, Hughes Supply and Siebel Systems, to name a few.31 On April 29, 2004, the renovated company, MCI released its audited report for the year 2003, stating $ 27.3 billion revenue compared to $ 32.2 in 2002 and net income of $ 22.2 billion in 2003 as compared to net loss of $ 9.2 billion in 2002. The company also reported cash and equivalent of $ 6.2 billion and long term debt of $ 4.7 billion as on December 31, 2003 while stating about its good financial health now.32 The consolidated historical financial statements from 1998 to 2003 are given in Exhibit 11. 30 31 32 ‘MCI Emerges From U.S. Chapter 11 Protection’, MCI Press Release, April 20, 2004. Ibid. MCI Files Audited Financial Statements for 2003’, MCI Press Release, April 29, 2004. Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 152 Case Questions • Has Michael Capellas achieved his goal to transform MCI as a model of good corporate governance and an “ethical company”? • Can MCI be attributed now as an “ethical company”? • In this context, what are next challenges for Capellas now and what further actions does he need to take in order to strengthen corporate governance at MCI and make it an “ethical company”? Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 153 EXHIBIT 1 Top Executive Team of WorldCom: (as on January 14, 2003) Michel D. Capellas, Chairman and CEO A 26-year veteran of the information technology business and former president of Hewlett-Packard company. Cindy K. Andreotti, President, Business Markets She oversees all U.S. Sales, Global Accounts, Customer Service and Global Solutions for WorldCom, Inc. Andreotti leads the sales and service efforts for WorldCom’s U.S. sales and Global Accounts organization, which includes the company’s largest multinational corporate customers who demand some of the industry’s most complex, advanced network solutions. Seth Blumenfeld, President, WorldCom International He is responsible for directing the company’s international affairs, including the dayto-day operations of the company’s international offices as well as its international correspondent services offerings. Fred Briggs, President, Operations and Technology He oversees WorldCom’s seamless global IP and data network and the engineering and information systems teams that power that network. His organization develops WorldCom’s generation d products; uses voice portals, wireless data, IP VPNs, and WorldCom’s global IP backbone to design efficient communications solutions for customers; and ensures that the network stays robust and reliable. Daniel Casaccia, Executive Vice President, Human Resources She leads WorldCom’s HR operations and defines its HR policies for the company’s 60,000 employees worldwide. His organization assists employees as they navigate human resources programs including compensation and benefits, training and development and corporate HR policies Jonathan Crane, Executive Vice President, Strategy and Marketing In this new role, he will identify strategic opportunities and technologies that help WorldCom build its business. In addition, he is responsible for corporate development, corporate branding, and advertising as well as internal and external communications. Previously, he served as president of Business Markets for WorldCom Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 154 Victoria Harker, Acting Chief Financial Officer Previously, she served as senior vice president of Finance for WorldCom’s MCI division, managing all financial planning, business development and analysis functions as well as Information Technology and Operations of MCI. Wayne Huyard, President, MCI Mass Markets During his 18-year tenure, Huyard has achieved industry-leading consumer market share growth and was a force behind the unit’s most compelling product achievements including Friends & Family, 1-800-COLLECT, 10-10-220, 5¢ Sundays, and now The Neighborhood. Michael Salsbury, Executive Vice President and General Counsel As the company’s chief legal officer, Salsbury leads WorldCom’s domestic and international legal, regulatory and legislative efforts. Grace Chen Trent, Chief of Staff (Source: ‘WorldCom announces key initiatives for first 100 days-Plan emphasizes new prodcuts, corporate integrity’, WorldCom Press Release, January 14, 2003.) Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 155 EXHIBIT 2 Highlights of the three-year business plan as submitted by WorldCom (new name MCI) on April 14, 2003 to US bankruptcy Court Technology is redefining the way we communicate and share information, shifting the focus from traditional services to Internet (IP) enabled services. With one of the world’s largest, most sophisticated and reliable Internet backbones, we will lead the industry’s transformation into converged services, providing customers operational and economic efficiencies through simpler, cost effective products and services. Our Key Strategies • We will deliver customer-centric solutions centered on IP-enabled services. This means converging all legacy networks into a single backbone. • We are leveraging our global IP reach to deliver superior quality of service necessary to capture a significant piece of the IP-enabled services market. • We will use retail and wholesale models to attack the enterprise, small and medium business, and consumer markets. • We will set new standards to drive operational and business performance. • We are working diligently to become a role model for corporate governance witness our new management team and board, enhanced Ethics Office, code of ethics and ethics training, and financial reporting training. Our Competitive Advantage • We are the leader in data services, the largest international voice carrier and we own one of the world’s most complete IP backbones. MCI offers an unsurpassed range of Internet products and services. • Our network development is complete, and we have the necessary capacity to fully satisfy the needs of our customers for the foreseeable future. • We offer a well-defined product road map to meet demand for a broad scope of solutions. • We have a global footprint, providing service in more than 140 countries on six continents. • Our superior network optimization skills enable us to offer a unified standardsbased environment that allows delivery of common services to any customer, Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 156 independent of where they are located or how they are connected to the network. • We have a world-class sales force, responsive to all customer needs, and our quality of service is second to none. Our Customers • We will continue to leverage our global network infrastructure to deliver innovative, cost-effective products and services to our customers. By targeting different markets with relevant bundles, we will lower our customers’ total cost of ownership. • We will address the consumer marketplace through our integrated local and long-distance offering, The Neighborhood. The offering is profitable, growing and taps into the $40 billion-a-year residential local service market. • We will address the business marketplace through our integrated voice, data and Internet offering MCI Advantage. Through MCI Advantage, we will continue to penetrate the revenue and profit-rich small- and medium-sized business market. Our Financials • Our Plan for Reorganization is solid. We will retain all our core assets and expect to emerge from Chapter 11 protection later in 2003. • Our revenue is stable month-over-month and our cash balances continue to increase. Our focus will continue to be on profit, not pure revenue growth. • Our existing customers have remained loyal and we have continued to win new business. (Source: http://global.mci.com/news/infodesk/forward/bizplan/) Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 157 EXHIBIT 3 Some Key Recommendations of Richard Breeden in “Restoring Trust” 1. The board should establish a governance constitution for the company. 2. The board should establish “free and open communication” with its shareholders. The company should establish an “electronic town hall” for shareholders where they can openly express their issues and concerns. 3. At least one new director should be elected in the board every year. 4. The board should play an active and independent role in company affairs. The CEO should not be allowed to sit in other corporations’ boards and other board members shouldn’t be allowed membership of more than three other boards. 5. The company should create the position of non-executive chairman of the board. The role of the chairman is more focused on board affairs than the management of the company. The CEO will be fully responsible for all management decisions, subject to board oversight. 6. The board should constitute audit committee, governance committee, compensation committee and risk management committee. The CEO will not be the part of any of these committees, so each committee is composed of independent directors. 7. The maximum term for a board director should be 10 years. In addition, independent auditors of the company will also be limited to a maximum term of 10 years. 8. The board should set up the maximum and minimum compensation limits for its directors and executives. For executives, it recommended the cap of $ 15 million per annum without shareholders’ approval. 9. Stock options should be barred for a five-year period and thereafter, shareholders’ consent is required to award or not to award stock options to board members or company executives. 10. The company should intensify efforts to develop disclosure practices that will result in transparency of financial information beyond SEC requirements. The company should strengthen its internal audit system. 11. The role of the General Counsel’s office is to be strengthened and Ethics Programs Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 158 to be continued and enhanced. The existing Ethics Pledge should be extended to all employees of the company. Training for employees in ethics, disclosure requirements, and accounting issues should be enhanced and assessment of the company’s diversity programs should be performed. 12. The recommendations propose limits on the types of change in control devices that can be utilized, assuming that board determines to adopt any such provisions. In seeking excellence, it is critical to establish and to maintain the most healthy balance among the legitimate interests of management, the board, shareholders and other stakeholders including employees. That balance has to be struck in a manner that encourage a strong and high quality board, and an outstanding management team that can pursue business success but also understand and respect limits. Source: Richard Breeden, “Restoring Trust: Report to the Hon. Jed S. Rakoff, The United States District Court for the Southern District of New York on Corporate Governance for the Future of MCI Inc.”, August 2003, Executive Summary, pp. 1-11 Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 159 EXHIBIT 4 Summary of initiatives taken by WorldCom in order to restore corporate governance as per Breeden Report Setting the Tone at the Top: • Recruited a new CEO known for his high-level of integrity and ability to lead by his forthright actions • Recruited a new President and COO, who has more than 25 years of telecom experience • Recruited a new CFO, General Counsel, and director of internal controls, all of whom came from outside the company • Appointed an entire new board of directors: Nicholas Katzenbach, former U.S. Attorney General and former Under Secretary of State; Dennis Beresford, Professor of Accounting at the Terry College of Business at the University of Georgia and a former chairman of the Financial Accounting Standards Board; and C.B. Rogers, Jr., former CEO and chairman of Equifax. MCI recently announced five additional, highly capable individuals who will join the Board of Directors when MCI emerges from bankruptcy: former Touche Ross Chairman W. Grant Gregory; retired Bell Atlantic executive Judith Haberkorn; Patton Boggs Partner Laurence Harris; former U.S. Deputy Attorney General Eric Holder, and MatlinPatterson Global Advisors LLC CEO David Matlin. Bolstering Internal Controls: • Initiated a thorough review of internal controls to strengthen MCI’s systems and procedures for capturing and reporting financial data. Developed a widespread program to correct deficiencies and create a much stronger system. • Initiated a widespread and intensive review of the accounting fraud, led by three new directors. Also funded a separate, thorough investigation by the Bankruptcy Examiner and responded to his findings concerning wrongful activities of different types. • Consented to the establishment and continuation of the Corporate Monitor program, which represents an unprecedented level of independent oversight of management activity • Agreed to abolish the use of stock options in favor of restricted stock with full expensing of the value of equity grants on the company’s profit and loss statement Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI • 160 Launched an aggressive program to correct the deficiencies discovered by KPMG’s review of the company’s internal accounting and financial controls Communicating the Importance of the New Culture through Ethics Education: • Established critical benchmarks in conjunction with Ethics Officer Association to guide the design of its ethics program • Established an active Ethics Office and intend to double the size of the staff, to be lead by an experienced Chief Ethics Officer • Created and distributed MCI’s Code of Ethics & Business Conduct to all employees • Developed and distributed MCI’s Guiding Principles to all employees • Established and encourage an Open-Door Policy between management and employees • Implemented a “Zero-Tolerance Policy” that dictates that any suspected violation of law, corporate policy or the Code of Conduct will be fully investigated by management and dealt with accordingly • Company worked with education leaders to develop an ethics education program – all 50,000 MCI employees will participate in the program • Put in place a new Ethics Pledge program pursuant to which senior officers including the CEO pledge to pursue ethics and integrity, compliance programs, and transparency and candor in financial reporting well beyond SEC requirements • Established a confidential Ethics Hotline as well as an e-mail address and case management database • Developed vehicles to regularly communicate ethics message and MCI’s guiding principles to all employees, customers, and other key audiences Focusing on Financial and Accounting Controls: • Retained a new outside auditor, and commissioned a complete restatement of 1999-2002 earnings reports • Instituted a training program for employees on their responsibilities under the federal securities laws, accounting issues that may signal inappropriate behavior or fraud, and ethical issues • Entered into a financial settlement with the SEC under which $500 million in Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 161 cash and $250 million in stock will be paid into a trust for victims. The settlement was approved by both the U.S. District Court and by the Bankruptcy Court. • Retained Deloitte & Touche to help implement accounting and financial controls • Hired more than 400 new finance and accounting personnel (Source: http://global.mci.com/about/governance/values/actions.xml) Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 162 EXHIBIT 5 MCI,INC. CORPORATE GOVERNANCE GUIDELINES These Corporate Governance Guidelines were adopted by the Board of Directors of MCI, Inc. on January 22, 2004. These Guidelines are intended as a component of the flexible framework within which the Board, assisted by its committees, directs the affairs of the Company. While it should be interpreted in the context of all applicable laws, regulations and listing requirements, as well as in the context of the Company’s Certificate of Incorporation and By-laws, it is not intended to establish by its own force any legally binding obligations. Note that some of the provisions included in these Guidelines are mandated by the Certificate of Incorporation and/or the By-laws. They are restated herein for the convenience of the Board. The Board will review these Guidelines and other aspects of MCI governance in light of evolving “best practices” and legal and regulatory requirements annually or more often if deemed necessary. I. ROLE OF THE BOARD The Company’s business is conducted by its officers and other employees, under the direction of the Chief Executive Officer and the oversight of the Board, to maximize the long-term value of the Company for its shareholders. Both the Board and management recognize that the long-term interests of shareholders are advanced by maintaining the highest standards of ethics, integrity and fairness and responsibly addressing the concerns of other interested parties including employees, customers, suppliers, government and regulatory officials, communities and the public at large. II. FUNCTIONS OF THE BOARD The Board is elected by the shareholders to provide independent, active and diligent oversight of, and to provide an effective check on, management. The Board also serves as an advisor to management and provides a forum for management to discuss and test ideas. In carrying out its general oversight and advisory role, the Board performs a number of specific functions, including: a. providing advice and counsel to the CEO and principal senior executives; b. selecting, regularly evaluating, fixing the compensation of, and, where Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 163 appropriate, replacing the CEO and executive officers; c. overseeing CEO succession planning and the professional development of the Company’s officers and senior executives; d. overseeing the conduct of the Company’s business and strategic plans to evaluate whether the business is being properly managed; e. reviewing and approving the Company’s financial objectives and major corporate plans and actions; f. reviewing and approving major changes in the applicable auditing and accounting principles and practices; g. providing oversight of internal and external audit processes, internal controls and financial reporting in the interests of full, fair, accurate, timely and understandable disclosure of the Company’s periodic reports filed with the Securities and Exchange Commission (the “SEC”); h. providing oversight of risk assessment and protection processes and processes designed to promote compliance with all applicable laws and regulations; i. ensuring processes are in place to promote honest and ethical conduct throughout all levels of the Company; and j. performing such other functions as the Board believes appropriate or necessary, or as otherwise prescribed by rules or regulations. The Directors recognize that in carrying out these responsibilities, they have obligations individually and collectively as the Board to pay careful attention and be properly informed. Directors must devote significant time and attention to carry out their duties and responsibilities effectively. Directors are expected to attend and actively participate in all Board meetings and meetings of Board committees on which they serve and to adequately prepare for such meetings in order to bring their knowledge and experience to bear on the issues discussed. III. ETHICS AND CONFLICTS OF INTEREST The Directors recognize that candor and the avoidance of conflicts in fact and in perception are hallmarks of the accountability owed to the shareholders. Directors have a personal obligation to disclose a potential conflict of interest to the Chairman of the Board prior to any Board decision related to the matter and, if the Chairman of the Board in consultation with legal counsel determines a conflict exists or the perception of a conflict is likely to be significant, to Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 164 recuse themselves from any discussion or vote related to the matter. Directors are expected to possess and exhibit the highest personal and professional ethics, integrity and values, together with the character and will to constructively challenge, and act independently of, management when appropriate. IV. SEPARATION OF CHAIRMAN AND CEO The positions of Chairman and CEO are separate, with the Chairman qualifying as an Independent Director, as defined in Section VIII of these Guidelines. V. FORMAL EVALUATION OF THE CEO The Chairman of the Board and the Nominating and Corporate Governance Committee shall undertake an annual performance evaluation of the CEO and report findings and recommendations to the Board in Executive Session (as defined below). The evaluation shall be based on objective criteria including performance of the business, accomplishment of long-term strategic objectives, development of management and compliance with the obligations of the CEO’s employment contract. After Board discussion in Executive Session, the Chairman of the Board and the Chairman of the Nominating and Corporate Governance shall communicate the Board’s conclusions to the CEO. The evaluation shall be used by the Compensation Committee in recommending for Board approval the CEO’s compensation package. VI. SUCCESSION PLANNING AND MANAGEMENT DEVELOPMENT The CEO shall report annually to the Board on long-term succession planning and a full Board discussion shall be had, including in an Executive Session. In addition, the Chairman of the Board and the CEO shall agree on a plan as to interim succession in the event the CEO should be unexpectedly rendered unable to serve. The CEO shall also report annually to the Board on the Company’s program for the professional development of key executives and members of the management team. This report should be given to the Board at the same time as the succession planning report noted above. VII. BOARD SIZE AND COMPOSITION The Board shall be composed of not less than 8 nor more than 12 Directors, including the CEO. All Directors other than the CEO shall qualify as “Independent Directors” pursuant to the definitions set forth in Section VIII of these Guidelines. VIII.DEFINITION OF INDEPENDENCE The term “Independent Director” shall mean a Director whom the Board Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 165 affirmatively determines has no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a material relationship with the Company), subject to any applicable listing rules of a national securities exchange or a national securities quotation system (any such rules, “Listing Rules”), the Certificate of Incorporation and the Bylaws. A Director cannot qualify as “independent” if he or she: a. is currently or within the past five calendar years has been an employee of the Company or of any parent or subsidiary of the Company; b. has been elected to the Board after the Effective Date and (i) currently receives, or within the past three calendar years has received, any form of direct or indirect compensation as an employee or as any outside consultant or other professional retained by the Company other than standard fees for Board service; or (ii) currently serves or within the past three calendar years has served as an officer, director, partner or employee of any firm (including but not limited to a firm providing independent audit services, as well as other professional services firms) to which the Company or any subsidiary of the Company has made, or from which the Company or any subsidiary of the Company has received, payments that exceed the greater of 1% of the revenues or $200,000 for either firm during the current calendar year or any of the previous three calendar years, excepting payments for the purchase of telecom or other services from the Company at rates negotiated at arms’ length, and so long as the individual played no role in negotiating such transaction; c. serves as an officer of any company on whose board an officer of the Company or any subsidiary of the Company sits; d. is an officer, director or employee of a non-profit organization that has received donations in excess of $100,000 during the current calendar year or any of the previous three calendar years, unless grants to a university shall have been exempted from this requirement by the Board’s Nominating and Corporate Governance Committee after a review to determine the business purpose of grants to the particular institution; e. within the past five calendar years: (i) has served as an elected official and received political contributions from the Company or the CEO or the Chief Operating Officer of the Company or the Chief Financial Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 166 Officer of the Company; (ii) has served as a senior member of any regulatory body with authority over the Company or any subsidiary of the Company; (iii) has had responsibility for any government contracting relationship with the Company or any subsidiary of the Company; or (iv) has served as a governor or member of a political executive body or a legislative body or committee thereof with jurisdiction to enact laws governing the Company or subsidiary of the Company or their business operations; f. has had any personal commercial transactions with the CEO within the past ten calendar years, or serves or has served as an officer, employee, partner or owner of any organization that has been involved in any such personal commercial transactions with the CEO during the past five calendar years, except for routine retail or consumer transactions negotiated at arms’ length, or other relationships specifically approved by the Board; g. has previously served as the CEO; or h. is a spouse, parent, child, sibling, mother-in-law, father-in-law, son-inlaw, daughter-in-law, brother-in-law or sister-in-law or anyone (other than a domestic employee) who shares the home of any individual listed in (a) through (g) above. IX. ADDITIONAL QUALIFICATIONS OF DIRECTORS The Nominating and Corporate Governance Committee is responsible for reviewing with the Board, on an annual basis, the independence as well as the appropriate skills and characteristics required of Directors in the context of the current needs and make-up of the Board and in accordance with the Certificate of Incorporation and By-laws. This assessment should include issues of judgment, diversity, age, skills and other qualifications – all in the context of an assessment of the perceived needs and make-up of the Board at that point in time. Each Director shall possess at least one of the following skills, experiences or types of expertise at the time of election: financial or accounting expertise; telecommunications or technology expertise; senior management experience with a major company; experience with federal or state government agencies or contracting practices; marketing or strategy and planning expertise; training in ethics; regulatory experience; or any other skills or expertise that the Nominating and Corporate Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 167 Governance Committee shall deem to be beneficial to the Company. Directors must satisfy the following qualification standards upon election and continuously thereafter: a. all Independent Directors shall at all times satisfy the standards of independence as set forth in Section VIII of these Guidelines; b. no Director shall have been found to have committed any violations of fiduciary duties to the Company or any subsidiary of the Company; c. at least 75% of the Directors shall each have a minimum of three years cumulative experience serving on the board of directors of a publicly traded company that possessed a minimum threshold of equity market capitalization, revenue or assets of $500 million at the time of such service. The Nominating and Corporate Governance Committee may waive this requirement if it determines that an individual has comparable experience with governance issues that will be valuable to the Company, such as through academic study or government service. d. all Directors shall be free of conflicts of interest, consistent with the Certificate of Incorporation, By-laws and any applicable Corporate Policy (as defined in the Certificate of Incorporation); e. the CEO of the Company shall not serve on any board of directors of any other for-profit corporation (either publicly traded or privately held), but may serve on the board of directors of a not-for-profit company, with the prior consent of the Nominating and Corporate Governance Committee; f. no Independent Director shall serve on more than two other boards of directors of publicly held companies, without the prior consent of the Nominating and Corporate Governance Committee; provided, however, that any Independent Director who holds the position of chief executive officer or other senior corporate officer of a company may not serve on the board of directors of more than one other public company, including that of such director’s own employer; and g. all Directors shall be in compliance with the Company’s mandatory director stock investment policy as set forth in an applicable Corporate Policy. Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 168 X. DIRECTOR SELECTION The Board is responsible for recommending Director nominees for election by the shareholders, in accordance with the Certificate of Incorporation and By-laws. The Board has delegated the screening process to the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee is developing a procedure for the solicitation of nominations for Board vacancies from the Company’s ten largest stockholders (or such greater number as may be necessary to represent at least 15% of the outstanding shares of Common Stock) in accordance with the Certificate of Incorporation and By-laws. Invitations to serve on the Board shall be extended by the Board itself via the Chairman of the Board and the Chairman of the Nominating and Corporate Governance Committee. XI. DIRECTOR ORIENTATION AND EDUCATION The Nominating and Corporate Governance Committee and the Company shall provide a complete orientation for new Directors that includes background materials, meetings with senior management, visits to Company facilities and such other training as determined by the Nominating and Corporate Governance Committee. The Nominating and Corporation Governance Committee shall also provide or approve annual continuing education courses for Directors, which shall address topics such as accounting, disclosure, governance, compensation and/or industry developments. Each director shall visit at least one facility of the Company annually, independently of any Board meetings held at such facilities. XII. LIMITS ON OTHER ACTIVITIES By serving on this Board Directors have agreed to limit the number of other boards on which they serve in accordance with paragraphs (e) and (f) of Section IX of these Guidelines. Directors should advise the Chairman of the Board, the Chairman of the Nominating and Corporate Governance Committee, the General Counsel and the Ethics Office in advance of accepting any invitation to serve on another board, to ensure that the agreed limit is not surpassed and to ensure that significant conflicts of interest, antitrust issues or a failure of independence are unlikely to arise. Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 169 XIII. CHANGES IN JOB RESPONSIBILITY If a Director has a change in status, either through a change in employer or employment status, or due to a material SEC or other government investigation or prosecution that involves that Director as a target or subject, the existence of a conflict of interest involving such Director prohibited by a Corporate Policy, violation of any fiduciary duty by such Director or other material change in status (including a change relating to the requirements of Sections VIII and IX of these Guidelines), such Director shall inform the Chairman of the Board, Chairman of the Nominating and Corporation Governance Committee, General Counsel and Chief Ethics Officer of such change in status and tender his or her resignation to the Board. The Board, meeting outside the presence of the Director in question, shall determine whether or not to accept the tendered resignation (subject to the requirements of Sections VIII and IX of these Guidelines). XIV. TERM AND AGE LIMITS; MANDATED VACANCY No Director first elected after the Company’s Effective Date (as defined in the Certificate of Incorporation) may serve as a Director for more than ten years, or past the age of 75. The Board has delegated to the Nominating and Corporate Governance Committee the task of ensuring that each calendar year beginning January 1, 2005 at least one vacancy occurs —either through the natural impact of term and age limits set forth herein, voluntary resignations or through a reasonable procedure — so that every year a qualified individual who has not served as a director of the Company or any of its subsidiaries or their predecessors within the preceding five years can be elected to the Board, as set forth in the Certificate of Incorporation and By-laws. XV. REGULAR EXECUTIVE SESSIONS OF INDEPENDENT DIRECTORS At each meeting of the Board, the Independent Directors shall meet without members of management present (an “Executive Session”) for some period of time to be determined by the Chairman of the Board, or by consensus among the Independent Directors, to provide Independent Directors the opportunity to discuss issues related to management performance and any other matters they choose. XVI. ANNUAL BOARD AND CHAIRMAN EVALUATIONS Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 170 The Nominating and Corporate Governance Committee shall undertake annually to engage the Board in an evaluation of the Board’s performance including a discussion of the results in a full Board meeting. This evaluation includes consideration of the Board’s contribution as a whole and areas in which the Board and/or management believe improvement could be had. In addition, the Nominating and Corporate Governance Committee shall lead the Board in evaluating the Chairman of the Board annually. This evaluation shall be communicated to the Board Chairman by the Chairman of the Nominating and Corporate Governance Committee. XVII. CORPORATE GOVERNANCE GUIDELINES The Nominating and Corporate Governance Committee shall review these Guidelines periodically and recommend amendments to the Board as necessary. These Guidelines shall be communicated to the Company’s shareholders through the Company’s site on the World Wide Web. XVIII. BOARD COMPENSATION Each Director receives a retainer of $150,000 per year with additional compensation paid for Board committee service. Any modifications in Board compensation should come at the suggestion of the Compensation Committee in consultation with the Nominating and Corporate Governance Committee, but upon discussion with, and concurrence by, the full Board. XIX. BOARD MEETINGS, AGENDAS AND MATERIALS The Board shall schedule at least eight regular meetings per year, not including short special purpose telephone meetings. At least two of such regular meetings shall be held at locations where the Company has facilities other than the principal executive offices of the Company, and one such meeting shall constitute an annual strategic retreat designed to cover the major areas of the Company’s business. Once a year, the Board shall receive a “State of the Company” presentation from the CEO. The Chairman of the Board, in consultation with the CEO, establishes the agenda for each Board meeting. Together, they issue a schedule of agenda subjects to be discussed for the ensuing year at the beginning of each year (to the degree these can be foreseen). Each Director is free to suggest the inclusion of item(s) on the agenda. Information and data that is important to the Board’s understanding of the business is distributed in writing to the Board, usually not less than one week Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 171 before the Board meets. This material should be concise and provided in a timely manner. As a general rule, Board meeting time is reserved for discussion. Presentations on specific subjects are sent to the Directors in advance so that Board meeting time may be conserved and discussion time focused on questions that the Board has about the material. However, it is recognized that there may be rare occasions in which the subject matter is too sensitive to put on paper or time is of the essence, such that a fuller presentation is required. XX.BOARD INTERACTION WITH SENIOR MANAGERS Directors have complete access to management. It is assumed that Directors will use good judgment to ensure that contacts are not distracting to the business operation of the Company and that such contact, if in writing, will be copied to the Chairman. The Chairman or the CEO may suggest that a senior manager attend Board meetings. If such attendance is to be on a regular basis, such suggestion shall be made to the Board for its concurrence. The Board encourages management to, from time to time, bring managers into Board meetings who: (a) can provide additional insight into the items being discussed because of personal involvement in these areas; and/or (b) have future potential such that management believes he or she should be given exposure to the Board. XXI. BOARD INTERACTION WITH SHAREHOLDERS AND OTHER INVESTORS, ANALYSTS AND PRESS Various Board committees are developing forums related to specific topics and an electronic “town meeting” site on the World Wide Web that will permit advisory voting on resolutions by shareholders representing 1% or more of the voting power of the Company. The Board recognizes that shareholders and other important constituents have significant interests in the Company’s performance and governance and therefore the Board seeks to engage in appropriate communications, subject to concerns about selective disclosure and confidentiality. The Board notes that management, and, in particular, the CEO speaks for the Company, consistent with applicable Company policy. Individual Directors may, from time to time at the request of the Chairman of the Board or management, meet or otherwise communicate with various constituencies. If comments from the Board are appropriate, they should, in most circumstances, come Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 172 from the Chairman of the Board. XXII. NUMBER, STRUCTURE AND INDEPENDENCE OF BOARD COMMITTEES The Board has delegated certain functions to, and recognizes the competence of, its Committees. In carrying out its responsibilities, the Board relies on the diligence and recommendations of its Committees. The Board currently has four committees: Audit, Nominating and Corporate Governance Committee, Compensation and Risk Management (the “Standing Committees”). Committee membership on the Standing Committees is limited to Independent Directors. The Board retains discretion to form new committees or disband current committees, depending upon the circumstances, and to determine the independence requirements for new committees (subject to any limitations in Listing Rules, the Certificate of Incorporation and By-laws). XXIII. APPOINTMENT AND ROTATION OF MEMBERS The Nominating and Corporate Governance Committee shall recommend to the Board, after consultation with the Chairman of the Board and the CEO, and with consideration of the desires of individual Directors, the appointment and rotation of Directors to various committees and the appointment of committee Chairmen. XXIV. COMMITTEE MEETINGS Each committee Chairman, in consultation with committee members, appropriate members of management and the Chairman of the Board, shall determine the frequency, length and agenda of the meetings of the committee (subject to any Listing Rules and requirements set forth in the Certificate of Incorporation and By-laws). Each committee issues a schedule of agenda subjects to be discussed for the ensuing year at the beginning of each year (to the degree these can be foreseen). This forward agenda shall is shared with the full Board. Additionally, any Director may attend the meetings of any of the committees. XXV. ADVISORS The Board and each of its committees, whenever they determine that doing so is necessary and appropriate, may engage independent legal, financial, and other advisors. (Source:http://global.mci.com/about/governance/guidelines/) Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 173 EXHIBIT 6 New Organizational Structure of MCI (as on April 20, 2004) (A) Board of Directors 1. Nicholas deBelleville Katzenbach, Chairman, Board of Directors, MCI Katzenbach has served as deputy U.S. Attorney General under President John F. Kennedy, as U.S. Attorney General (1964-66), and as under-Secretary of State under President Lyndon B. Johnson. From then until retirement, he served as General Counsel to the I.B.M. Corporation. Katzenbach served in the U.S. Air Force from 1941 to 1945. He received a B.A. from Princeton in 1945 and an LLB from Yale in 1947, followed by a Rhodes scholarship in Oxford, England. He received Honorary Degrees from Princeton, Rutgers, Bard, Brandeis, Northeastern, Georgetown, Seton Hall, Bridgeport, Tufts, Ohio Northern, and Miami Universities. He practiced law in New Jersey and New York, and taught law first at Yale Law School and then at the University of Chicago Law School. He has published (with Morton A. Kaplan) The Political Foundations of International Law (1961), as well as many articles for professional journals. He is active in the American Bar Association and other legal organizations. Among his many honors and distinctions are the Woodrow Wilson Award, Princeton University, 1966; Distinguished Service Award, Yale Law School, 1969; and Citation of Merit, Yale Law School, 1992. 2. Dennis Beresford, Board Director, MCI Beresford served two five-year terms (1987 to 1997) as chairman of the FASB, the body responsible for setting the accounting standards U.S. corporations follow when issuing financial statements to the public. Prior to the FASB, Beresford spent 26 years with Ernst & Young, where he served as national director for accounting standards. He also is a member of the faculty at the University of Georgia’s Terry College of Business and a two-term chairman of the Financial Accounting Standards Board. Beresford joined the Terry College of Business as an executive professor in July 1997. Beresford has served as a consultant to audit committees of public companies and has provided expert witness services to several corporations and accounting firms. He also is a director of KimberlyClark Corporation and Legg Mason, Inc. In February 2002, Beresford provided expert testimony before the Senate Banking Committee on how accounting practices and federal regulations might Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 174 be changed to prevent a recurrence of the questionable accounting practices that contributed to the collapse of Enron and Arthur Andersen. 3. W. Grant Gregory, Chairman, Gregory & Hoenemeyer, Merchant Bankers Gregory, chairman and co-founder of Gregory & Hoenemeyer, Merchant Bankers, has served as chairman of audit, governance and nominating, Special Independent Directors and compensation committees for a number of NYSE member companies. He spent 24 years at Touche Ross & Co., serving from 1982 to 1986 as chairman. While at Touche Ross, Gregory became an internationally acclaimed authority on tax policy and economic development and participated in a number of M&A transactions and restructurings. In the mid-1980’s, he served as a member of the U.S. Trade Representative’s advisory committee on international trade in services. Gregory graduated with distinction from the University of Nebraska in 1964, where he was later awarded an Honorary Doctorate of Humane Letters, as well as the Builder Award, the University’s highest non-academic recognition. Gregory completed advanced management studies at New York University and Harvard University’s Graduate School of Business, and attended the Air Force War College. 4. Judith Haberkorn, retired President, Bell Atlantic, Consumer Sales & Service As one of the first women recruited in 1968 to participate in AT&T’s executive management-training program, Haberkorn’s telecommunications career has been marked by several accomplishments. Prior to her retirement in June 2000, Haberkorn was appointed in 1998 president of Bell Atlantic Consumer Sales & Service, managing a 20,000-employee team, covering 13 states and the District of Columbia. Haberkorn was appointed in 1990 as an officer of NYNEX Corporation, where she served as vice president of Materials Management for the company’s Telesector Resources Group. Prior to that, in 1988 she became the first female general manager of Special Services, responsible for providing telecommunications services to New England’s largest corporate customers. Later that same year, she was named general manager of Access Markets, Marketing and Technology, leading a billion-dollar business unit that provided the largest and most profitable customers with a range of regional, national, and international telecommunications access services. Haberkorn is a member of several prominent national and international business Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 175 groups and is a member of the visiting committee of the Harvard Business School. She is chair emerita for the Committee of 200. She holds a bachelor’s from Briarcliff College in New York and completed Harvard Business School’s Advanced Management Program. 5. Laurence E. Harris, Partner, Patton Boggs Harris joined Patton Boggs in 2001 and concentrates his practice on legislative, regulatory, international, and business issues. Prior to joining Patton Boggs, Harris was senior vice president and general counsel of Teligent, an international telecommunications company. In this position, he developed and maintained the company’s political relationships with the White House, Congress, and state and federal regulators. He also oversaw international development activities. From 1992 to 1996, Harris was senior vice president for law and public policy for MCI. In this capacity, he was responsible for MCI’s federal and state regulatory relationships, and was responsible for MCI’s political relationships with the White House, Congress, and state and federal regulators. From 1982 to 1992, Harris served as president and chief executive officer for International Telecom Systems, Inc. and CRICO Communications, and president and chief operating officer of Metromedia Telecommunications. Prior to Metromedia, Harris was chief of the FCC’s Mass Media Bureau. From 1972 to 1982, Harris served as a vice president of law and public policy for MCI, managing corporate relations for the Federal Communications Commission (FCC) and the office of Telecommunications Policy at the WhiteHouse. Harris was a Lieutenant in the U.S. Navy, serving in the destroyer fleet. He was admitted to the Pennsylvania Bar and is a member of the board of the Georgetown University Law School, his alma mater. His undergraduate degree is from Columbia University. 6. Eric Holder, former Deputy Attorney General of the United States Eric Holder, currently a partner at Covington & Burling, is the former Deputy Attorney General of the United States and U.S. Attorney for the District of Columbia. Confirmed in 1993 as the first African-American to serve as the U.S. Attorney for the District of Columbia, Holder, among other accomplishments, created a Domestic Violence Unit, implemented a community prosecution project for safer neighborhoods, and supported a renewed enforcement emphasis on hate crimes. Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 176 In 1997, President Clinton appointed Holder to serve as Deputy Attorney General, the number-two position in the United States Department of Justice. In his role, Holder supervised all of the Department’s litigation, enforcement, and administrative components in both civil and criminal matters. As Deputy Attorney General, Holder was at that time the highest-ranking AfricanAmerican person in law enforcement in the history of the United States. He held the title until the transition to the Bush Administration and briefly served under President George W. Bush as Acting Attorney General pending the confirmation of Attorney General John Ashcroft. A graduate of Columbia College and Columbia Law, Holder began his legal career in 1976 at the Department of Justice as part of the Attorney General’s Honors Program, where he was assigned to the newly formed Public Integrity Section. He investigated and prosecuted official corruption on local, state, and federal levels. In 1988, President Ronald Reagan nominated Holder to become an Associate Judge of the Superior Court of the District of Columbia. The Senate confirmed Holder later that year and during his five-year term, he presided over hundreds of civil and criminal trials. 7.Mark Neporent, Chief Operating Officer, General Counsel and Senior Managing Director, Cerberus Capital Management, LP Since April 1998, Mr. Neporent has served as chief operating officer, general counsel and senior managing director of Cerberus Capital Management, LP, a multi-billion dollar investment management firm. He previously worked as a partner at Schulte Roth & Zabel LLP, in New York, in the Business Reorganization and Finance Group. Mr. Neporent began his legal career with Otterbourg, Steindler, Houston & Rosen, PC, as an associate in the Creditors’ Rights Department. Mr. Neporent was admitted to the New York State Bar in 1983 and the Connecticut Bar in 1982. He is a trustee of the Association of Bankruptcy Professionals (1990-1996) and the Committee on Bankruptcy and Corporate Reorganization, for the Association of the Bar of the City of NY (1994-1997). He is a member of the New York State Bar Association and the American Bar Association. He received his Bachelors Degree from Lehigh University in 1979, and his law degree from the Syracuse University College of Law, cum laude, in 1982. 8. C.B. Rogers, Jr., Board Director, MCI C.B. “Jack” Rogers, Jr. is a member of the Board of Directors of MCI, a leading Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 177 global communications provider, delivering converged communications and innovative solutions for consumers and customers ranging from small businesses to governments to the elite members of the Fortune 500. Rogers served as Chairman of the Board and Chief Executive Officer of Equifax from October1989 through October 1995. From 1995 to 1999 he served as its Chairman. Prior to his joining Equifax, Rogers held numerous executive positions over thirty-three years with IBM. Rogers was the first President of IBM’s General Systems Division, and was subsequently elected IBM Senior Vice President and head of IBM’s U.S. marketing and services operations as Group Executive of the Information Systems Group, which encompassed its seven domestic divisions. Prior to his retirement, Rogers was IBM Senior Vice President for Corporate Staff Operations and a member of IBM’s management committee. Rogers has been active in community affairs in Atlanta, serving as Chairman of the Board of the Woodruff Arts Center, President-elect of Atlanta Chamber of Commerce, and the Piedmont Hospital Foundation. In 1998, he served as one of the original members of the organizing committee, which raised funds to bring the 1996 Summer Olympics to Atlanta. Rogers is a graduate of Gettysburg College, where he was awarded an Honorary Doctor of Laws Degree and an M.B.A. from George Washington University. Rogers has served on a number of corporate boards including Sears, Roebuck and Company, Teleport Communications Group, Morgan Stanley Dean Witter, Oxford Industries, Briggs and Stratton, Lainer Worldwide, Datagistics and ChoicePoint, where he was its founding Chairman. Rogers has been active in corporate governance affairs and served as Chairman of the Sullivan Advisory Group, a non-profit organization dedicated to good corporate governance. (source: http://global.mci.com/about/company/directors/) (B) Top Executive Team of MCI (as on April 20, 2004) 1. Michael D. Capellas, a 28-year veteran of the information technology business, is President and CEO of MCI. Prior to joining MCI in December 2002, Capellas, 49, was president of Hewlett-Packard Company. Previously, he was the chairman and CEO of Compaq, having joined the company in 1998 as chief information officer and also serving as chief operating officer before being named CEO in July 1999. Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 178 2. Cindy K. Andreotti is President of Enterprise Markets for MCI. She is responsible for leading key company organizations including Global Accounts, Government Markets, Conferencing and MCI Solutions, a managed services provider. 3. Robert T. Blakely, Ph.D., is Executive Vice President and Chief Financial Officer of MCI. He is the former founder and president of the investment firm Performance Enhancement Group Inc. Previously Blakely has served as CFO of prestigious companies such as Lyondell Chemical Company, Tenneco Inc., and U.S. Synthetic Fuels Corporation. 4. Fred M. Briggs. As MCI’s President of Operations and Technology, Fred Briggs oversees MCI’s seamless global IP and data network and the engineering and information systems teams that power that network. His organization develops MCI’s products; uses voice portals, wireless data, IP VPNs, and MCI’s global IP backbone to design efficient communications solutions for customers; and ensures that the network stays robust and reliable. 5. Daniel Casaccia is Executive Vice President for Human Resources at MCI. In this capacity, Casaccia leads MCI’s HR operations and defines its HR policies for the company’s employees worldwide. His organization assists employees as they navigate human resources programs including compensation and benefits, training and development and corporate HR policies. 6. Jonathan Crane is president of International and Wholesale Markets for MCI. In addition to leading MCI’s International and Wholesale lines of business, Crane is also responsible for guiding the company’s strategic ventures and alliances as MCI’s executive vice president of corporate development and chief strategy officer, identifying strategic opportunities and technologies to help MCI build its business. 7. Nancy Higgins is Executive Vice President of Ethics and Business Conduct at MCI. Higgins reports to the Office of the Chief Executive and the Audit Committee of the Board of Directors. 8. Wayne Huyard is President of U.S. Sales and Service for MCI, responsible for leading MCI’s sales and service efforts in the consumer and commercial markets. He is also responsible for companywide marketing. Previously President of MCI Mass Markets, the 20-year MCI veteran was a force behind Mass Markets’ most compelling product achievements, including The Neighborhood, America’s first nationwide all-distance consumer phone service. Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 179 9. Anastasia Kelly is Executive Vice President and General Counsel of MCI. In her capacity as the company’s chief legal officer, Kelly leads MCI’s domestic and international legal, regulatory, and legislative efforts. Prior to joining MCI, Kelly was senior vice president and general counsel of Sears, Roebuck and Co., where she was responsible for developing and implementing the corporate legal policy and strategy for that $40 billion retail and financial services company. 10. Grace Chen Trent- Senior Vice President-Communications and Chief of Staff for MCI. 11. William Hamill –Senior Vice-President and Treasurer 12. Eric Slusser- Senior Vice President and Controller 13. Jennifer McGrey- Vice President and Corporate Secretary (Source: http://global.mci.com/about/company/executives/) (C ) Monitoring Committees (a) Audit Committee Dennis R. Beresford, Chairperson W. Grant Gregory Clarence B. Rogers (b) Compensation Committee Clarence B. Rogers, Chairperson W. Grant Gregory Judith R. Haberkorn Mark Neporent ( c) Nominating and Corporate Governance Committee Eric H. Holder, Chairperson Dennis R. Beresford Laurence E. Harris (d) Risk Management Committee Judith R. Haberkorn, Chairperson Laurence E. Harris Mark Neporent (Source: http://global.mci.com/about/governance/committees/) Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 180 EXHIBIT 7 (A) MCI Guiding Principles 1. Build trust and credibility - Do what you say and say what you do. 2. Respect for the individual - Treat each other with dignity and integrity. 3. Create a culture of open and honest communications - Everyone should feel comfortable to speak his or her mind. 4. Set tone at the top -Management leads by example. 5. Uphold the law - Put the law of the land on a pedestal. 6. Avoid conflicts of interest - Carefully and consciously manage various stakeholder interests. 7. Set metrics report results accurately - Balance between the short and long term. 8. Promote substance over form - Focus on what is important and not what is convenient. 9. Be loyal - To your families, your company and yourselves. 10. Do the right thing - Because it is the right thing to do. (Source:http://global.mci.com/values/guidingprinciples.pdf) (B) MCI’s Commitment to Diversity We believe our employees add value when they reflect the diversity of our customers and communities in which we do business. Our world-class employees represent a broad spectrum of global diversity and bring different experiences and different perspectives that allow us to be responsive to customers while providing quality service. We do the right thing because it is the right thing to do. And fostering a diverse and inclusive workplace is the right thing to do. - Michael Capellas, Chairman and CEO MCI supports diversity throughout our organization around the world. One of MCI’s guiding principles is to treat one another with dignity and integrity — regardless of our differences. This principle applies both within our workplace and with respect for our customers, suppliers and fellow citizens in our communities. Diversity and inclusion are core values that help us attract top talent, identify new business opportunities, and provide enhanced customer service. Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 181 Workplace Diversity MCI strives for excellence through our diverse workforce - a workforce that provides the range of talent and experience necessary to compete successfully in the global marketplace. Our company is made up of individuals with different backgrounds and perspectives from around the world, and this diversity is the key to our continued success. Bold vision, innovative thinking, and the dynamic talent of our employees allow us to focus on the future. Supplier Diversity MCI is committed to providing opportunities for small businesses and those owned by minorities, women, and disabled veterans to participate in our competitive procurement process as prime or subcontractors, regardless of ethnic origin. The MCI corporate supplier diversity organization is responsible for identifying business opportunities where diverse suppliers bring exceptional value to the supply chain. (Source:http://global.mci.com/about/company/diversity/) Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 182 EXHIBIT 8 MCI’s (formerly known as WorldCom Inc.) emergence from Chapter 11 Protection (Chronology of Events) 2002 Discovery April 30 MCI Chief Executive Officer Bernard Ebbers resigns. Vice Chairman John Sidgmore takes reins of company. June 25 MCI fires its chief financial officer after uncovering accounting irregularities of $3.8 billion. June 25 MCI retains William McLucas, former chief of the Enforcement Division of the SEC, to lead an internal investigation. Aftermath June 26 Nasdaq market halts trading in MCI’s two tracking stocks, MCI Group and MCI Group. July 21 MCI files its reorganization under Chapter 11 of the Bankruptcy Code. During the period in Chapter 11, daily operations of the company continue – employees will be paid, customers will be served as usual, and suppliers will be paid for goods. July 21 MCI announces appointment of Nicholas deB Katzenbach and Dennis R. Beresford to its Board of Directors. July 29 MCI de-listed by NASDAQ. August 1 Former U.S. Attorney General Richard Thornburgh named by Justice Department and U.S. Bankruptcy Court to examine the alleged accounting fraud that led to WorldCom Inc.’s Chapter 11 filing. August 8 MCI announces that ongoing internal review has uncovered an additional $3.3 billion in improperly reported earnings before interest, taxes, depreciation and amortization (EBITDA). August 29 C.B. “Jack” Rogers, Jr. appointed to MCI Board of Directors. Recovery Nov. 4 Former U.S. Attorney General Richard Thornburgh issues initial report Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 183 on findings of his review of MCI’s financial matters. Nov. 15 Michael D. Capellas named MCI Chairman and CEO; John Sidgmore and Bert C. Roberts step down as CEO and Chairman, respectively. Dec. 17 MCI announces that Capellas has accepted the resignation of the majority of the company’s board. Recently appointed members of the board, including Katzenbach, Rogers and Beresford are the only ones that remain on the Board. 2003 March 17 MCI announces expansion of The Neighborhood, The MCI Connection - key achievements in 100-day plan. April 14 MCI announces filing of its plan of reorganization; changes brand name to MCI; moves headquarters to Ashburn, VA. (Source: http://global.mci.com/news/emergence/timeline/) Revival April 14 MCI announces appointment of Robert T. Blakely as CFO. May 19 MCI reaches final settlement with SEC. May 23 U.S. District Court approves MCI disclosure statement. June 9 McLucas and Thornburgh reports issued. July 31 GSA issues proposed debarment. August 4 Stasia Kelly named General Counsel. August 26 Breeden report on Corporate Governance issued; company agrees to adopt all recommendations. August 29 New board members appointed. September 8 U.S. Bankruptcy Court holds confirmation hearing on MCI’s Plan of Reorganization. September 9 Settlement reached with remaining creditor groups. October 14 Nancy Higgins named Chief Ethics Officer. October 28 Former U.S. Senator Warren B. Rudman named as a senior advisor, focusing his attention on ethics and corporate governance. October 31 Bankruptcy court approves plan of reorganization. Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI 184 2004 January 7 GSA lifts the proposed debarment of MCI and the company is again eligible to receive new government business and contract extensions. January 26 Court-appointed Examiner Richard Thornburgh releases the final report on his investigation into MCI. March 12 MCI files its 2002 annual report on Form 10-K with the Securities and Exchange Commission, which also contains financial restatements for 2001 and 2000 March 16 Nicholas Katzenbach named non-executive board chairman; Capellas assumes title of president & CEO. April 20 MCI emerges from Chapter 11 with solid balance sheet, strengthened corporate governance, loyal customer base and refocused business plan. (Source: http://global.mci.com/news/emergence/timeline/) Decision, Vol. 33, No.2, July - December, 2006 Month July 02 Aug 02 Sep 02 Oct 02 Nov 02 Dec 02 Jan 03 Feb 03 Mar 03 Apr 03 May 03 June 03 July 03 Aug 03 Sep 03 Oct 03 Nov 03 Dec 03 Revenue Line costs 2,464 2,403 2,304 2,282 2,177 2,201 2,163 2,030 2,101 2,050 2,034 2,075 2,116 2,010 1,951 1,977 1,790 1,870 1,352 1,306 1,231 1,287 1,190 1,205 1,180 1,167 1,203 1,131 1,101 1,124 1,128 1,068 1,060 1,231 1,179 1,173 Selling, Depreciation and general & administrative amortization expenses 753 680 657 695 667 810 689 699 702 684 699 685 661 680 679 653 509 605 425 429 507 483 483 143 118 120 112 121 118 120 130 124 124 128 127 146 Total Operating Expenses 2,530 2,415 2,395 2,465 2,340 2,158 1,987 1,986 2,017 1,936 1,918 1,929 1,919 1,872 1,863 2,012 1,815 1,924 Total Capital expenditures Total operating Income (loss) N.A. N.A. 98 53 48 108 34 36 51 58 90 43 60 52 63 74 90 160 N.A. N.A. 1,400 2,100 2,300 2,500 2,800 3,100 3,300 3,700 4,200 4,600 4,700 5,300 5,300 5,400 5,700 5,600 Reorganization items 18 20 12 33 514 37 182 48 117 44 46 30 143 71 22 23 6 Net Income/ (Loss) (331) (98) (147) (234) (195) (580) 155 (332) 43 4 46 84 207 132 (35) (194) (23) (145) 185 (N.A., data not available) (Source: http://global.mci.com/news/infodesk/forward/operating_reports/) (66) (12) (91) (183) (163) 43 176 44 84 114 116 146 197 138 88 (35) (21) (58) Cash in hand From WorldCom to MCI Decision, Vol. 33, No.2, July - December, 2006 EXHIBIT 9 Summary of WorldCom’s financial progress from July 2002 to December 2003, as per monthly operating results submitted to the bankruptcy court (Figures in million US $) From WorldCom to MCI 186 EXHIBIT 10 Consolidated Historical Financial Data (At or for 31), as per WorldCom Annual Report 2001 (Figures in millions $, except per share data) 2000 2001 Operating Results: 35,179 39,090 Revenues—8,153 3,514 Operating Income (loss) —Income (loss) before comulative effect of accounting change and extraor4238 1,501 dinary items —Comulative effect of ac(85) counting change —— Extraordinary items —Net income (loss) applicable to common shareholders — 4088 1,384 the year ended December 1999 1998 1997 35,908 7,888 17,617 (942) 7,643 982 4,013 (2,560) 185 - (36) (129) — (3) 3,941 (2,767) 143 Earnings (loss) per common share: Income(loss) before comultive effect of accounting change and extraordinary items: BasicDilutedNet income (loss): BasicDilutedWorldCom group pro forma net income per share (1): BasicDilutedMCI group pro forma net income (loss) per share (1): Basic and DilutedDividend declared per MCI group shareWeighted average sharesBasicDiluted- — — 1.46 1.43 1.40 1.35 (1.35) (1.35) 0.10 0.10 — — 1.43 1.40 1.40 1.35 (1.43) (1.43) 0.10 0.09 0.48 0.48 0.88 0.87 0.81 0.78 — — — — (0.20) 13.52 14.32 — — 1.80 — — — — — — 2,868 2,912 2,821 2,925 1,933 1,933 1,470 1,516 Decision, Vol. 33, No.2, July - December, 2006 From WorldCom to MCI Financial Position: Total assets —Long-term debt —Subsidiary trust and other mandatorily redeemable preferable securities —Shareholders’ investment —- 187 103,914 30,038 98,903 17,696 91,072 13,128 87,092 16,448 24,400 7,811 1,993 57,930 798 55,409 798 51,238 798 45,241 — 14,087 (Source:, http://worldcom.com/about/investor_relations/reports/) Decision, Vol. 33, No.2, July - December, 2006 Item 2003 2002 2001 2000 1 Revenues 27,315 32,189 37,608 39,251 2 Access Costs 13,040 14,651 16,013 10,889 3 Cost of services and products 3,498 4,309 5,314 5,041 4 Selling, general and administrative expenses 7,222 9,142 10,602 10,266 5 Depreciation and amortization 2,647 3,291 4,770 8,400 6 Unclassified net - (39) (383) 426 7 Property, plant and equipment impairment charges - 4,599 5,729 14,057 8 Goodwill and other intangible impairment charges - 400 5,698 33,123 9 Operating Income (loss) 908 (4,168) (10,135) (48,949) 10 Reorganization items, net 22,083 (802) - - 11 Income (loss) from continuing operations 22,444 (8,996) (12,969) (48,233) 12 Net loss from discontinued operations (18) (145) (2,629) (577) 13 Net income (loss) attributable to common shareholders 22,211 (9,192) (15,616) (48,909) 14 Unaudited pro forma earnings per share - - - $ 68.13 188 S. No. From WorldCom to MCI Decision, Vol. 33, No.2, July - December, 2006 Exhibit-11 Consolidated Financial Data of MCI Inc. (As per Company Annual Report 2003, at or for the year ended on December 31, figures in million US $, except for the share amount) (A) Statement of Operations Data S. No. Item 2003 2002 2001 2000,122) 1 Net cash provided by operating activities 3,962 465 2,845 4,227 2 Net cash used in investing activities (639) (767) (6,122) (11,163) 3 Net cash (used in) provide by financial activities (24) 1,942 4,217 6,682 From WorldCom to MCI Decision, Vol. 33, No.2, July - December, 2006 (B) Statement of Cash Flows Data (C) Other Data S. No. Item 2003 2002 2001 2000 1 Number of employees 56,600 62,700 87,800 97,600 2 Cash paid for dividends on MCI group common stock - 142 71 - 189 S. No. Item 2003 2002 2001 2000 1999 1 Cash and cash equivalents 6,178 2,820 1,290 382 655 2 Property, plant and equipment, net 11,758 14,190 21,486 24,477 31,966 3 Total assets 27,367 26,762 33,706 44,188 85,280 4 Long-term debt, excluding current portion 7,117 1,046 29,310 17,184 13,460 5 Other long-term liabilities 714 468 511 2,662 2,459 6 Liabilities subject to compromise - 37,154 - - - 7 Minorities interests and preformed stock subject to compromise - 1904 - - - Mandatorily redeemable preferred securities - - 1,855 752 942 Shareholders’ equity (deficit) 8,472 (22,295) (12,941) 1,792 50,455 8 9 From WorldCom to MCI Decision, Vol. 33, No.2, July - December, 2006 (D) Balance Sheet Data (Source: http://global.mci.com/about/investor_relations/reports/) 190