A Hard Road Ahead

By Baselinemag  |  Posted 2004-05-28 Print this article Print

MCI rolled out new cost-analysis software as part of its recovery from massive accounting fraud and the biggest bankruptcy in U.S. history.


There are still hard decisions ahead for MCI, which lost $388 million in the most recent quarter and faces an ugly price war from the regional phone companies. Capellas announced the company will lay off 7,500 employees, or 15% of its workforce, in the second quarter. The job cuts, along with another 5,700 announced earlier this year, are expected to save MCI $150 million per quarter. Nolan says the SAS tool will provide some information to help managers identify which employees to cut, though he says it's only one of many factors the company will consider.

As for winning back investor confidence, at this point it's "more a question of whether or not the company and the management team can demonstrate improving financials," says Avi Benus, an analyst with J.P. Morgan Securities.

That's far removed from the horrors of 2002, when the WorldCom fraud came to light. In the aftermath, WorldCom asked for the resignation of CEO Bernie Ebbers and fired chief financial officer Scott Sullivan. The company also installed a new board of directors, reorganized its audit committee and hired 400 staffers to beef up its finance and accounting departments.

Sullivan pleaded guilty to securities fraud in March and is cooperating with prosecutors as they build a case against Ebbers. Ebbers has pleaded not guilty to conspiracy and fraud charges leveled against him by federal prosecutors. But the counts against Ebbers were expanded late last month to include six charges of falsifying regulatory filings while he was CEO.

If they keep their noses clean, the only thing Capellas and his lieutenants will have to worry about is how to make MCI profitable—in all areas of its business.


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