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AOL/Time Warner and WorldCom:Corporate Governance and the Effects of the Deregulation Paradox
Unformatted Document Text:  21 The problem began in the early 90’s when WorldCom (formerly LDDS) went on a buying spree acquiring some 70 plus companies. As WorldCom steadily snatched up companies, Ebbers established a pattern in which he would invite the CEO of the newly acquired company to join WorldCom’s board of directors. Several of the more notable companies and exCEOs included: Max E. Bobbitt, Alltel Corporation; Bert C. Roberts, MCI Corporation and Francesco Galesi, real estate magnate and major investor in Advanced Telecommunications Corporation to name only a few. And four of the original board members were euphemistically referred to as “Bernie’s Boys.” The said board members proved to be ever loyal to Bernie Ebbers. They, in turn, received multiple perks, including millions of dollars in WorldCom stock, use of the company’s private jet and financial support to pursue a variety of individual projects. In one such example, board member Stiles Kellet, an Atlanta investor in telecom startups (and one of Bernie’s boys), was permitted to rent company aircraft for $1 a month, plus a $400-an-hour usage fee. This arrangement saved him more than $1 million a year, according to a bankruptcy court memo (“How Ebbers Kept the Board,” 2002). Likewise, Ebbers was also the beneficiary of this relationship. In 2001, WorldCom’s board of directors gave its approval to lend CEO Bernie Ebbers a $408 million loan so that he could cover a margin call on his personal investment in the company’s stock. As one former WorldCom director noted, “Ebbers treated you like a prince – as long as you never forgot who was king.” (“How Ebbers Kept the Board,” 2002, p. 139) WorldCom has subsequently filed for bankruptcy and the fallout has been significant. President and CEO Bernie Ebbers was forced to resign from the company just prior to the

Authors: Gershon, Richard. and Alhassan, Abubakar.
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21
The problem began in the early 90’s when WorldCom (formerly LDDS) went on

a buying spree acquiring some 70 plus companies. As WorldCom steadily snatched up

companies, Ebbers established a pattern in which he would invite the CEO of the newly

acquired company to join WorldCom’s board of directors. Several of the more notable

companies and exCEOs included: Max E. Bobbitt, Alltel Corporation; Bert C. Roberts,

MCI Corporation and Francesco Galesi, real estate magnate and major investor in Advanced

Telecommunications Corporation to name only a few. And four of the original board

members were euphemistically referred to as “Bernie’s Boys.” The said board members

proved to be ever loyal to Bernie Ebbers. They, in turn, received multiple perks, including

millions of dollars in WorldCom stock, use of the company’s private jet and financial

support to pursue a variety of individual projects. In one such example, board member

Stiles Kellet, an Atlanta investor in telecom startups (and one of Bernie’s boys), was

permitted to rent company aircraft for $1 a month, plus a $400-an-hour usage fee.

This arrangement saved him more than $1 million a year, according to a bankruptcy court

memo (“How Ebbers Kept the Board,” 2002). Likewise, Ebbers was also the beneficiary

of this relationship. In 2001, WorldCom’s board of directors gave its approval to lend

CEO Bernie Ebbers a $408 million loan so that he could cover a margin call on his personal

investment in the company’s stock. As one former WorldCom director noted, “Ebbers

treated you like a prince – as long as you never forgot who was king.” (“How Ebbers

Kept the Board,” 2002, p. 139)
WorldCom has subsequently filed for bankruptcy and the fallout has been significant.

President and CEO Bernie Ebbers was forced to resign from the company just prior to the


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