Restoring Trust in WorldCom
1. What are the three or four central objectives that Breeden hopes to achieve with the proposals in “Restoring Trust”? Why is reform needed? What are the benefits? What are your concerns regarding the reform?
The WorldCom Corporate Monitor, Richard Breeden, believed that in order to correct the ills that faced the company, WorldCom needed to adopt a strong Corporate Governance structure. The central objectives of his proposal “Restoring Trust” included improving the composition of WorldCom Board, eradicating financial misconduct, correcting executive compensation and enhancing shareholder influence and involvement.
According the Breeden the WorldCom board seemed to have a decent combination of backgrounds
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With Breeden’s suggestion of cash payments, the board and shareholders would have clear visibility of compensation and know what was being awarded to whom and in turn avoid shareholder dilution. The compensation restructuring will also propose better compensation plans that would be linked more to long-term performance rather that short term stock price swings. Under the previous board and CEO the WorldCom shareholders were misguided and had very little involvement in the company’s governance. Breeden wanted to improve the communication between the WorldCom shareholders and the WorldCom board. Breeden’s idea in ‘Restoring Trust’ was for the company to adapt the Articles of Incorporation to highlight the governance constitution and to prohibit the governance standard bring altered without shareholder consent. Breeden also wanted the shareholders to be given the opportunity to have a say on the board’s nominees as well as the ability to nominate its own director candidates. Breeden also proposed an electronic Town Meeting where high stake shareholders were able to place resolutions and have them considered. The benefit of this approach was to open up the communication between the shareholders, the board and it’s executives.
The reform has many benefits that are much needed, however, I do have a few concerns as it relates to the power and the boundaries of the Corporate Monitor as it