Qwest Kept Some of Its Employees From Selling Stock in Volatile Period
By DEBORAH SOLOMON
Staff Reporter of THE WALL STREET JOURNAL
Qwest Communications International Inc. prevented thousands of workers from selling company shares or other assets in their 401(k) savings plans for a total of four weeks in December and January -- a period during which the company faced concerns about its financial health.
Although the price of Qwest shares only fell about 7% over the four weeks, the so-called blackout period comes on the heels of similar steps taken by companies such as Enron Corp. and Global Crossing Ltd. While legal, these lockdowns have taken on new significance in the wake of Enron's collapse. Workers at the energy company saw their retirement savings disappear because they were prohibited from selling company stock in the month before Enron filed for bankruptcy-court protection.
Despite the criticism surrounding Enron's lockdown, Qwest officials said they didn't see a need to cancel the blackout. The company said it notified employees in June that a change was coming -- six months before the Enron debacle. And, unlike Enron, Qwest's lockdown affected just a small slice of employees.
Other companies that have come under scrutiny for having lockdowns while their stocks were under pressure include Lucent Technologies Inc., of Murray Hill, N.J., International Paper Inc., of Stamford, N.J., and Dow Chemical Co., of Midland, Mich.
Qwest's lockdown occurred as the Denver telecom concern was cutting jobs and as credit-rating agencies were reviewing the company's debt for a possible downgrade.
The blackout also came amid lingering questions about the company's accounting practices. On Monday, about a month after the lockdown ended, Qwest said the Securities and Exchange Commission was conducting an inquiry into how it booked revenue for 2000 and 2001.
From Dec. 21 through Jan. 21, 8,000 of Qwest's 63,000 employees were affected by the lockdown, in which the assets of their retirement plans were frozen while Qwest made administrative changes, the company says.
Qwest officials said the blackout was unavoidable because it was switching administrators in an attempt to merge the Qwest and U S West 401(k) plans. Qwest bought regional Bell U S West in 1999. A spokesman for Qwest said the company negotiated a shorter lockdown period. The 8,000 employees were Qwest workers whose plan was being folded into U S West's plan.
"We made a conscious decision to combine the plans after the merger," said Tyler Gronbach, a Qwest spokesman. "It took us a period of time to ensure a smooth transition for employees and we gained greater cost savings through the combination of the two programs."
The company said it first told employees last June of the lockdown and informed them in October that their assets would be frozen for the four-week period in December and January. About 31% of the plans' assets were in company stock, according to Qwest. The entire 401(k) plan is now being managed by MetLife.
In a letter sent Feb. 21 to the Communications Workers of America, Qwest's vice president of compensation and benefits acknowledges that the blackout came at a bad time but said the company had no choice. "Unfortunately, in light of on-going headcount reductions, there was no 'good time' for this transfer of services to occur," the letter states.
However, some corporate-governance experts said Qwest should have reconsidered the switch and the lockdown at such a volatile time. "The management of Qwest should have been fully aware that the switchover at a time of volatility could harm employees," said Henry Hu, a law professor at University of Texas. Mr. Hu said even if there were strong reasons why the company had to switch administrators, it should have pushed it off until things were more stable. "Four weeks is a long time in this day and age, especially in the world of telecommunications."
Write to Deborah Solomon at deborah.solomon@wsj.com
Updated March 13, 2002 |
