Read down near the end of this article for a very positive ASND reference.
Brain drain hits MCI WorldCom
Dozens of executives flee, rumors of layoffs fly.
By David Rohde and Denise Pappalardo
Network World, 12/07/98
Washington, D.C. - Eleven weeks into the
mega-merger between MCI and WorldCom, the exit
door is wide open and MCI executives are fleeing the
premises.
The newly combined MCI WorldCom has lost dozens of
key managers and specialists - virtually all of them from
the MCI side - in network engineering, security services
and product management. And last week, a wave of
rumors swept through MCI WorldCom's rank and file
that a layoff of about 7,000 people - close to one-tenth
of the company's work force - is slated for this month.
MCI WorldCom spokesman Jim Monroe declined to
comment on personnel issues except to acknowledge
duplication between MCI and WorldCom staff. "Our
approach there has been to redeploy people where there
has been overlap," Monroe says.
But many top names from MCI have already left. Just
last month, Stephen Von Rump, MCI's vice president of
enterprise services and champion of the company's
corporate data-services drive, left to join a
videoconferencing firm in Austin, Texas.
That followed departures by MCI Chief Information
Officer Lance Boxer and global engineering Senior Vice
President Jack Norris, who moved to Lucent and
emerging international carrier Teleglobe
Communications, respectively.
Many analysts say MCI WorldCom could stand to trim
some executives as part of its efforts to reduce expenses
and ultimately cut prices. But, they add, some of the
outflow could result in the loss of executives with
expertise in technology areas of interest to users. The
departures also could wreak havoc with account teams.
In a particularly stunning blow, a team of nine crack
engineers in MCI's Internet security unit, headed by
Dale Drew, last month left en bloc to join emerging
national carrier Qwest Communications, which
maintains a national network operations center in
Arlington, Va. Other defections, including ones to
Teleglobe and wireless carrier Nextel Communications,
have also involved groups of key personnel moving
together.
Company insiders and analysts cite a combination of
factors causing the big brain drain. They include the
inevitable merger-related turf fights, as well as MCI's
earlier failure to merge with British Telecommunications
(BT), debates over product priorities, corporate culture
clash and sheer exhaustion.
"MCI went through a challenging and grueling two
years," Von Rump says. "It took a lot out of the entire
management team."
Uncertainty at the top
Questions were swirling last week around two top MCI
executives who remain: John Gerdelman, who until
recently was president of MCI's network-services
division; and Tim Price, president of MCI WorldCom's
U.S. operations and No. 3 under CEO Bernie Ebbers and
Chairman Bert Roberts.
Gerdelman confirmed to Network World that he recently
ceded the job as chief of MCI WorldCom's network to
WorldCom veteran Ron Beaumont. Gerdelman was
reassigned to work on the company's new
technology-ventures fund and some regulatory matters.
"Am I as busy as I was before? Not exactly,"
Gerdelman says. But for now, he adds: "I'm not going
anywhere. If there's not a place for me six months from
now, I'll look and see where things are then."
"Everyone in D.C. has been very elusive about John's
status," says one insider who asked not to be identified.
"Suddenly, he wasn't showing up on org charts, and then
he was assigned to Bert [Roberts] on a special project.
The word is that he is in the process of exiting."
Meanwhile, Price was reportedly weighing his options. A
favorite among MCI's business sales force, Price "has
been adamant that he is absolutely committed to
staying," says one source. But following mega-deals for
former top AT&T executives with sales experience -
such as Qwest CEO Joe Nacchio and Teligent CEO
Alex Mandl - Price is widely considered to be capable of
commanding a salary and bonus package in the tens of
millions of dollars.
"He is a very valuable commodity, and he knows it," says
Frank Dzubeck, president of Communications Network
Architects, a Washington, D.C. consulting firm.
Should Price leave, what some sources describe as a
dispirited MCI sales staff may seek new pastures. "MCI
WorldCom is squeezing blood out of a turnip," says an
e-mail sent by a global accounts representative to a
Network World reporter. "I've been with MCI for 10.5
years and now that Bernie has moved in, the 'stuff' is
hitting the fan all over."
Like several other insiders, this representative says that
"to make our numbers, layoffs are around the corner." It
was reported that Ebbers himself bluntly told
representatives at a late-September sales meeting in St.
Louis that the company's expense ratios would have to
go down, sending several representatives fleeing for
interviews with Qwest and other competitors.
With MCI WorldCom reportedly trying to eliminate $3
billion in expenses, "you can't make that on the top line,"
says Ian Dix, vice president of business-services
marketing at Qwest. He adds: "We've been hiring
furiously." Two other managers who recently left MCI
WorldCom told Network World that layoffs of several
thousand people could occur any time between today
and Dec. 15.
Other observers caution that the exact timing of any
reduction-in-force is in question. They say the rumors
may be popping up because MCI itself has often dropped
employees in December. "The specter of a layoff before
year-end has been with this merger ever since last
spring," says one of the recent ex-managers. And some
units may not suffer at all: Ebbers last month committed
to adding 2,000 employees at a new suburban
Washington facility for Internet subsidiary UUNET.
But one financial analyst who requested anonymity says
he has heard from "well-placed sources within
MCIWorldCom" that layoffs within the company's
traditional units are imminent. He puts the likely number
at 6,000 based on cost reductions the company has laid
out in the past.
Merger whiplash
Weighing even more heavily than possible layoffs on
many of the outgoing MCI employees, especially in
network operations, is MCI's earlier failed merger with
BT.
"MCI had a plan of attack for globalizing," Dzubeck says.
"All of the apple cart got upset." Besides, he says,
"WorldCom had its own global engineering operation
under MFS."
The BT deal would have left MCI as a stand-alone U.S.
unit, adds Von Rump, while the WorldCom merger
created large U.S. network overlap. Another aggravating
factor is MCI WorldCom's apparent plan to move much
of its net, including its core frame relay service, to
Ascend Communications switches. Part of the reason for
that move, according to Dzubeck, is that UUNET heavily
uses Ascend gear.
Numerous observers also noted that WorldCom
historically has not tried too hard to retain employees
after a merger. "It's not their way," Dzubeck says.
Even if the company begs executives to stay, they might
go anyway for another reason. When the merger closed
in mid-September, MCI executives who had been
granted unvested stock options for rank or performance
suddenly saw all their options - except those granted
earlier in 1998 - immediately vest. MCI's stock price
nearly doubled since WorldCom announced its takeover
bid in October 1997, so many longtime MCI executives
were sitting on a pile of cash.
"There was a lot of vesting of stock," says Jim Collins,
who headed public relations for network services before
leaving last month for Frontier Communications, an
emerging national carrier based in Rochester, N.Y. "A lot
of the employees made out very well in the merger."
Adds Von Rump: "The financial incentive was less to
stay with the company." |
