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Verizon, the US telecoms giant, has set a closing condition on its $8.5bn takeover of MCI. It will not be subject to a sweeping set of corporate governance principles that were adopted by the former WorldCom following its accounting scandal and emergence from bankruptcy.
Adopting the principles, which were created by MCI’s court-appointed corporate monitor, former Securities and Exchange Commission chairman Richard Breeden, would have forced Ivan Seidenberg to split his dual role as chairman and chief executive of Verizon, among other things.
The principles, which at the time were hailed as a model for other companies, by corporate governance experts at the time that they were adopted, also call for a company’s board to consist entirely of independent directors other than the chief executive, and gave shareholders the right to submit resolutions and nominate board members.
Nine of Verizon’s 11 directors are independent, including Mr Seidenberg.
Shareholders are expected to vote on Verizon’s takeover of MCI next month, although a definitive date has not been set. The merger is also subject to approval by the antitrust regulators.
Mr Breeden , who also led an internal investigation into Hollinger International, the newspaper publishing group, and has been touted as a possible corporate monitor at accounting firm KPMG, was appointed as a corporate monitor at MCI in July 2002 by District Court Judge Jed Rakoff, who oversaw the company’s bankruptcy case.
In its merger agreement, Verizon called for the US district court to “no longer require” Mr Breeden to serve as a monitor, and to absolve the newly combined company of the governance principles and processes he developed.
Mr Breeden played an instrumental role in Verizon clinching a deal with MCI following a drawn-out bidding war with Qwest.
Although Judge Rakoff initially put Mr Breeden in place to oversee compensation issues at MCI and to ensure that the company did not destroy documents in connection to its fraud, he ended up becoming a “shadow” board member, according to people familiar with the matter. Regulatory filings show he even met with Qwest executive Richard Notebaert during merger discussions between the companies.
Charles Elson, a corporate governance expert from the University of Delaware, said he was “disappointed” by the provision.
“I’m sorry that they backtracked a bit. The rationale behind the guidelines are very smart, they are designed to protect investors,” said Mr Elson.
However, John Coffee, a corporate governance expert at Columbia University, contends that the broad governance principles that made sense for a formerly “delinquent” company such as MCI, did not make sense for a company like Verizon, which did not have a history of corporate wrongdoing.
Mr Breeden did not return calls. Verizon and MCI declined to comment.