MCI Sues Ex-CEO Ebbers for $400 in Loans and Interest

When MCI joined Enron and HealthSouth in the category of spectacularly bust companies of America, Bernard Ebbers had borrowed about $408 million from the company. When he resigned as CEO in April 2002, the borrowings were restructured, and he got 5 years to repay the money at below market rates. The company has since changed its mind, and it wants it all back now. It never should have lent him the money.

There is nothing unusual about companies lending their top executives large sums on favorable terms. However, it should be unusual. The $400 million plus in question belonged to the shareholders, and the board of any firm has a legal and moral duty to manage such funds responsibly. A few hundred thousand for a house might just be termed legitimate compensation. A few hundred million is ridiculous.

Loans of this magnitude turn the shareholders' wealth into that of the board and its friends. The board should not operate in a way contrary to the interests of the shareholders, but loaning vast sums out and accepting repayment at below-market rates cannot be described by any word other than "contrary."

There are only two things one can do with such sums -- fritter it away on conspicuous consumption (not in the interests of the shareholders) or invest it cautiously and carefully. In the latter case, though, a CEO ought to be fully occupied with the running of the business for which he was hired. Investing company cash is better done by fund managers who can focus their full attention on the job at hand. Perhaps, the MCI-Ebbers case can wake shareholders up to the disreputable way their money is loaned out. They had better wake up, while they still have any money left to invest.


© Copyright 2004 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.


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