Aug. 26 (Bloomberg) -- WorldCom Inc., the No. 2 U.S. long- distance telephone company, said it supports all of a court- appointed monitor's recommendations on corporate governance reforms, including the separation of the chairman and chief executive roles.

WorldCom also will scrap stock-option grants after it emerges from the largest U.S. bankruptcy case, one of dozens of recommendations made by monitor Richard Breeden, the Ashburn, Virginia-based company said in a statement. WorldCom expects to name new board members by next month.

The company, which is being renamed MCI, wants to rebuild an image tarnished by an $11 billion accounting fraud as it seeks to exit bankruptcy by October. WorldCom has been suspended from winning new contracts from the U.S. government, its top customer. Chairman and Chief Executive Michael Capellas said he has advocated the separation of the two positions he holds.

``Mr. Breeden's report not only sets new standards for good corporate governance but also establishes a roadmap that helps us build our foundation for the future,'' Capellas said in the statement.

Shares of WorldCom are worthless after the company lost about $200 billion in value. WorldCom's bonds rose to 28.375 cents on the dollar from 28.125 cents at 4 p.m. New York time yesterday, traders said. Holders of the notes are to get 36 cents on the dollar in the company's bankruptcy reorganization.

``The separation of chairman and CEO is a must for MCI and probably a good idea for most corporations in the S&P 500,'' said Guzman & Co. analyst Pat Comack before WorldCom's statement was released. ``It's critical to try to rebuild trust with investors and customers.''

Bankruptcy Reorganization

Drafts of the company's certificate of incorporation and by- laws posted on the bankruptcy court's Internet site last week said all directors except for the chief executive will be independent, including the chairman. Capellas also would be prohibited from serving on the board of any other for-profit company.

Judge Jed Rakoff of the U.S. District Court in Manhattan asked Breeden to oversee WorldCom in July 2002, the month the company sought protection from creditors. Breeden was chairman of the SEC from 1989 to 1993.

The SEC in November ordered Breeden to review the company's governance as part of a settlement of a suit against WorldCom that was completed this month and includes a $750 million penalty, the largest for an accounting-fraud case.

WorldCom's effort to emerge from bankruptcy as planned this year may be hurt by allegations surfacing last month that the company illegally avoided paying network fees to local-phone companies.

Rivals

Competitors such as AT&T Corp. and Verizon Communications Inc. accuse WorldCom of engaging in a plot to disguise long- distance calls as local connections and avoid paying fees to terminate them. WorldCom's official creditor committee on Thursday denied the allegations and asked the bankruptcy court to order the company's competitors to turn over documents that could disprove them.

The company's entire board resigned after the accounting scandal became public in June of last year. Four of the positions have been filled, and WorldCom has until the end of the week to meet a court deadline for completing its board.

WorldCom's restructuring calls for the company to be owned by creditors who were owed $41 billion at the time of the bankruptcy filing. Debt will fall to $5 billion.

Former CEO

Reports on WorldCom's collapse released in June by its board and Bankruptcy Court Examiner Richard Thornburgh say former CEO Bernard Ebbers made acquisitions, issued record amounts of debt and took out millions in loans from the company without challenge from the previous board.

Ebbers and former Chief Financial Officer Scott Sullivan were ousted in the months leading up to the bankruptcy. Sullivan has been charged with criminal securities fraud and pleaded not guilty. Ebbers hasn't been charged with a crime.

Capellas was brought in from Hewlett-Packard Co. in December to replace interim CEO John Sidgmore. Capellas was awarded a $50 million, three-year pay package that month after Rakoff and Breeden criticized a bigger one.

Congress last year passed the Sarbanes-Oxley law, which mandates governance improvements following accounting scandals at companies including Enron Corp. and WorldCom.

Microsoft Corp., the world's biggest software company, in July said it would stop paying employees with stock options. Restricted shares that WorldCom and Microsoft will use for compensation can't be sold for a certain period. Stock options, which became a popular form of compensation during the bull market of the 1990s, give holders the right, but not the obligation, to buy shares at a preset price.

Last Updated: August 26, 2003 08:03 EDT