As Global Crossing Rebounds, Critics Question Role of CEO
Global Crossing Ltd., the telecommunications firm that symbolized the industry’s rise, excess and ultimate collapse, may soon emerge as a battered survivor -- a feat few thought possible when the company sought bankruptcy protection nearly two years ago.
The company could wrap up its Chapter 11 reorganization as early as this week, with one man being hailed as the tough-minded executive who made it possible: Chief Executive John J. Legere.
During his two years at the helm of Global Crossing, the 45-year-old executive has guided the fiber-optic network operator through federal investigations, a torrent of lawsuits and bad publicity, as well as a precipitous drop in telecom spending.
Legere (pronounced Ledger) fired more than 3,000 workers, canceled contracts, slashed operating expenses by 40% in his first year and abandoned 279 offices -- including the company’s posh former headquarters in Beverly Hills.
Yet despite Legere’s carefully cultivated image as a penny-pinching outsider, a yearlong series of more than two dozen interviews with current and former Global Crossing employees and a review of hundreds of documents reveal that he was not always such a careful steward. What’s more, they show that Legere’s fortunes rose as Global Crossing’s fell.
* During his nearly four-year affiliation with Global Crossing and its Asian subsidiary, Legere approved many of the controversial “capacity swaps” that triggered federal investigations and contributed to the company’s downfall. A panel of outside directors called the company’s reliance on such deals “not a prudent or financially sound business decision.”
* Thousands of former employees watched their severance payments vanish, but Legere went to great lengths to make sure he was paid in full. As bankruptcy loomed in 2001, for instance, Legere summoned a vacationing employee to ensure that Global Crossing paid the income taxes on a $10-million personal loan to Legere the company had forgiven.
* Without board approval, Legere spent $500,000 of Asia Global Crossing’s money to settle three separate sexual harassment claims against him.
* And even after he shut the flow of free coffee at Global Crossing’s new Florham Park, N.J., headquarters to save money, Legere continued to drive a Cadillac Escalade at the company’s expense, fly first-class and live in a Mastnhattan apartment that costs the company an estimated $10,000 a month.
Legere and Global Crossing declined repeated requests by The Times in the last year, including one made last week, to discuss the issues and incidents in this story.
Support of Creditors
For their part, Global Crossing’s creditors say they are encouraged by the company’s progress. Although they stand to get pennies for every dollar they are owed, the group is backing a reorganization plan that calls for Singapore Technologies Telemedia to pay $250 million for a 61.5% ownership stake in the revamped company. The Federal Communications Commission signed off on the deal last week.
With the U.S. Bankruptcy Court’s protection, Legere has erased about $720 million in annual operating costs and in 2001 saved about $260 million in salaries alone, according to the company. Legere’s smaller Global Crossing has 4,300 employees and operates a worldwide fiber-optic communications network that spans 27 countries and serves 75,000 customers.
“I am very impressed with John,” said attorney Ed Weisfelner, who represents a committee of Global Crossing’s unsecured creditors. “He deserves a lot of credit for cutting costs and keeping the banks at bay.”
Legere is a confident and fit man with slicked-back hair, piercing blue eyes and a general appearance that invites comparisons to actor Christopher Walken. He’s an avid, accomplished runner and likes to play basketball with favored managers.
Critics, however, say that he berates and intimidates employees and excludes women from the top ranks. That, in part, led three female employees to accuse Legere of sexual discrimination and harassment in 2001, people familiar with the situation say. Without approval from the board of Asia Global Crossing, where he then worked, Legere paid $500,000 of company money to avoid lawsuits and settle the claims.
Two people familiar with what unfolded say that some Asia Global Crossing directors were upset when they later learned about the settlements. They believed that Legere should have cleared the payments with the board, especially at a time when the company’s cash position was so weak.
In interviews and public appearances, Legere has portrayed himself as a relative newcomer to Global Crossing, underscoring his official appointment as chief executive in late 2001 with phrases such as: “When I came on board Oct. 3 ... " or “I came in as the CEO on Oct. 3
What Legere doesn’t mention is that he worked closely with Global Crossing through much of 2001 -- a period under scrutiny by the Securities and Exchange Commission for possible accounting irregularities and insider trading. Global Crossing, which has denied wrongdoing, says in its bankruptcy filings that it is attempting to negotiate a settlement with the SEC. The company, meantime, was forced to restate its 2001 earnings.
Legere’s association with the company actually began in 2000, as founder Gary Winnick was moving to expand his fast-growing network company into Asia. Winnick, a former carpet salesman who once was named the richest man in Los Angeles, resigned as chairman of Global Crossing in December.
Global Crossing, which launched as the telecommunications industry was deregulated in 1996, had a vision to build a network of fiber-optic cable with the ability to move data and voice traffic around the world at the speed of light. The company built the network before a worldwide glut in fiber-optic capacity slammed the industry.
After stints at AT&T; Corp. and Dell Computer Corp., Legere in February 2000 signed on as chief executive of Asia Global Crossing, a joint venture between Global Crossing, Microsoft Corp. and Softbank Corp. that became a separately traded public company eight months later.
Legere’s three-year contract paid him more than $30 million, including guaranteed bonuses, a $15-million loan that was to be forgiven in installments and substantial extra compensation to cover interest payments and taxes.
“This guy’s done well for himself,” said compensation expert Graef Crystal. Making the $15-million loan, in particular, stands out to Crystal as an example of “foolish” behavior by the company.
While at Asia Global, Legere helped the company complete a $476-million stock offering and expand far into Asia through joint ventures and deals to use fiber-optic lines owned by other companies. Halfway into 2001, Legere began pushing to take over the top job at Global Crossing, according to former executives.
He got his wish that October, when he became the parent company’s fifth chief executive in four years. He also stayed on as CEO of the subsidiary, which was 58.8%-owned by Global Crossing.
In the eyes of corporate watchdogs, the arrangement presented an inherent conflict. That’s because Asia Global and Global Crossing -- with their separate and distinct groups of shareholders -- sometimes found themselves on different sides of the negotiating table. This happened when the two companies contemplated a merger, and also when Asia Global laid claim to a $400-million infusion that Global Crossing was intent on keeping for itself.
“I would not think that’s kosher” to have Legere at the head of both enterprises, said Nell Minow, editor of the Corporate Library, a Web site that focuses on corporate governance issues.
The pay package that came with Legere’s move to Global Crossing replaced his Asia Global deal and -- once it was known -- triggered stinging criticism inside and outside the company. For his promotion to Global Crossing, Legere received a salary of $1.1 million a year (double his pay at the subsidiary), along with a $3.5-million signing bonus, plus $3 million to cover taxes on that bonus.
In addition, Global Crossing forgave the remaining $10 million of Legere’s Asia Global Crossing loan and agreed to pay another $10 million in various taxes on Legere’s behalf. Later, Legere collected several hundred thousand dollars in severance from Asia Global, before the subsidiary’s board halted the monthly payments over a variety of disputes.
“I understand that coming into a failing company is both a high-risk situation and also a situation that demands the kind of talented people who have many opportunities,” Minow said. “What you really want, though, is someone who will really bet on himself ... someone who will not take care of himself to the detriment of others.”
‘Unique Set of Skills’
Regarding his pay, Legere told employees at the time: “It takes a unique set of skills, experience and leadership ability to tackle this job in the midst of what might metaphorically be called “a perfect storm.’ ”
Legere later agreed to reduce his yearly salary temporarily to $770,000 while bankruptcy proceedings continued, but that reduction was more than offset by retention and other bonuses called for under his revised contract approved by the Bankruptcy Court.
“The creditors committee looked very closely at the compensation issues and what we thought we were getting and concluded that it was a fair bargain, and I think people still feel that way,” said Joe Ryan, another attorney for Global Crossing’s unsecured creditors.
Other top Global executives fared less well. Their contracts were canceled instead of renegotiated. Although some stayed on at Global and were even paid large bonuses, they lost the protection and security provided by a formal employment agreement.
As for the middle managers and lower-level employees who were let go by the company, they became furious that Legere received millions -- and then declined to ask the Bankruptcy Court to increase severance payments to those recently laid off. Such requests were granted in the WorldCom Inc. and Enron Corp. bankruptcy cases.
“He comes across as a guy that cares about everybody, and he just doesn’t,” said one former employee. “Look at the compensation package that he’s getting. They don’t have coffee at Global Crossing anymore, and here he’s getting millions. That’s pretty hypocritical.”
Said another former employee: “One thing that’s pretty clear about John is that he wants to make sure he’s taken care of.”
In late December 2001 and early January 2002 as Global Crossing’s bankruptcy papers were being drawn up, Legere repeatedly pestered employees to shepherd the big payments called for under his employment agreement, according to several people familiar with the episode. Two weeks before the bankruptcy filing, Legere summoned a vacationing employee and demanded that she make sure Global Crossing paid the taxes for him on the $10 million in loans that was forgiven, these people said.
“He knew full well that they were filing bankruptcy, but he wanted to make sure his stuff was done first,” said one former employee.
Meanwhile, Legere and Global Crossing unveiled a disastrous third-quarter financial report to Wall Street that detailed mounting losses, revenue well below projections, large layoffs and office closures.
The company also warned that it might violate requirements tied to billions of dollars in bank debt.
Financial analysts already had grown wary of Global Crossing’s so-called capacity swaps -- reciprocal deals with other companies that helped Global meet revenue and other financial targets but consisted mostly of exchanging capacity and cash. Although they looked good on paper, such transactions added little to the company’s coffers.
Increasingly in 2001, Global Crossing could not sell capacity on its network without spending a roughly equal amount to buy capacity from the same customer. In such cases, Global Crossing booked its sale as revenue but listed the capacity it bought in return as a capital expense that was spread over time.
SEC investigators suspect that in 2001, Global Crossing and other telecoms engaged in last-minute swaps designed mostly to help the companies involved avoid missing revenue targets and violating debt covenants.
Global Crossing has denied that it used swaps to mislead investors and the public. Last February, a special committee of Global Crossing directors found that the company’s reciprocal deals were legitimate transactions.
But, in a November 2001 third-quarter conference call, Legere criticized the industry’s reliance on such contrivances, telling analysts he was proud of Global Crossing’s “willingness to forgo masking our results for the quarter by a series of reciprocal transactions that would have let us sit here with a set of rosy results,” according to a transcript of the call.
Once a Proponent
At Asia Global, though, he had been a big proponent of many such transactions.
E-mails obtained by The Times show that he resisted efforts to cut back on the deals and to include more explicit explanations of them in financial statements. Legere is mentioned in or received copies of other internal e-mails -- which were produced by the company for the SEC and other government investigators -- in which Global Crossing employees discuss ways to land last-minute deals to boost end-of-quarter numbers.
On June 27, 2001, for instance, Asia Global sold $32.5 million in capacity to struggling Flag Telecom and bought the same amount from Flag in return -- a deal insiders say allowed Asia Global to make its second-quarter targets and triggered bonuses to Legere and other executives.
In late September, a top officer at Asia Global told Legere that the company should reduce or discontinue booking swaps that used up precious cash unless they had clear strategic value. Legere wrote back, “See me as I have new data as to why we would do swaps!” He added in a subsequent missive: “Let’s discuss.... It has to do with [debt] covenants.... Be sure to ask me!”
Asia Global’s results were an important part of Global Crossing’s own financial picture because the subsidiary’s numbers were consolidated into Global Crossing’s balance sheet.
E-mails from inside Global Crossing at that time show that employees were worried about violating bank covenants surrounding $2 billion in loans, and they were working to book swap deals to avoid a showdown that could have driven the company immediately into bankruptcy.
Also late in 2001, Global Crossing was drawing down its bank lines of credit, and that further worried Asia Global’s board and bondholders. They suggested to Legere that the subsidiary tap its own $400-million credit line with the parent company before Global Crossing ran out of money.
It was then that analysts began asking how Legere could sit at the helm of Asia Global, which wanted the $400 million, while simultaneously running Global Crossing, which was trying to hang on to the money.
“I’ve got a unique view of the overall operations of both companies,” he told Wall Street during a Nov. 8 conference call. “There is no pending situation that shows cash not being available in the near future” at Global Crossing. He added that Asia Global was “fully funded” and didn’t need the $400 million.
About a month later, under pressure from Asia Global bondholders, Legere relinquished his CEO post at the subsidiary. Asia Global promptly asked to draw down its line of credit at Global Crossing. The parent company, with Legere in charge, refused to provide the money.
A year or so after that, Asia Global fell into bankruptcy. “The $400 million,” said one insider, “killed Asia Global.”
Times librarian Penny Love contributed to this report.