Cowboy Culture Played Host at WorldCom Ranch

But wait. There's more.

In yet another example of the cowboy culture that ran roughshod over the company formerly known as WorldCom, a former top executive made tens of thousands of dollars renting out his Texas ranch to the now bankrupt telco for company meetings, TheStreet.com has learned.

Though it's not illegal for a high-level executive to do business with his company, the executive -- onetime Chief Operating Officer Ron Beaumont -- was yet another WorldCom honcho who apparently broke free of the usual restraints on executives at publicly traded companies.

WorldCom -- now known as MCI -- never publicly reported any related-party payments it made to Beaumont's Ranch. Additionally, Beaumont's wife, Linda, wielded her husband's authority to pressure WorldCom into paying a charge that was more than reasonable and customary, says a former WorldCom employee.

Finally, Beaumont -- who at the time headed WorldCom's operations and technology unit, before later becoming COO -- didn't limit his ranch's telecom-industry guest list to WorldCom. The executive, then the ultimate authority for WorldCom's purchases of telecom gear, rented out his ranch to at least one telecom equipment supplier seeking to do business with WorldCom.

Granted, this week has already delivered a vivid portrait of management run amok at WorldCom, with two lengthy reports alleging an $11 billion accounting fraud, insufficiently diligent due diligence, an idiosyncratic compensation system, a flock of sheeplike directors and executive loans gone wild.

But the tale of Ron Beaumont, his ranch and WorldCom -- which last year became the nation's largest-ever Chapter 11 case -- provides an additional illustration of how questionable corporate practices rarely spring up out of nowhere.

"Even in highly decentralized companies, where shenanigans have been found in one part, often shenanigans are found throughout other parts of the organization," says Thomas Donaldson, a professor who teaches business ethics at the University of Pennsylvania's Wharton School of Business. Emphasizing that he is speaking generally and not about the specific allegations at WorldCom, Donaldson says, "It's as if the whole way of approaching business has silently spread itself throughout the habits of the organization."

Beaumont's attorney, Carey R. Dunne, said Beaumont would not comment for this story. An MCI spokeswoman also declined to comment, other than to note that Beaumont is no longer with the company.

Ranch Dressing

At issue is WorldCom's use of a facility known as the Beaumont Ranch in Grandview, Texas, about 40 miles southwest of downtown Dallas. Ron and Linda Beaumont bought the 3,200-acre spread in 1997, according to a December 1999 press release calling the ranch "one of the most unique special-event complexes in the Lone Star State." Already, the press release stated, the ranch had played host to "weddings, proms and corporate team-building events." That 1997 purchase, by the way, came the year before former WorldCom CEO Bernie Ebbers bought himself a 164,000-acre ranch in British Columbia.

Five months after the Beaumont Ranch's grand opening announcement, the Texas ranch played host to an event called the Operations and Technology Roundup -- a gathering of more than 80 WorldCom executives, most of whom either reported directly to Beaumont, WorldCom's then-president of operations and technology, or were the next level down in the organization.

Kate Demarest, who worked as an event planner at WorldCom from 1999 until 2002, says that after it was decided that the June 2000 two-day get-together would be held at the Beaumont Ranch, the responsibilities of coordinating the event's logistics fell to her.

Demarest says that when she received her assignment in May 2000, she was instructed to extend no special treatment to the ranch as she planned the event with a ranch employee. "I was told to handle it like I would handle anything else," says Demarest.

Power Steering
Click for full size picture

But the directive that she should conduct an arms-length transaction collapsed under pressure, says Demarest.

Most of the elements of the ranch's estimates for the two-day event -- including $7,385 for "fun Western activities" and around $1,500 for Beaumont Ranch T-shirts -- were reasonable, says Demarest. These estimates put the total cost for the meeting between $52,000 to $59,000.

But Demarest balked at paying a $10,000 rental charge for a Beaumont Ranch meeting space. "That was completely ridiculous," says Demarest. At corporate meetings held at hotels -- the usual locations for such gatherings -- WorldCom rarely paid for meeting space, says Demarest. Space rentals for business event locations not involving lodging were "not anywhere in the realm" of the $10,000 the Beaumont Ranch charged, she says.

Just prior to the meeting, which ran June 6-7, Demarest says Linda Beaumont -- with whom she hadn't spoken before -- left an angry message for Demarest on her voicemail. The substance, says Demarest, was "Bernie Ebbers and Ron were very good friends, Bernie had approved this, and it was not my place to question anything."

Demarest's recollection is confirmed by a former colleague of hers, Lindsay Hodgson, who worked as an event planner in the same office and listened to Beaumont's message as well.

Linda Beaumont also complained, evidently, to Ron Beaumont's office. "I received an email from Linda Beaumont this morning very upset about some problem with the Facility Charge for this event," read an email from Ron Beaumont's administrative assistant to Demarest dated June 5 -- the day that WorldCom employees began arriving for the event. "From everything I was told, Ron first ran this by Bernie for approval before moving forward. ... I have tried to page you several times but you must be in transit. PLEASE call me."

Boot Camp
Internal memo beckons invitees to Beaumont party

In response to Linda Beaumont's communications, Demarest says she consulted with her own supervisor for guidance. Her boss got back to her, says Demarest, with a message understood to have come from higher up in the organization: Pay the $10,000.

So WorldCom did. WorldCom ended up paying $47,500 to the ranch, including the $10,000 fee, according to invoices faxed to WorldCom in mid-June. Though that price came in lower than the original estimates, says Demarest, that was because she eliminated certain proposed elements of the event, such as $6,250 worth of Western decorations.

Related Parties

Special treatment for Linda Beaumont and the Beaumont Ranch continued after the roundup. On July 7, Ron Beaumont's administrative assistant called Demarest to say that Mrs. Beaumont was upset because she hadn't received payment for the roundup, according to an email Demarest sent at the time.

After further inquiries from Beaumont's office, a check was overnighted to the ranch the following week. "Sorry for the delay," Demarest wrote to Beaumont's office July 12, "but please keep in mind that this is a 15-day turnaround on something that usually takes 30-45 minimum. They the accounts payable department are really pushing this one."

Perhaps Linda Beaumont was pushing for quick payment because the Beaumonts had overextended themselves with their purchase and restoration of the ranch. At different times, Beaumont borrowed money to pay contractors working on the ranch and to make ranch-related tax payments, according to the WorldCom bankruptcy court examiner's report released Monday. In fact, Beaumont ended up borrowing $650,000 from CEO Ebbers, according to the report -- money which the examiner says Beaumont has yet to repay.

Other WorldCom events appear to have taken place at the Beaumont Ranch. A former WorldCom executive -- one who wasn't one of the roundup attendees -- remembers attending a different meeting at the ranch in March 2000 -- a two-day strategic planning session led by Beaumont. "There were meetings there all the time," says the exec, speaking anonymously. "It was viewed as a way for the company to save money." Neither this employee nor others contacted by TheStreet.com were able to document other meetings, however.

Mad Money
WorldCom email notes billing-procedure confusion

No payments to the Beaumont Ranch are mentioned in any company filings at the Securities and Exchange Commission, though transactions between a company and entities owned by executives often appear in the "Certain Relationships and Related Transactions" section of proxy statements and other reports.

Meanwhile, companies from which WorldCom bought technology apparently held events at the Beaumont Ranch.

Alcatel held a dinner for 400 executives at the ranch in March 2000, says an Alcatel employee who attended. The employee, who spoke on condition of anonymity, recalls seeing an enjoyable half-hour rodeo, complete with calf roping and lasso demonstrations.

An Alcatel spokesman confirms that the company held an "internal event" at the Beaumont Ranch sometime in 2000. "It's one that we needed a Western theme for," says the spokesman, "and that was a good place for it, I'm told." The spokesman declined to comment on speculation that Alcatel may have chosen the Beaumont Ranch site to get or stay in Ron Beaumont's good graces.

A former WorldCom employee who had contact with technology vendors says WorldCom colleagues noticed that more than one supplier held an event at the ranch. "We used to laugh about it then," says the employee, who left the company in 2001.

Because of its size, WorldCom did business with most if not all of the big telecom suppliers and technology outsourcers. Its vendors included the likes of Lucent ( LU), Ciena ( CIEN), Tellabs ( TLAB), ADC Telecom ( ADCT) and EDS ( EDS). Spokespeople at those firms say their companies haven't rented the Beaumont Ranch.

A Nortel ( NT) spokeswoman said she couldn't confirm whether the company has rented the venue. A Fujitsu spokesman said, "We don't normally discuss internal activities publicly." An Ericsson ( ERICY) representative was unable to respond definitively by Wednesday evening to inquiries about the Beaumont Ranch.

Sue Ellen?

Despite its appeal to WorldCom, the Beaumont Ranch certainly wasn't the only choice for Western-themed parties and other events in the Dallas-Fort Worth area. For example, Southfork Ranch, an event facility originally made famous by the TV series "Dallas," is substantially closer than is Beaumont Ranch to both downtown Dallas and the Dallas/Fort Worth International Airport.

For several reasons, says Demarest, the Beaumont Ranch wasn't an ideal location for the June 2000 roundup. Because the ranch didn't have enough on-site lodging, WorldCom had to house executives at motels 24 miles away in Burleson, Texas, then hire buses to transport employees back and forth. (The buses were 45 minutes late on the first day when, after they pulled into a trailer park on their way, "the inhabitants of the trailer park would not let them leave until the police showed up," Demarest wrote at the time.)

Additionally, the employee who reports attending the earlier WorldCom meeting says because executives reporting to Beaumont were spread throughout the country, Dallas wasn't necessarily the most convenient location for a gathering. Atlanta, Chicago, Tulsa or Ashburn, Va. -- where MCI is now headquartered -- could have served as well, if not better, says the employee.

Given the billions of dollars lost by WorldCom shareholders in recent years, and the layoffs of thousands of WorldCom employees -- Demarest included -- Demarest's discomfort with the event she worked on hasn't diminished over time. "If Beaumont had said, 'Oh, come on down, we'll do it for free,' that would be fine," says Demarest. "I felt it was unethical for him to take WorldCom money and put it in his own pocket for profit."

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