As former Hewlett-Packard Co. (NYSE:HPQ - News) president Michael Capellas prepares to assume the helm at scandal-plagued WorldCom, he faces challenges such as booting board members and top officers linked to the old management regime, restoring credibility on Wall Street even as the extent of the accounting problems remain unknown, and stopping the exodus of customers.

And that's just in his first few weeks, analysts said.

"The biggest challenge is that he's dealing with distrust/**/... distrust from the people on Wall Street," said Frank Dzubeck, head of media consultancy Communications Networks Architects. "It order to fix distrust you have to make radical moves, and make them quickly."

WorldCom's creditors' committee on Wednesday was set to approve Capellas as CEO and chairman of the No. 2 U.S. long-distance telephone company, and an announcement could be made as early as Thursday, according to media reports.

"He's not a growth-oriented guy. Because he comes from a fiscally conservative background, he's not as risk-oriented as others in the industry. If I was on the board and looking for someone to come in and stabilize WorldCom and sell it, I'd look for someone like Capellas," Dzubeck said.

Fresh from the hard-won merger of H-P and Compaq, Capellas is no stranger to deal-making and hard work. But WorldCom, which filed the world's largest bankruptcy in July, offers particular risks.

ACCOUNTING SCANDAL

Clinton, Mississippi-based WorldCom and energy company Enron Corp. have become household synonyms for fraud and corporate malfeasance run amok. Details of its accounting scandal, which so far tops $9 billion, and investigations by the Securities and Exchange Commission and congressional committees, continue to fill newspapers daily.

To fix the problems of the past, the company has hired restructuring experts, and named new board members. But more must be done to convince customers not to flee to traditional industry stalwarts like AT&T Corp. (NYSE:T - News) and sway Wall Street to trust a company whose shareholders lost $140 billion in value, analysts said.

Last week, an examiner in the WorldCom case issued a report that said WorldCom took "extraordinary and illegal steps" to manipulate its financial records. The company had a number of "troubling and serious issues ... that related to the culture, internal controls, management, integrity, disclosures and financial statements of the company."

WorldCom is expected to announce shortly a deal with the SEC to settle charges it committed securities fraud by manipulating its financial records, sources familiar with the situation said. At least five other WorldCom board members are expected to be replaced, and a new management team will recruited, sources said.

"Anyone with ties to the old regime -- to the Bernie and Scott era -- will probably go," said one source.

WorldCom's former chief executive Bernie Ebbers resigned in April as the company's financial and legal problems mounted. The company fired then-chief financial officer Scott Sullivan in June when it disclosed its accounting errors.

CREDIBILITY ISSUE

Known for diplomacy, execution and deliberation, Capellas has qualities that could bring stability to WorldCom, and soothe various constituents from disillusioned employees to gun-shy creditors and vendors, analysts said.

He also has the patience to work through the details and constraints of the bankruptcy reorganization process, and mesh the many acquisitions and billings systems that the former WorldCom managers failed to integrate, analysts said.

"It lends credibility to WorldCom to bring in an outsider. And he'll probably purge the board, purge officers," said Guzman & Co. analyst Patrick Comack.

"You don't need a telecom guy to come in and change the company. You need someone with credibility and experience. And he's got a lot of experience in facing big, enterprise (corporate) customers," Comack said.

Capellas took over the helm at Compaq in July 1999 as the company was struggling to integrate its acquisitions of Tandem Computers and Digital Equipment Corp., which it bought in 1997 and 1998, respectively.

He meshed the disparate operations, cut costs, moved toward higher-margin direct sales and dropped non-core products like routers and chips. He also worked within the company to motivate workers, rather than trying to force a new culture on them, analysts said.

But along with WorldCom's many headaches, Capellas also will inherit valuable assets such as a high-speed network that transmits about half of the world's Internet traffic and the nation's second-largest long-distance telephone business.