March 28, 2002
Amid Criticism, Computer Associates
Names Outside Directors to Its Board
By JERRY GUIDERA
Staff Reporter of THE
Computer Associates International Inc., under fire for what some
investors view as its insular corporate culture, named two high-profile
outside directors to the company's board.
The two new directors are Walter P. Schuetze, a former accounting chief
at the Securities and Exchange Commission during the Clinton administration,
and Harvard University professor Jay W. Lorsch, a respected
corporate-governance expert. Mr. Schuetze has been quietly advising the
Islandia, N.Y., software maker on accounting issues since May as part of a
three-person outside advisory group, the company said. Mr. Lorsch has been
advising the company since October on governance issues.
In a statement, Computer Associates Chairman Charles Wang called the
pair's decision to join the board "a strong vote of confidence in our
The board appointments came on the heels of a new attempt by Texas
investor Sam Wyly to unseat senior Computer Associates managers. In a letter
to directors Monday, Ranger Governance Ltd., an arm of the Dallas-based
Ranger Capital Group hedge fund run by Mr. Wyly, urged the board to fire the
company's top three executives, Chairman Charles Wang, Chief Executive
Sanjay Kumar, and Chief Financial Officer Ira Zar.
Computer Associates, however, said its changes were unrelated to Mr.
Wyly's latest salvo and Mr. Lorsch said he was approached about taking a
board seat six weeks ago.
In the Monday letter, Stephen Perkins, managing partner of Ranger
Governance, said Computer Associates privately made promises to investors,
but hasn't yet fulfilled them. For example, he argues in the letter,
Computer Associates hasn't followed through on assurances that it would drop
its so-called pro forma, pro rata accounting, in which the company changed
the way it calculated revenue and failed to provide numbers that showed how
it would have done under the old system. Mr. Perkins also alleges, among
other things, that Computer Associates has failed to address its
"significant customer dissatisfaction problem" and hasn't yet taken
sufficient steps to make the firm's board more independent.
Mr. Perkins, who said Ranger holds three million options for $30 million
of Computer Associates stock, charged the company with "Enron-like creative
accounting." He asserted that new management at Computer Associates would be
able to increase shareholder value fivefold within five years.
Computer Associates has maintained that it didn't make the promises
outlined in the letter. Spokesman Bob Gordon Wednesday called Mr. Perkins's
letter "misleading, self-serving and inaccurate." He said the effort to
unseat top management "only hurts shareholders."
Mr. Wyly, who acquired the shares for Ranger Governance when he sold a
software firm he helped manage to Computer Associates two years ago, tried
to place his own slate of four directors at the company's annual meeting
last August. More than 80% of the votes cast were in favor of the incumbent
board; however, Mr. Wyly's bid forced Mr. Kumar and other managers to spend
much of the summer securing the support of large shareholders such as
Fidelity Investments and State Street Bank.
"A lot of these big investors said, 'Okay, Kumar, we'll give you another
year,' " Mr. Wyly said in an interview. "But so far, it hasn't worked."
Mr. Wyly thinks his odds are better the second time around. Still, he
said he plans a significant lobbying effort to persuade large shareholders
to join his fight against management. However, he hasn't decided whether he
will launch another proxy fight. Last year's battle cost Ranger Governance
more than $10 million.
Some analysts were quick to dimiss this second Ranger effort. "I do not
think that Wyly's chances of success are very good," said Peter Goldmacher,
a Merrill Lynch & Co. analyst in New York. "We saw what happened last year
with his bid to replace the board."
As it appointed the two new directors, Computer Associates also announced
that another outside director, Linus W. Cheung, who was named to the firm's
board last June, has resigned because of heavy business commitments
elsewhere. The company's board now stands at 11 members, up by one.
Write to Jerry Guidera at
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