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[WSJ.com]
March 28, 2002

Technology

Amid Criticism, Computer Associates
Names Outside Directors to Its Board

By JERRY GUIDERA
Staff Reporter of THE WALL STREET JOURNAL
 

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 company."

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 jerry.guidera@wsj.com1


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