Forum for Shareholders of CA, Inc.

Forum Home Page

Pending Status

Forum activities relating to CA, Inc. are temporarily suspended pending release of a court-appointed Examiner's report on management compliance with a Deferred Prosecution Agreement.

CA Forum Home Page

CA Research Reference


Report of CA Board's Special Litigation Committee

(April 13, 2007)

A full copy of the referenced Report can be downloaded from the following link:

A "CA, Inc. Special Litigation Committee Report" was submitted to a Delaware court on April 13, 2007, presenting conclusions reached by the Committee (referred to as the "SLC") in its investigation of claims against former and current members of the board.

While the SLC was organized specifically to "determine and control the Company’s response" to litigation initiated by shareholders (see pages 1-2 of the Report) and necessarily focuses on the relevant issues of legal liability to be considered by the court, the Report also offers information and observations concerning the practical effectiveness of director oversight to be considered by shareholders in their voting decisions.  Following is a section of the Report's conclusions addressing governance concerns (see pages 39-42 of the Report; note that the term "WLRK" refers to Wachtell, Lipton, Rosen & Katz LLP, the law firm engaged by the Company in 2002 to defend it in relation to government investigations):

In sum, and to state the obvious, for most of its history CA was not a model of

corporate governance. The scope of the SLC’s investigation – of claims against twenty-two

(22) individuals and entities – revealed flaws in how the business was managed. In addition,

while the directors fulfilled their fiduciary obligations, the SLC found that they did not always

grasp the opportunities that should be the aspirational goal of every board.[16] As such, although

not part of the SLC’s mandate, the SLC nonetheless believes that it is appropriate, for the

benefit of the current and future members of CA’s Board (and others), to comment on the

Board’s response to these events. In offering this commentary, the SLC recognizes that it is

easy, with the clarity of hindsight, to criticize the Board’s reactions to these events given what

is now known about the scope and magnitude of the fraud. The SLC also offers this

commentary while acknowledging that the Company’s most senior managers, who directly

controlled the information flow to the Board, engaged in active efforts to conceal information

from the Board (and some have pled guilty to serious federal crimes).

The SLC believes that the non-management Oversight Directors were presented

with opportunities, at several points in time, where they could have engaged in a searching

analysis. The Board could have taken incremental steps to seek verification of the Company’s

financials when the vesting of the KESOP was imminent; it could have actively probed the

accountants once the KESOP vested; it could have probed management’s explanation as to the

timing of when it learned of the effects of the events in Asia; it could have connected the news

of slowing growth in Asia to the billion dollar stock award that vested eight (8) weeks earlier; it

could have treated the allegations made in the shareholder litigation following the vesting of the

KESOP in a less cursory fashion; it could have probed management, specifically Mr. Zar, and

its outside accountants, more thoroughly when the New York Times article was published; it

could have sought independent legal or accounting advice and taken more time to consider the

issue. The events discussed above, alone or in concert, may have put a skeptical director on

alert that something was amiss, but no director at CA drew that conclusion.

Likewise, the SLC believes that, although the directors satisfied their duties

during the government investigation, there are still things that the CA Board could have done

better (and thus provide lessons for this and other boards). First, the SLC found that the CA

Board could have taken steps to more fully understand the role played, and actions taken (and

not taken), by WLRK in its representation of the Company during the investigation. The SLC

found that the directors believed that WLRK was conducting a full scale investigation “to get to

the bottom of things,” when instead WLRK was hired to defend the Company and not to

uncover wrongdoing. Second, in 2003, when the government expressed dissatisfaction with

CA’s document collection and production efforts, the CA Board could have probed to

understand what had occurred and, if a problem existed, taken action to remedy that problem,

such as insisting that outside counsel actively assist the Company with the collection efforts

rather than relying exclusively on inside legal staff to do this critical job. The SLC recognizes,

however, that WLRK never suggested to the Board that any additional action be taken at any

time, and the Board was continually assured by inside and outside counsel that the Company

was fully cooperating with the government. Third, overall, the CA Board could have viewed

the assurances it received from management – especially those made after January 2003 when it

learned that CA and its customers had received grand jury subpoenas – with a greater

skepticism and insisted that outside counsel independently assess and verify those assertions.

This is a theme that the SLC will return to throughout this report – that the CA

Board, at various points in time, too often accepted the explanations and assurances of CA

management and its advisors without applying a high degree of skepticism or fully

understanding the details of what was being done. Such skepticism and careful probing of

management and advisors might have led the directors to take further action in situations where,

although action was not required to satisfy their fiduciary duties under Delaware law, it

nonetheless might have benefited the Company and saved it from further harm.

This leads to several additional conclusions that the SLC takes away from its

investigation concerning a board’s use of outside, professional advisors, whether those

professionals are legal, financial, accounting, or otherwise. While these conclusions may seem

intuitive, in hindsight, the SLC, in both this investigation and in drawing on its own Board

experiences, has found this not always to be so. The SLC believes that it is imperative that

Boards clearly define, and understand, the scope of the engagement of those professionals. It is

clear that those professionals hired by a Board will understand, and adhere to the scope of that

engagement, and a Board must ensure that it has the same understanding of that scope. As a

corollary, a Board must ensure that it remains updated and aware of what those professionals

are doing during the course of the engagement, so in the event that circumstances change, a

Board can likewise change the scope of the professionals’ engagement, if necessary. Moreover,

especially in situations as critical as the one that CA confronted, the professionals have a

responsibility to take all necessary steps to make sure that the Board – and not just Company

management – understands precisely what the professionals are, and are not, doing. But in the

end, at all times, the onus is on the Board to actively and appropriately manage and supervise

its professionals, and without having these understandings, a Board will not have the

wherewithal to do so.

[16] Chancellor Chandler’s influential decision in the Disney matter recognized this distinction:

But the law of corporate fiduciary duties and remedies for violation of those duties

are distinct from the aspirational goals of ideal corporate governance practices.

Aspirational ideals of good corporate governance practices for boards of directors

that go beyond the minimal legal requirements of the corporation law are highly

desirable, often tend to benefit stockholders, sometimes reduce litigation and can

usually help directors avoid liability. But they are not required by the corporation

law and do not define standards of liability.

Disney, 907 A.2d at 745 n.399.

Addressing the performance of board members in the context of legal liability, however, the Report was similar to those of many other special litigation committee investigations in arguing that all misconduct was attributable to departed managers who misled the directors responsible for oversight (summarized in pages 4-9 of the Report), and that all continuing directors had satisfied "legally sufficient" standards of conduct to avoid litigation claims (explained in pages 20-39).



The Forum is open to all Computer Associates ("CA") shareholders, whether institutional or individual, and to any fiduciaries or professionals concerned with their investment decisions.  Its purpose is to provide shareholders with access to information and a free exchange of views on issues relating to their evaluations of alternatives, as described in the Forum Summary.

There is no charge for participation.  As stated in the Conditions of Participation, participants are expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

Inquiries and requests to be included in the Forum's distribution list may be addressed to

The material presented on this web site is published by Gary Lutin, as chairman of the Shareholder Forum.