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The following report is copied with permission from Corporate Governance Highlights, a private weekly newsletter for clients of Investor Responsibility Research Center ("IRRC"), the leading source of impartial, non-advocacy research for institutional investor interests in corporate governance and proxy voting issues.

Corporate Governance Highlights
Vol. 12, No. 31                                                                                                                              August 3, 2001


In High Profile Proxy Battle, Dissident Group Reconsiders Its Plan

RANGER RETHINKS CEO ARRANGEMENT. Ranger Governance’s plans to retool Computer Associates apparently are still taking shape, several of those involved in the high profile proxy fight told IRRC in an August 2 meeting. Originally, Ranger had said it planned to divide the company into four groups—storage management, security management, network management and knowledge management—each to be overseen by its own CEO. Breaking the company into four pieces has been criticized by some analysts who think this will lead to fragmentation and others who think it will increase operating costs. Now, said George Ellis, a former chief financial officer at Sterling Software and a Ranger team member, Ranger is rethinking its arrangement, and is considering the possibility of adding another top-level CEO who would oversee these four CEOs and four corporate components. Ellis explained that if such a position were to be created, Ranger Governance’s Sam Wyly would not serve in that capacity; instead he would fill the board chairman’s seat. The four CEOs would be chosen from both inside and outside the company, he said.
Ellis and his team also told IRRC that both potential board nominees and institutional investors are intimidated by Computer Associates. They said they could not convince any CEOs to serve as dissident nominees to Computer Associates’ board because the executives feared that it would affect the licenses that granted their companies’ access to Computer Associates’ software. Ellis said several institutional investors told him that they could not back publicly Ranger Governance’s bid for Computer Associates’ board because they feared similar consequences. Computer Associates has about 55 percent institutional ownership.
A few months ago, Ranger Governance conducted a survey of Computer Associates’ clients that it says found a significant level of dissatisfaction. The company, in turn, complained to the SEC that the survey results were inaccurate. Now, Ellis said, Ranger Governance has obtained, and plans to release next week, results of a survey that Computer Associates conducted of its customers. “In this survey, 55.8 percent of the companies surveyed said the value of Computer Associates products was fair or poor,” said Stephen Perkins, a dissident nominee and co-founder of Sterling Commerce. 
Ranger Governance has drafted a rather detailed “Corporate Governance Charter” outlining the changes it would make to Computer Associates’ governance practices if the Ranger nominees are elected. The charter says the board would be comprised of 10 to 12 directors, and four committees: audit, human resources and compensation, product development and acquisition, and governance and nominating. The governance committee would be charged with establishing policies and practices for the board, which would include such matters as the frequency of meetings, executive sessions, board evaluation and director effectiveness, mandatory retirement age and the director nomination and removal process. There would be no executive committee. Each of the committees would be comprised solely of independent directors who have no business ties to Computer Associates other than through their service as board members.
Other moves to improve the company’s governance practices include making director compensation equity-based with no fringe benefits. In addition, “equity interests would be subject to a vesting schedule to insure continued dedication to the company’s affairs.” There would be guidelines for stock ownership by directors and a timetable by which targeted levels of ownership would have to be accomplished. Executive compensation would be tied to the company’s financial performance and shareholder value. Stock options for directors, CEOs and top managers could not be repriced. Ranger would eliminate the company’s poison pill.
WYLY PROPOGATES THE FAITH ELSEWHERE. Included in an information packet about Ranger Governance’s plans for revamping Computer Associates is an announcement of the governance changes that Michaels Stores is adopting. The announcement says Michaels Stores Chairman Sam Wyly will step down to become vice chairman, while his brother, Charles Wyly, who had served as vice chairman, will assume the chairmanship. Sam Wyly says he is stepping down to devote more time to the Computer Associates proxy battle.
The brothers’ switch is accompanied by a bevy of governance changes that mirror many of the governance reforms that Ranger Governance is proposing at Computer Associates. The announcement says Michaels will expand its board from five to seven members after its annual meeting in October. With this expansion, five of the seven members of the board “will be independent of the family of Charles J. Wyly and Sam Wyly,” says the announcement. The company also plans to create a corporate governance and nominating committee that will be charged with drafting corporate governance guidelines for the company and nominating candidates for election to the board. As part of this major overhaul, the board’s executive committee will be disbanded so most issues will be considered by the full board. The company also plans to—subject to shareholder approval—declassify the board.
The news release also notes that Michaels never has had a poison pill in place, has a policy of not repricing stock options without shareholder approval, and ties its executive compensation to profit targets as well as to share price appreciation. Michael Rouleau, who has served as CEO  since 1996, does not sit on the company’s board.
“Good corporate governance and good performance go hand-in-hand, and the steps we’re announcing today underscore Michaels’ commitment to both,” said Charles Wyly. “We respect the rights of shareholders to vote on our performance as directors each year and will not have any arbitrary impediments—such as poison pill or staggered board—to changing stewardship of the company if warranted.”
Sam Wyly learned the hard way about the importance of good governance practices. In 1995, when he was serving as chairman of Michaels Stores, he was criticized for his involvement in a deal with Lehman Brothers. As part of that arrangement, he benefited when the price of Michaels’ shares fell. In 1998, Calpers named Michaels Stores on its focus list of underperforming companies, and said the company had committed “some of the most egregious corporate governance practices” among its industry peers. The pension fund noted that although the company’s stock price plummeted between 1993 and 1996, the board awarded “generous golden parachutes.”
“Sam has 36 years of mistakes, and has shown ample eagerness to learn,” said Dennis Crumpler, a dissident nominee to Computer Associate’s board.
To give both slates of candidates for the Computer Associates board an opportunity to discuss their positions on the issues that concern shareholders, Gary Lutin, who cosponsored similar programs for the New York Society of Security Analysts, is conducting a forum open to all Computer Associates shareholders and members of the Association of Investment Management and Research. Those interested in participating should contact Lutin by email at or by phone at 212/605-0335.



Investor Responsibility Research Center

1350 Connecticut Avenue, NW, Suite 700

Washington, DC 20036

Tel: (202) 833-0700

Fax: (202) 833-3555     


                          Editor: Rosemary Lally


Contributors: Brian Belensky, Allie Monaco,
Maria Carmen S. Pinnell and Virginia Rosenbaum



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.

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