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The Wall Street Journal  

January 29, 2005 10:35 a.m. EST

DAVOS: In Ironic Twist, CA Benefits From Sarbanes-Oxley

January 29, 2005 10:35 a.m.


DAVOS, Switzerland -- The climate of heightened scrutiny of corporate financial statements can be traced partly to the history of accounting troubles at software maker Computer Associates International Inc. (CA).

So it's something of an ironic twist that the 2002 Sarbanes-Oxley corporate-reform law,enacted to counter financial irregularities, is spurring sales of CA's business software, which can help corporate clients automate compliance with the law.

John Swainson, president and incoming chief executive, said Saturday on the sidelines of the World Economic Forum here that annual sales of CA's compliance-related software and services could reach a "couple hundred million" dollars, compared with roughly $10 million to $20 million now. CA had $3.3 billion in revenue in fiscal 2004.

"Ironically, here's where I think there is a very interesting business opportunity for my firm," Swainson told Dow Jones Newswires. "We expect our customers will make fairly extensive use of that."

Computer Associates, of Islandia, NY, went through a messy accounting scandal that brought down top management last year and led to criminal charges against some former executives, including ex-CEO Sanjay Kumar.

Even in the years before the indictment there were questions about CA's accounting, which fed the growing investor suspicion of companies that culminated in Sarbanes-Oxley.

After Kumar was ousted, CA director Kenneth Cron took over as interim CEO. Swainson was lured away from an executive post at International Business Machines Corp. (IBM) to become permanent CEO, a post he'll assume shortly.

Swainson's charge is to help CA recover from the accounting scandal. Part and parcel to that is CA's implementation of the Sarbanes-Oxley requirements, which among other issues forces companies to take steps to guarantee the accuracy of financial statements.

"Part of it is of our own creation," Swainson said of Sarbanes-Oxley. "We as a company had a significant lapse of fiscal probity. Certainly we were in need of remedial action."

But while acknowledging CA's own role in the souring of investor faith in financial statements, Swainson said he has mixed feelings about the law. He echoed a concern cited by many other executives in Davos - that some provisions of the law have landed companies with greater-than-necessary expenses.

CA itself is paying heavy costs, though that's not surprising given its tainted past. Swainson estimated the company will have spent $50 million preparing a required review of its internal controls, which is due after its fiscal year ends March 31.

He said he spends about three to four hours a week meeting with a team of CA employees dedicated to Sarbanes-Oxley. Some 200 CA employees work on Sarbanes-Oxley compliance.

"This is enormously expensive and time consuming," Swainson said. "While it has value, to be sure, I'm not sure the cost-value equation is necessarily in synch." He said the burden falls most heavily on companies smaller than CA.

He did say, though, that CA has gained valuable insights as a result of the internal review.

For instance, CA found that it could save money by consolidating several back-office operations in Europe into one location. Swainson added that he had no problems with an earlier Sarbanes-Oxley rule requiring CEO's to certify the accuracy of their financial reports.

Separately, Swainson said he expects consolidation in the software industry to continue. He said CA, which acquired two companies late last year, anticipates doing more acquisitions. Ideally, such buys would strengthen CA's position in sales of systems-management and security software, he said.

-By Peter Loftus, Dow Jones Newswires; +41 79 423 6770,

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