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The Wall Street Journal  

September 16, 2006


Corporate Governance
D'Amato, Others
Under Fire at CA

September 16, 2006; Page A2


Another board showdown looms next week, with former Sen. Alfonse D'Amato expected to come under attack from corporate-governance types at Monday's annual meeting of CA Inc. -- formerly known as Computer Associates -- where he's been a director since 1999.

The CA meeting gives governance advocates an opportunity to go after the board and accountant KPMG for their perceived failures to halt accounting fraud in 2000 and 2001, or a stock slide since then. In those years, the company regularly exaggerated quarterly results, booking a total of $2.2 billion in revenue after a quarter ended in what were known as "35-day months."

Former Chief Executive Sanjay Kumar heads a list of former CA executives and employees who have pleaded guilty to federal charges of fraud and obstruction of justice. Mr. Kumar is scheduled to be sentenced Oct. 12. Until he left the company, Mr. Kumar promoted CA as a paragon of corporate governance.

Starting in 2004, the board of the big software company replaced many top executives, while new management asserted CA had finally cleaned up its books. But this year, it reported several more-recent accounting shortcomings that required restatements, admitted to material weaknesses in its systems, and uncovered some older problems, including stock-options misdating, that altogether required $342 million in earnings restatements.

Now, three proxy-advisory firms -- Institutional Shareholder Services, Proxy Governance Inc. and Glass Lewis & Co. -- are recommending that shareholders withhold a vote next week for Mr. D'Amato, CA's longest-serving director and a member of its audit committee.

The vote to withhold is nonbinding. Earlier this year, the Securities and Exchange Commission rejected one shareholder group's attempt to hold a binding motion removing Mr. D'Amato and nonexecutive Chairman Lewis Ranieri from the board.

However, Shirley Westcott, director of policy at Proxy Governance, said, "If he got a significant withhold vote, probably the board would ask him to resign, or he would resign." Mr. D'Amato's office referred calls to CA, where a spokesman declined to "speculate" on the matter.

Glass Lewis recommends withholding votes from Mr. Ranieri, a former investment banker who joined the board in 2001, saying he "should be held accountable for failing to put in place an effective management team." Glass Lewis also recommends withholding votes for two other members of the board's audit committee who have served since 2002. And it advises voting against keeping KPMG, which has been CA's auditor for seven years.

The other advisory firms recommend voting for all the directors except for Mr. D'Amato and keeping KPMG.

Institutional Shareholder and Glass Lewis also go against management by backing a contentious binding resolution that would require a unanimous vote by directors or a shareholder vote to continue the company's poison-pill antitakeover provision. CA tried to keep the resolution, proposed by Harvard Law professor and corporate-governance expert Lucian Bebchuk, off the proxy. However, a Delaware judge said CA could challenge its legality if it passes. CA declined to say if it would go back to court if shareholders approve the proposal.

Write to William M. Bulkeley at bill.bulkeley@wsj.com3

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