CA Team Victorious

'New' CA emerges from proxy battle with outside monitors and more

The bullet that Computer Associates International Inc.s senior management team dodged last week in a shareholders bitter proxy fight may have actually helped forge a new and more responsive CA.

In an effort designed to elicit support from shareholders, CA Chairman Charles Wang and President and CEO Sanjay Kumar made several moves that many observers said were long overdue, such as hiring consultants from outside the company to monitor CAs governance and employee-relations practices.

"We want to be good governance people. We should have governance folks come to the board meeting," said Kumar in an interview here last week at the companys headquarters following the meeting. The company is also seeking additional board members from outside the company.

"CAs management has changed because the imbroglio gave institutional investors the chance to ask CA, What is going on here?" said Peter Kastner, an analyst at The Aberdeen Group, in Boston.

In the preliminary tally of the shareholder votes, Wang, Kumar and their board nominees were upheld by 75 percent of the votes cast. The certified vote tally is due in two weeks but is not expected to differ.

The proxy fight was instigated early this year by CA investor Sam Wyly and his company, Ranger Governance Ltd., of Dallas. Wyly claimed that CAs stock was underperforming and that Wang and Kumar enriched themselves while CAs employees were alienated and its customers disaffected.

Initially, Wyly proposed ousting the entire board of 10 directors, including Wang and Kumar, in favor of a new slate that included himself. But as the date for the shareholders meeting neared, he cut his nominees to four, offered to keep Kumar and withdrew his name. In response, he gained the support of several proxy advisory companies, including Institutional Shareholder Services.

Although unsuccessful in gaining control, Wyly claimed to have achieved larger goals. "We think it has indelibly changed CA," he said at a press conference following the investors meeting. "It has moved it closer to its customers and made it move closer to its employees and be more accountable to its shareholders."

At least one CA customer said the company is showing positive signs. "Theyve gone from spoiled child to reasonable adult," said Mike Lane, technical support manager at Printpack Inc., a printing company in Atlanta and a user of CA products for 14 years.

In recent months, Lane added, "Ive seen theyre a little more willing to negotiate contracts. And Ive got no complaints about CA support." Lane, whose company uses CA-Datacom/ DB, CA-Roscoe and many mainframe packages, praised CAs new licensing plan, which lets him sign a long-term contract but add or subtract specific packages as he needs to.

"Our research shows that CA customers are a lot happier than they were a year ago, when CA started its new sales model," Aberdeens Kastner said.

Wyly asserted that CA has also dropped its pro forma financial reporting practices in favor of strict adherence to Generally Accepted Accounting Principles thanks to his pressure. Pro forma results are often difficult to understand and can put a companys performance in an unrealistically favorable light.

Concern over such accounting practices and outrage over an opulent compensation package for Wang and Kumar two years ago left hard feelings among many investors.

"There has been a loss of trust," said one shareholder at the meeting. The shareholder said the proxy fight administered a much-needed wake-up call and that management showed signs of responding positively, leading him to vote his shares in favor of management.

The shareholder, like many in the investment community, questioned whether Wyly, whose governance of other companies has been questioned, will be an improvement over Wang. Wylys former company, Sterling Software Inc., was acquired by CA last year for $3.9 billion. Ranger Governance owns 630,000 CA shares and manages a 5-year package of 1.5 million options that was granted to Wyly at the time of the Sterling acquisition.

"The shareholders are going to be the ones to decide whether weve been victorious or not," said Wyly.