Its Time for CA to Put an Outsider at the Helm

Sanjay Kumar, chairman and CE0 of Computer Associates, deserves to lose his job for failing to make a full and permanent fix to his company's deceptive accounting practices. It's time to bring in an outsider to fundamentally reform CA.

For far too long, Computer Associates International Inc. has been the poster child for poor corporate governance and accounting fraud in the IT industry.

The company has been dogged by an unending saga of lawsuits, proxy fights, federal investigations, executive firings, resignations and retirements–all of it revolving around the honesty of its accounting practices and the integrity of its top management.

These travails are a product of a corporate culture, engendered from the very top, that required Computer Associates to function behind an elaborate web of accounting camouflage and deception.

A simple, honest statement of revenue and earnings seems to be beyond CAs top brass. CA repeatedly has been charged with booking revenue before it is actually realized.

This isnt an uncommon violation in the software industry. Many IT companies have had to restate earnings because financial executives, worried about their jobs, stock options and salary bonuses, padded quarterly earnings with chimerical revenue from sales deals that wouldnt actually be closed and paid for until later quarters.

But at CA, it seems that such behavior is institutionalized, chronic and pervasive because it keeps happening even after earlier violations caused so many legal and management problems.

The firings this week of nine employees from its finance and legal departments after a board of directors audit committee investigation show that the company hasnt learned any lessons from its previous experiences.

/zimages/5/28571.gifClick here to read the details about the latest firings at CA.

The firings came little more than a week after three former senior CA financial executives pleaded guilty to federal charges of securities fraud conspiracy and obstruction of justice. Again, the main allegation in this case was that the company held open its books after the quarter ended to record sales contracts that customers hadnt actually signed and sealed. The conspirators even preprinted contract forms dated on the last day of the quarter.

Now, former CA chief financial officer Ira Zar faces as many as 20 years in prison, and former senior financial executives David Rivard and David Kaplan face as many as 10 years in prison for their part in the fraud conspiracy.

/zimages/5/28571.gifClick here to read about the guilty pleas of the three former CA executives.

The latest firings will trigger a new cycle of restated earnings and federal investigations that could produce additional fraud charges and conspiracy indictments. All of this will further erode the companys credibility with customers and financial markets. The investigations will distract CAs management from its main mission of producing and selling enterprise software for even more months to come.

Its not just the careers and reputation of top CA management that are at stake. The companys survival as a going concern is in the balance.

Next Page: Customers and investors believed that Kumar would set a new course.

John Pallatto

John Pallatto

John Pallatto has been editor in chief of QuinStreet Inc.'s since October 2012. He has more than 40 years of experience as a professional journalist working at a daily newspaper and...