Its a rare occasion when a company decides to create a new position for a deposed corporate chairman, rather than dispatch the big boss to a well-heeled, if early, retirement. Its even more rare for a former chairman to willingly hang around after losing the top job.
But that is what Computer Associates International Inc. has chosen to do for Sanjay Kumar, who resigned this week as chairman and CEO. He will stay on as chief software architect, which will enable him to continue formulating CAs product strategy.
Clearly, the board and Kumar believe that he will help the company keep growing once it finally resolves all of the legal issues resulting from the boards review of the companys accounting practices. The board also must have concluded that Kumar isnt likely to be held criminally liable as a result of the ongoing investigation of CAs accounting practices.
Though on a far smaller scale, the accounting scandals at CA are based on the same systemic problems that ruined Enron Corp. and WorldCom Inc. Corporate financial executives were determined to do whatever it took to prop up their companies stock prices by puffing up quarterly statements with financial skullduggery.
That shouldnt happen if the chairmen and corporate boards are doing their jobs by mandating that every penny or revenue their companies book is bona fide.
Thus, there is no question that Kumar had to take the fall for failing to set a high standard for honest accounting after he became chairman and CEO in late 2002. Kumar resigned the chairmanship in the wake of the firings of four employees from the companys legal department and five from its finance department.
Doubtless more shoes will drop in the continuing investigation of CAs accounting misconduct. A very big shoe may fall after federal authorities finish investigating this debacle if an aggressive prosecutor decides that Kumar was more than morally responsible for the actions of his subordinates.
There is no guarantee that federal authorities will agree with the CA boards decision to forgive Kumars failure to closely review the companys accounting practices by retaining him in the company.
There is a thin line between moral responsibility and legal culpability. No top corporate executive should assume the posture of Enron former chairman Ken Lay that he had no direct knowledge of massive and systematic financial fraud committed by subordinates. To accept the position of corporate chairman is to accept direct responsibility for the accuracy and honesty of all financial statements.
That is why the U.S. Congress felt compelled to adopt the Sarbanes-Oxley Act for public company accounting reform and investment protection. The act has set deadlines for corporate chief executives to legally vouch for the contents of official financial statements.
Kumar is apparently lucky that the final Sarbanes-Oxley compliance deadlines havent passed, or he might become one of the first corporate chairmen prosecuted under its provisions.
But he may also feel like the luckiest man in the world because he has been allowed to throw off the heavy burden of running CA to return to his roots as a technologist. It may prove to be the best thing that ever happened to CA, if it means that the company will be able to refresh its product line with technology that will keep it on a growth path.
To achieve this goal, CA cannot afford to miss this opportunity to fix, once and for all, the deceptive accounting practices that have cast a pall over its prospects. Instituting permanent financial reforms will allow the company to focus on selling enterprise software, rather than dealing with the fallout of financial malfeasance investigations.
The election of independent director Lewis Ranieri as chairman is a good first step. But the selection of the next CEO will be more critical in solving the companys problems. CA co-founder Russell Artzt, executive vice president, has been mentioned as a possible CEO candidate along with the companys new chief financial officer, Jeff Clarke.
Clarke was recruited in April from Hewlett-Packard Co. and, as such, he may bring in an outsiders point of view that CA needs to resolve its problems. But it may still prove best to bring in another outsider to lead the company while supervising Clarkes efforts to permanently fix CA accounting practices.