News

Sanjay Kumar quits chairman and CEO post at CA

• By Jack Vaughan, Rich Seeley
• April 22, 2004

[Update] - Sanjay Kumar resigned Wednesday as chairman and CEO at Computer Associates (CA) International Inc., according to an announcement from the internal audit committee dealing with the giant software vendor’s accounting scandal.

Kumar will remain at CA as chief software architect, according to the announcement. Lewis Ranieri, who has been serving as the CA Board of Director’s lead director since 2002, was elected to the chairman’s position. The board is now beginning a search for a CEO.

“The changes in Sanjay’s role are not based on the conclusion that he engaged in any wrongdoing,” Ranieri said in a prepared statement. “Nonetheless, the conduct in question occurred during his tenure and the board felt this action was appropriate.”

Earlier this week, CA fired nine employees in its Legal and Finance departments as a result of an investigation launched by the CA Board of Directors. Eight of the employees were based in the firm’s headquarters in Islandia, N.Y.

That move followed guilty pleas by former CA execs who admitted to various charges, including conspiring to commit securities fraud and obstruction of justice. Among these executives was former company CFO Ira Zar. Observers anticipate an effort on the part of the Securities and Exchange Commission (SEC) to use the testimony of these executives against higher-ups at CA. This put pressure on Kumar, who was already pressed to increase revenue in the midst of a software industry downturn.

The announcement of Kumar’s resignation stated that CA is reviewing the executive changes it made with the SEC and the Department of Justice.

In fact, a CA audit committee last year found that CA prematurely recognized revenue in fiscal 2000 on the basis of software license agreements that were signed in a later quarter.

Under the leadership of Charles Wang, who left the company in 2002, and Kumar, Computer Associates grew to become one of the top independent software makers. The growth came mostly through mergers and acquisitions of companies that were largely mainframe software makers. Capex Software, Legent, Sterling Software, Software International, Platinum Technologies and Cheyenne were just some of the acquisition targets.

It was the acquisition of Uccel Corp. in 1987 that brought Kumar to CA. Kumar served as both CEO and president beginning in 2000.

In 2002, upon Wang’s departure, Kumar took on the role of chairman. Both men came under criticism in 2000 for implementing an executive compensation plan that tied common stock performance goals to a near-$1 billion payday shared by Wang, Kumar and another company officer. Corporate governance at CA has been an issue since at least that time.

In late 2000, the company sought to restructure its methods of accounting for software sales, and Kumar was seen as leading that effort. Indications are that the financial transactions now under government scrutiny may span the time before and after that so-called “New Business Model.”

In a recent statement, the company’s Audit Committee said it continues to believe that CA’s New Business Model and financial reporting are unaffected by the accounting practices that were in place prior to adoption of the New Business Model in October 2000.

For some time, pressure has been building on Kumar to step down, said Damian Rinaldi, an analyst at the FAC Equities unit of the First Albany Cos. Investment. Leaving his post became more likely as pleas were entered by executives that worked closely with uppermost CA management.

“There is potential for this to escalate to a criminal complaint against the company,” said Rinaldi, “the board had to act.”

“This is the company’s current best effort to be responsive to a possible criminal complaint,” he said.

Investigation of CA financial practices will continue. “This is a big step,” said Rinaldi. However, he added, “this is not the final resolution.”

In an email commentary, Gary Barnett and Phil Carnelley, two research directors with Ovum, concluded that CA’s various software business lines could continue with minimal disruption.

They wrote: “While CA will inevitably go through a period of uncertainty, we do not expect the company to stall. The different brand units that make up the company all remain intact and have been largely untouched by the investigations and the series of resignations that preceded Kumar's departure. We believe that Kumar's successor is more likely to come from outside the company.”