CA cuts deal with DOJ; next up, a new CEO

Summary:Dan Farber: Although a $225 million settlement with federal prosecutors closes a dark chapter in Computer Associates' history, the company still has an image problem to overcome.

COMMENTARY -- As foreshadowed in my interview with Computer Associates interim CEO Ken Cron, the company's season in hell is apparently over.

News.com's Martin LaMonica reports that the company reached an agreement with the Department of Justice and the Securities and Exchange Commission for improperly booking $2.2 billion in revenue from 1998 through September of 2000. In addition to several executives who were previously indicted, the Department of Justice has leveled securities fraud conspiracy, obstruction of justice and conspiracy to obstruct justice charges against the company's former CEO Sanjay Kumar (who resigned in April) and the company's former head of worldwide sales, Stephen Richards.

According to the agreement, CA will:

  • Establish a Restitution Fund of $225 million to compensate present and former CA shareholders for losses caused by the misconduct of certain former company executives.
  • Provide active assistance to government investigators -- including legal and accounting aid -- to obtain disgorgement of compensation from any present or former CA officer or employee who engaged in any improper conduct while employed at CA.
  • Take numerous steps to strengthen CA's corporate governance, management team, and financial reporting and processes. CA will also enhance its compliance and ethics training.
  • Adhere to relevant provisions of securities laws and continue to cooperate with the government.
  • CA was given "deferred prosecution" by the Justice Department, which will allow the company to avoid a trial and have the charges dismissed upon compliance with the terms of the agreement fashioned by government prosecutors. An independent examiner will be appointed to oversee the ultimate resolution of the case.

    While this particular chapter in CA's history may be ending, the company still has an image problem to overcome. During the 1990's the company wasn't known as the most customer-friendly enterprise software provider. In terms of industry leadership, CA was a straggler. In recent years, CA has improved somewhat in those areas and developed a coherent product strategy around its management software. But, with the ongoing investigation and prosecution of former executives, which could continue for another year or two, CA will continue to wear the "fraudulent" label that lumps the company in with far more egregious offenders like Enron and Worldcom.

    Nonetheless, the company hasn't suffered as much financially as one might expect from the ongoing investigations. For the quarter ending June 30, 2004, revenue was $860 million, a 9 percent increase over the similar period last year, but under original projections.

    In talking to interim CEO Cron, it was clear that CA is seeking a new CEO who can put some serious distance between the past and present and market the company's product and technology strengths. Company founder Charles Wang was CEO from 1976 until 2000, when Kumar was appointed president and CEO. Cron, a former tech publishing executive and a CA board member since April of 2002, has put his hat in the ring.

    Now that the possibility of a criminal indictment for the company has been assuaged, some other candidates with impeccable credentials might be more interested in the job. How about merging CA and Symantec, and put the security company's CEO John Thompson in charge? Or, see if Lou Gerstner wants to make a comeback with another New York-based team.

    The choice of a CEO for the company will say a lot about how far the company is willing to break the mold and establish a new beginning. Many existing and potential customers and investors can buy into CA's product vision, but until the board decides on a new CEO with a clear reputation for integrity and credibility, they will be somewhat hesitant to act.

    You can write to me at dan.farber@cnet.com. If you're looking for my commentaries on other IT topics, check out my blog Between the Lines or my column archives.

    Topics: Software

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