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Computer Associates CEO Forced to Resign

Apr 21, 2004 | AP

With his company tangled in an accounting investigation that has already produced four guilty pleas, Sanjay Kumar was forced to resign Wednesday as chairman and chief executive of Computer Associates International Inc.

After running the company for four years, Kumar, 42, stepped down from his executive positions and the board of directors. He will stay on in a new position of chief software architect.

Computer Associates' lead outside director, Lewis Ranieri, is taking over as chairman. The company might take a few weeks before naming an interim CEO, spokesman Dan Kaferle said.

The company, a $3 billion maker of software for corporate computing systems, is being investigated by federal prosecutors and the Securities and Exchange Commission for misrepresenting the timing of contracts in order to meet Wall Street's quarterly expectations.

Ranieri said the decision for Kumar to step down was "fair and responsive to the situation."

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

Four former finance executives have pleaded guilty to fraud or obstruction of justice charges, including Ira Zar, the former chief financial officer. Zar implicated two other high-ranking executives whose names have yet to be disclosed.

In January, a former senior vice president who pleaded guilty said Islandia, N.Y.-based Computer Associates had a "widespread practice" of inflating revenue by closing quarterly books a few days late.

Separately, the audit committee of Computer Associates' board, led by a former chief accountant for the SEC, is examining whether the company should restate financial results. The committee has acknowledged that CA "prematurely recognized revenue" in fiscal 2000, but has said it does not believe such practices continue.

The board's investigation led to the firings Monday of five people in CA's finance department and four in the legal department.

Investors mainly have been unfazed by the investigations, and with uncertainty about Kumar's role removed, Computer Associates shares rose $1.09, or 4.3 percent, to close at $26.66 on the New York Stock Exchange.

The effect of Kumar's resignation on the federal probes was unclear. CA attorneys met with prosecutors Wednesday to discuss the case.

Amy Hutton, associate professor at Dartmouth's Tuck School of Business, said having Kumar resign from the top positions but remain with the company lets the board "send the mixed signal that they want to send."

"Which is, `One, we're doing something about this potential mess by getting someone else in here to make the decisions, but two, we're not firing him because he hasn't done anything wrong,'" she said. "The company is very concerned at this point about legal liability."

Analyst Gregg Moskowitz of Susquehanna Financial Group said Kumar's shift probably would not hurt CA's business. He said CA has earned goodwill in recent years by becoming more responsive to customers and offering more flexible products.

The company is likely to bring in an outsider to take over as CEO, though one possibility is Jeff Clarke, who became CA's chief financial officer this month. As CFO at Compaq Computer Corp., Clarke helped shepherd the company's complex merger with Hewlett-Packard Co.

CA's new chairman, Ranieri, 57, began in the mailroom at Salomon Bros. in 1968 and left as vice chairman in 1987, along the way creating the national market in mortgage bonds.

In "Liar's Poker," his 1989 memoir about life at Salomon, Michael Lewis called Ranieri a "wild and woolly genius" and noted that the brash executive had once told Esquire magazine: "I believe in God, but I'll never be nominated for saint."

Kumar, who emigrated from Sri Lanka to the United States when he was 14, joined CA in 1987 when it purchased Uccel Corp., where he had been director of software development.

He became CA's president and chief operating officer in 1994. He took over as chief executive in 2000 and chairman in 2002, the hand-picked successor of Charles Wang, who founded CA in 1976. Together Wang and Kumar bought hockey's New York Islanders in 2000 for an estimated $190 million.

In 1998, Kumar, Wang and executive Russell Artzt came under fire after they shared a stock bonus worth $1.1 billion, just months before Computer Associates warned of a slowdown in business. The board's compensation committee at the time included New York Stock Exchange chairman Richard Grasso — who resigned from the exchange in 2003 amid outrage over his $187 million pay package.

Three years ago, billionaire investor Sam Wyly pushed for the ouster of Kumar, Wang and Zar for a "lack of integrity." Wyly lost his proxy fight but took credit for forcing changes at CA.

Among them: Kumar pledged to make CA, which employs 16,000 people, a "gold standard." He created a director of corporate governance position and increased the independent directors on the board. CA's official biography also credits Kumar with enhancing "the clarity and timeliness" of the company's financial reporting.

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