CA chief's job on the line

By Wei Gu

NEW YORK: The board of Computer Associates International Inc. is mulling the fate of Chairman and Chief Executive, Sanjay Kumar as its internal probe is coming to an end, but analysts said reaching a decision will not be easy.

Kumar has put governance experts onto the board in an effort to gain the respect of investors. But now, amid a long-running criminal probe, directors meeting on Tuesday need to decide whether Kumar himself deserves to remain at the helm of the company.

The world's fourth-largest independent software company fired nine more people on Monday, bringing the total number of employees being pushed out as a result of its accounting problems to at least 14.

But Kumar, who served as president during its fiscal year ended March 31, 2000 -- when more than $1.4 billion in contracts were booked early -- told investors he has done nothing wrong. In a statement, he said the management was proceeding with business as usual.

Some corporate governance experts have called for his departure in light of a lengthy probe into inappropriate accounting under his watch.

"If I was on the board, I would say enough is enough. Let's put all of that behind us," said James Needham, a former Commissioner for the Securities and Exchange Commission who once headed the New York Stock Exchange.

But the CA board, led by veteran investor Lewis Ranieri and former SEC Chief Accountant Walter Schuetze, is not expected to reach an easy decision because Kumar has been credited for turning around the company's reputation with its customers.

Kumar introduced a new business model which made its revenue and earnings more predictable. He has also dramatically improved customer relationships and analysts say the growth at the company is healthy.

A QUESTION OF SUCCESSION

"The board is caught between a rock and a hard place," said Nitsan Hargil, an analyst with Friedman Billings Ramsey. "The question is are you presumed innocent until you are proved guilty."

Kumar has not declared an heir, though CA has said that it does have a succession plan in place.

Investors have largely shrugged off the recent legal developments at Computer Associates. They also said that although they think Kumar is a good manager, CA's future does not hinge on him. CA should have no problems getting another competent leader, observers say.

"The board will be forced to choose someone from the outside," said Hargil. "Anyone having come through the ranks of the companies will be presumed guilty to a certain extent."

Kumar personally reached out to Jeff Clarke, a former Hewlett-Packard Co. executive, to replace Ira Zar, a former chief financial officer who was asked to resign last year. Zar is the most senior of several ex-CA executives who earlier this month pleaded guilty to securities fraud and obstruction of justice charges.

Zar is cooperating with the government's ongoing investigation.

Federal prosecutors declined to comment on whether they are trying to charge Computer Associates as an entity. But legal experts said the government could use a potential charge as leverage to force out whomever they think is guilty, and the board is likely to cooperate with them to avoid a criminal indictment of the company as a whole.

"A criminal charge on the company will not be fatal for CA, but it could have a devastating effect on a company's reputation," said Jacob Frenkel, an attorney with Smith, Gambrell & Russell LLP who is a former prosecutor and one-time SEC attorney.

A criminal indictment will be government's last resort, Frenkel said, adding companies such as Enron and Tyco have not been criminally indicted.

© Reuters