Ilaina Jonas
NEW YORK: Computer Associates International Inc., which stunned Wall Street
earlier this week by disclosing third parties have been subpoenaed in two
federal investigations into its books, on Thursday named financier Lewis Ranieri
as its lead independent director.
By accepting this post, Ranieri is in a position to steer the Islandia, New
York-based company through troubled waters -- if its management no longer can.
The move is part of Computer Associates' makeover, which included adopting
stronger corporate governance rules, more outside board members and more
detailed financial reporting. The position is seen as creating an independent
counterpart to Chairman Charles Wang, who was the target of a failed proxy fight
waged last year by Texas billionaire Sam Wyly.
"By definition, it's a counterbalance," Ranieri said. "But
that's not why it was created."
A tough man for a tough job
Ranieri, the founder of Hyperion Partners and a former vice chairman of
Salomon Brothers, is no stranger to tough situations -- a trait that perhaps
factored into Computer Associates' decision to tap him for this job.
In "Liar's Poker," author Michael Lewis documented Ranieri's genius
on the trading floor and penchant for macho stunts -- like cutting a woman's tie
because he hated ties on women. It was Ranieri, a man with an accent
unmistakably from Brooklyn, made his name at Salomon Brothers as a pioneer in
the trading of securities backed by home mortgages.
He also is comfortable on Long Island, Computer Associates' home turf. He
lives there. And since 1993, he has worked there, running his investment
companies -- Hyperion Partners LP, Hyperion Capital Management and Ranieri &
Co., of which he is chairman and chief executive -- from an office in Uniondale.
Ranieri, explaining Computer Associates' new plan, said the lead independent
director will oversee a board of directors that could be expanded to 12
directors -- with only three coming from within the company's management. The
new policy gives the lead director, who will be chosen by the other outside
board members, a term of just one year.
The new lead director also will act as spokesman for the other outside
directors.
"The role of the lead independent director is multifold," Ranieri
said, "one of which is to coordinate the activities of the independent
directors of the board when management is not there or has to recuse itself to
deal with those issues that are inappropriate for management to deal with."
He denied speculation that the position was created in anticipation that Wang
would step down as Computer Associates' chairman.
A look back at the books
The US Attorney's Office, part of the US Department of Justice, and the US
Securities and Exchange Commission are investigating Computer Associates' past
accounting practices.
The investigations focus on whether the company inflated revenue to boost its
stock price. The stock price was tied to a controversial $1.1 billion
compensation package awarded in 1998 to then-Chairman and Chief Executive Wang,
then-President and Chief Operating Officer Sanjay Kumar and Russell Artzt,
executive vice president and co-founder.
In August 2000, Wang stepped down as CEO and elevated Kumar to the position.
Although Computer Associates management has said it was not aware if the three
were being investigated as individuals, the lead independent director could help
guide the board if it was necessary for the management directors to step aside.
"There's no reason for that," Ranieri said. "It could wind up
that way, but I doubt that's going to be the case." Ranieri was named to
Computer Associates' board on June 26 and subsequently bought a million shares.
The new lead independent director said he was "confident" neither the
three Computer Associates executives nor the company will be found guilty of
wrongdoing.
"The independent directors have gone over this stuff more than once with
all parties included, accountants and lawyers, whatever," he continued.
"I'm not perfect, but I've been around for a long time. I can be fooled,
but it's not easy."
Computer Associates' new governance rules also establish a policy to ensure
that outside directors, who include New York Stock Exchange Chairman Richard
Grasso, meet NYSE guidelines for independence. "I think it's in
anticipation that the NYSE and some of the other regulatory agencies are going
to promulgate new rules sometime shortly," Ranieri said.
Yes, we have some subpoenas
On Wednesday, Computer Associates disclosed in its annual report that the
regulatory probes had developed into formal investigations and that third
parties had been subpoenaed.
That came on the heels of an almost 90-minute conference call with analysts
on Tuesday night, when CEO Kumar said: "Third parties have been asked for
information pursuant to subpoenas, which I believe a formal process is getting a
formal order to do that, which they have done."
It was the first time Kumar had publicly mentioned the subpoenas. Many
analysts had already left the call. "We continue to cooperate
voluntarily," Kumar said.
The company's previous auditors Ernst & Young received a subpoena, Larry
Parnell, the accounting firm's spokesman said. Ernst & Young cooperated with
the order, he added, declining to say more. The company switched to KPMG in
1999. Ranieri said he believes the change in auditors was not related to the
subject of the investigations. "I am comfortable that is not the
case," he said.