One more investor advisory firm endorses CA board

Ilaina Jonas

NEW YORK: A second influential investor advisory firm on Monday recommended

shareholders vote to keep Computer Associates International Inc.'s leadership

instead of replacing it with one offered by Texas billionaire Sam Wyly.

"Given Wyly's governance track record, as well as the uncertainties

surrounding a successful execution of his proposed business strategy, we are not

prepared to recommend that shareholders jump ship," said a report issued by

Proxy Monitor.

The report analyzed the history and position of Computer Associates' current

management namely chairman Charles Wang and Chef Executive Sanjay Kumar, as well

as those of challenger Wyly and his group Ranger Governance. "Ranger is

offering shareholders nothing upfront," the report stated.

"The Wyly group, with an insignificant holding of CA stock itself, would

assume managerial control of the company, and the actual stakeholders would

simply hope for the best." Proxy Monitor's endorsement follows a similar

one issued Friday by Institutional Shareholders Services Inc., which was

recently sold to Proxy Monitor.

"CA is very pleased to have received its second recommendation from a

major independent proxy advisor," Owen Blicksilver, a CA representative

said. "It is hopeful that investors will accept the recommendation of both

ISS and Proxy Monitor." A response from the Wyly team was not immediately

available on Monday.

Wyly is asking shareholders to vote at the annual meeting Aug. 29, to throw

out the board of directors of Islandia, New York-based Computer Associates and

replace it with a slate he proposed. The goal is to oust Wang and Kumar, whom

Wyly blames for overcompensating their salaries at a time when stock prices were

languishing and a culture of mistreatment of employees and customers have

flourish/ed.

Although the report endorsed the current leadership of the world's No. 4

software maker, it did not do so without criticism. "We are concerned that

a lopsided victory for management might appear to be some sort of

vindication," the report said. "Our hope, however, is that if the

incumbent board is successful it will feel chastened by this challenge, and that

CA's corporate culture will change for the better."

In its criticism of CA, the report noted:

* That although the board did not award Wang and Kumar a cash or stock bonus

for the past fiscal year, Wang was able to reap a gain of $118 million by

exercising options to buy 2.56 million shares. Kumar realized gains of $5.59

million.

* That Wang headed Business Week's list of executives giving shareholder the

lowest returns versus their compensation from 1998 through 2000.

* That the $1.1 billion compensation package awarded to the company's three

top managers in 1998 resulted in a charge against earnings that transformed a

profitable quarter into a loss of $480 million. Two months after the awards were

granted, the company said its Asia sales were declining.

* That according to the company's own study, many of its customers have

complained about its sales force behavior and that 39 percent of chief

information officers said they were unlikely to recommend the company.

* That it is likely CA cited poor performance of some of its employees in

order to fire them without granting them severance pay.

On the other hand, the report supported the idea behind CA's new accounting

method. The new business model grants customers more flexibility and accounts

for revenue according to a subscription method versus a license method that

recognizes revenue in one chunk.

However, the new method has not been in place long enough so that comparisons

must rely on calculations only the company knows. As far as Wyly is concerned,

the report describes the creator of two companies later sold to CA as a savvy

businessman but questions his managerial skills.

As chairman of Michaels Stores Inc. (until last month), the craft supplies

retail chain performed no better than CA recently, the report said. In addition,

Michaels headed the California Public Employees' Retirement System 1998 list of

corporate America's poorest performers.

Also in the 1970s Walter Haefner, Computer Associates' largest shareholder,

filed a complaint with the Securities and Exchange Commission against Wyly. The

complaint involved Wyly Corp. of which Haefner was a major stockholder and an

alleged payment to a bondholder. Wyly settled the charges in 1979 and the matter

lead to his resignation from the company, the report said.

Finally, the report highlight that Wyly and Ranger have failed to name any of

the prospective management team it would install should the proxy fight be

successful. A response from the Wyly team was not immediately available on

Monday evening.

(C) Reuters Limited 2001.