Computer Associates taps Ranieri as outside director

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.