Computer disassociates

It's software's version of 'Dynasty'. Except with bigger budgets
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The Independent Online

If you wanted to remake Dallas or Dynasty and set it in the technology world you could have done worse that start at the CA World user conference in Orlando, Florida last week.

Senior executives from Computer Associates (CA) took to the rostrum to convince the customers of its mammoth 1,200-product portfolio that this rather motley leopard has changed its spots.

The world's fourth-largest software company is fighting against the perception that it is driven by acquisitions, lacks focus, pays its senior staff too much and takes a mercenary attitude to the requirements of its clients' business.

The CA saga hit the headlines nine months ago when a group of maverick shareholders called Ranger Governance launched an attempt to replace four members of the board, including CA founder Charles Wang and chief executive Sanjay Kumar, who was paid some $655m (£450m) in 1999. Texan billionaire Sam Wyly, who sold Sterling Software to CA in March 2000, fronted Ranger's attack.

Any reader of the business and technology press, as many CA customers will be, cannot have missed the saga, involving regulatory investigations, accounting "adjustments" and accusations of corporate excess. To cap it all, CA's share price has fallen 52 per cent since mid-January.

Yet, in front of more than 10,000 CA World attendees the group brushed all these corporate issues under the carpet, to make the remarkable announcement for a 26-year-old company: that it now puts "customers first".

CA claimed that this year's internal re-organisation – focusing on five brands unified under brand managers with responsibility for profit and loss and with bonuses tied to independent customer satisfaction surveys – would help achieve these goals. This follows a number of other initiatives such as introducing a team to "partner" with customers. And in an attempt to improve relationships at board level, CA's chief technology officer, Yogesh Gupta, and other senior executives have been drafted in to visit key customers; in Europe visits have included BT and DaimlerChrysler.

Some customers, such as bookseller Barnes & Noble, do believe that service has improved. But any changes for the better have been overshadowed by the recent sale of many of the interBiz products – CA's ebusiness applications – to SSA. Many customers now have an extra vendor relationship to manage. The sale – the first time ever that CA had sold any business – has also left users of other company products concerned for the future.

"The real issue which hangs over the IDMS [database] is uncertainty of where CA is going with the product," said Brock Shaw from the UKIUA, an established group of CA customers from large multinationals. "The interBiz sale to SSA only heightens that concern." CA executives could not rule out further disposals, and customers could be right to be nervous.

At the shareholder meeting last August, none of Ranger's nominees was appointed. But Mr Wyly was not going to let the matter rest. Last month Ranger wrote an open invitation to the independent directors on the CA board to discuss the removal of Mr Kumar, Mr Wang and finance director Ira Zar. When the move was rejected, Ranger went directly to institutional investors. "We are judging how many people there are of like mind to ourselves," Stephen Perkins, managing partner at Ranger and one of its nominees, told the IoS. "We still believe that many of the issues raised last year are still present."

Ranger alleges that management has "abused" customers (through poor service) and shareholders (by returning a poor return on their investment). It also criticises new accounting methods introduced in October 2000, and attacks senior management's hefty financial bonuses.

But that is by no means all. There have been four US government investigations into CA running concurrently. Two cases brought by the Department of Justice – probing CA's conduct in the $4bn acquisition of Sterling Software and the $3.5bn acquisition of Platinum Technology (in June 1999) – were closed last month. CA paid $638,000 to settle the second case.

However, two investigations by the US Attorney's Office and Securities and Exchange Commission into CA's accounting procedures are still ongoing. Reports suggest they could be examining corporate bonuses, including a handsome $1bn shared among Mr Wang, Mr Kumar and executive vice president Russell Artzt.

The investigations are also thought to be focusing on CA's controversial new business model. Instead of buying software outright, customers can now pay for the licence on a month-by-month basis. To reflect this change sales are now accounted for on a periodic basis, rather than as a one-off when the contract is signed. But the company has failed to show conclusive proof that customers have switched or intend to shift to this model.

CA says its new method is "proper" and "the result of a desire to build a more customer-oriented approach to marketing products and was not driven by accounting concerns". And last week Ira Zar claimed: "Our new model is not an issue with the authorities."

Further spice has been added to the plot with unfavourable outlooks from some key financial analysts and the credit ratings agency Moody's, and an action brought by shareholders against the executives.

CA insists Ranger's complaints are not a catalyst for change: "What Sam Wyly says is not important [to customers]," said Yogesh Gupta. At the moment, he could be right. But customers must be wondering how long this soap can go on and what its dénouement will be.

CA's April horribilis

8 April 2002 CA sells majority of interBiz, its applications business, to SSA Global Technologies.

11 April The independent directors of the board write an open letter refusing to meet Ranger Governance to discuss the removal of CA's senior officers.

12 April CA states that US Attorney's Office and SEC inquiries are preliminary, have identified no one as a target, and have reached no conclusions yet.

15 April Financial analysts Prudential Securities cut rating on CA from 'buy' to 'hold' amid concern that SEC might force vendor to restate past earnings.

15 April CA launches internal program to 'put customer first'.

17 April CA announces that the Department of Justice has closed inquiry into CA's acquisition of Sterling Software without action.

22 April Law firm Wolf Haldenstein Adler Freeman & Herz announces deadline for disgruntled shareholders to register for class-action suit against CA.

23 April CA pays $638,000 to DoJ to settle investigation into acquisition of Platinum Technology

21-24 April At annual user group conference in Orlando, CA announces focus on customers, online services for customers, reorganisation of company to focus on five product groups, and several new products developed internally.

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