Web Informant #367, 23 April 2004: 

The downfall of CA




There is much to be learned from the sad news this week of Sanjay Kumar leaving the helm of Computer Associates. First is that the corruption saga of the collective American business model continues, and that we still haven't found all the bad apples among us. Clearly, CA was playing fast and loose with its accounting over the years, and that top management, including its CFO, knew about it and continued to hide the fact from their employees and shareholders.


The whole escapade reeks of Nixon and the Watergate tapes, for those of you that can remember that far. "What did he know and when did he know it?" Or better yet, the "I am not a crook" speech that he gave earlier in his career. Now, Sanjay hasn't been accused of any wrongdoing, but it almost doesn't matter. This all happened on his watch, and he should have resigned a long time ago when the accounting problems came to light.


What bothers me the most about CA is not that they backdated their sales orders, but that they continue to claim that nothing unusual happened, and that they haven't come clean. Maybe part of the problem is that this is how they ran their business for so long. Their behavior is so ingrained into their culture that they can't see the forest for the trees.


One can claim that all businesses play games with how they book their orders. I guess the issue is a matter of degree, and whether the corporate culture is one of gamesmanship or trying to be truthful and reflecting the actual business conditions. It is easy to lie, or at least to reflect something other that 100% truth. For example, a writer submits an invoice for an article he wrote in April for an issue that doesn't get printed until August. Do you record the expense now or in the summer? (We try to match things up with the pub date, but hey, sometimes things change and you can't always get it right.)


The news reports cite complaints that CA execs have lied even to their own company lawyers. The shame of it all! I guess lying to your customers and shareholders is okay, but when you lie to your lawyer, that really oversteps the boundaries of ethical behavior and good taste. Doesn't anybody have any standards anymore?


Another issue is keeping Sanjay employed at the company. This is most unfortunate. Almost as unfortunate is the choice of his title, as chief software architect – a position that evokes Bill Gates' title at Microsoft, which is an interesting comparison. Certainly Sanjay is no Gates. He is a businessman, first and foremost. The man isn't writing any code, let's all agree. It is time to go.


But the other lesson to be learned is that CA's board of directors did the company a disservice: there is no succession plan for life post-Sanjay. No one that can step up and take the computer out of this mess and clean house and assure customers that it won't be business as usual going forward. Contrast this with McDonalds, when Cantalupo (their chairman) unfortunately died of a heart attack on Monday. Their board moved quickly and had someone in place by the end of the day. CA will have to search for someone, and as the Times said, "a bulletproof CEO" at that. How about an honest CEO too while they are looking? The question is, are there any honest CEOs left these days?


Finally, there is the whole matter of the billion-dollar payday for Sanjay and Wang back in 1998. Not only unseemly, and noteworthy for its amount, but the fact that this excessive compensation was based on stock performance makes the whole episode just ridiculous. If corporate officers can manipulate their books, why not pay themselves obscenely while they are at it?


All in all, CA needs to get this whole sordid episode behind themselves, and show their customers, partner and employees and yes, even their stockholders that they can become honest citizens. I hope their next executive puts in place rewards for truthfulness as part of their compensation plan, and starts to rebuild trust in their entire network.


Entire contents copyright 2004 by David Strom, Inc.

David Strom, dstrom@cmp.com, +1 (516) 562-7151

Port Washington NY 11050

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