15 Moments That Changed CA, Charles and Sanjay Forever
Current CA Inc. management has worked overtime to clean up the accounting mess left behind by former CEO Sanjay Kumar. Now, CA alleges former Chairman and Co-founder Charles Wang also was involved in the fraud. (He denies the allegation.) How did CA and Wang reach this showdown? Here are 15 defining moments that changed CA forever and ultimately turned the company against its co-founder.
Of course, there are dozens of big moments in CA’s history. But we were looking for the ones that united–and ultimately ripped apart–CA, Kumar and Wang. We checked Shareholder Forum (http://www.shareholderforum.com/CA) to review dozens of old documents. Here are the 15 that made our list.
15. Rewind to 1987: Computer Associates acquires Uccel Corp., where Kumar was director of software development. CA co-founder and CEO Charles Wang and Kumar soon develop a close working relationship.
14. August 2000: After more than a decade of success together, Wang announces he’ll hand his CEO title to Kumar. Privately, Wang begins to regret the move. Fifteen months later, the relationship turned vitriolic, and Wang tried unsuccessfully to fire Kumar and take back his old job, BusinessWeek reported in 2004.
13. April 16, 2001: CA announced quarterly results, declaring “New Business Model Rules; Q4 Rocks.” Kumar, CEO at the time, said, “The IT marketplace is embracing CA’s innovation and industry leadership.” Less than two weeks later, The New York Times would take Kumar and CA to task.
12. April 29, 2001: The New York Times reported that CA was using accounting tricks — including “35 day months” — to overstate revenues and profits. One source joked that CA stood for “Creative Accounting.” When the Times asked CA to comment for the article, CA declined. Never a good sign. This was the definitive story that triggered investigations into CA’s accounting practices. It wasn’t clear at the time, but this was the beginning of the end for CA’s original management team.
11. February 20, 2002: Newsday, a Long Island newspaper, reported the FBI was investigating possible accounting fraud at CA. The company said it wasn’t aware of any investigation. Only a day before, Morgan Stanley resumed coverage of CA, upgrading the stock from neutral to outperform, and explaining the market had “overlookedâ€? and “poorly analyzedâ€? CA. Apparently, Morgan Stanley was drinking the CA Kool Aid.
10. April 12, 2002: CA critic Sam Wyly attempted to rally investors against CA, and hoped to oust Chairman Wang, CEO Kumar and CFO Ira Zar. Wyly pointed to alleged accounting problems at CA. But Computer Associates’ eight independent directors voiced their support for management. The eight directors wrote that they had reviewed the company’s accounting practices, and that they and the company’s independent auditor found those practices “appropriate and transparent,” according to The Wall Street Journal. Cut to Kevin Bacon shouting, “Remain calm. All is well.” Had the board sided with Wyly, CA potentially would have avoided additional years of fraud and mismanagement.
9. November 18, 2002: Wang resigns as chairman. In a prepared press release, he said, “I am pleased to have completed the transition of leadership to Sanjay, who has been a trusted colleague and valuable partner, in a smooth and orderly way.” Smooth and orderly? Trusted colleague? Wang had tried to fire Kumar only a few months earlier, BusinessWeek later reported in 2004. With friends like these…
8. April 9, 2004: Three former Computer Associates finance executives pleaded guilty for their roles in the software giant’s accounting scandal. Former CFO Ira Zar pleaded guilty to conspiracy, securities fraud, and obstruction. David Rivard, former vice president of finance, and David Kaplan, former division vice president of finance, each pleaded guilty to one count of conspiracy to commit securities fraud and one count of conspiracy to obstruct justice, according to CFO magazine.
7. April 12, 2004: BusinessWeek reported that Kumar and Wang suffered a falling out in 2001 over the way Kumar was running CA. The magazine also indicated that federal prosecutors investigating CA’s accounting planned to pit Kumar and Wang against each other. It would be three years and a day before that strategy began to play out.
6. April 22, 2004: Amid more accounting concerns at CA, Kumar resigned as CEO and Chairman but took on the new post as chief software architect. According to the board, “The changes in Sanjay’s role are not based on the conclusion that he engaged in any wrongdoing. Nonetheless, the conduct in question occurred during his tenure, and the Board felt this action was appropriate. We are pleased that Sanjay has agreed to assume the role of chief software architect, enabling CA’s stakeholders to continue to benefit from his extraordinary knowledge, expertise and experience.” Alas, CA’s board once again misses an opportunity to clean up its management team.
5. June 4, 2004: Amid increased scrutiny from investigators, Kumar finally resigns from CA and cuts ties to the company.
4. November 23, 2004: CA hires IBM veteran John Swainson as president and CEO-elect. Real change is finally under way. He takes on the CEO post within a few short months. Executive turnover accelerates in early 2006, but Swainson apparently begins to stabilize the company by early 2007.
3. April 14, 2006: Kumar pleaded guilty to criminal charges that he led a $2.2 billion accounting fraud at CA, according to Bloomberg and CFO magazine.
2. April 13, 2007: Kumar agrees to repay $800 million over his lifetime to CA shareholders. The very same day, CA announces that it believes Wang participated in accounting fraud at the company. Wang denies wrongdoing and expresses shock. The gloves, as Newsday put it, are now off. The Old CA–at least symbolically–is dead. Long live the New CA.
1. April 22, 2007: CEO John Swainson is scheduled to keynote CA World, a big customer and partner gathering in Las Vegas. Instead of looking back on accounting scandals that predate his executive team, Swainson can look ahead and focus on business.