Sarbanes-Oxley has brought costs to companies, CA's CEO says

Swainson says CA evaluating whether to sue former chairman Charles Wang

LAS VEGAS -- It is no small irony that CA Inc. has weathered a securities fraud scheme, implemented a new ethics policy and begun using new SAP AG financial reporting software while it also sells management software designed to help companies comply with the Sarbanes-Oxley Act and other government regulations.

Still, CA's CEO John Swainson yesterday told reporters in a wide-ranging press conference that the kinds of financial disclosures required by Sarbanes-Oxley are not always important and have come at a great price in time and effort.

"There is danger when you try to regulate everything and try to legislate everything," Swainson said when asked if the regulations have gone too far. "I do think that transparency and disclosure are incredibly important. If nothing else comes out of Sarb-Ox, it will be that companies become better at disclosure. But it's come at a tremendous price. The amount of work that companies have to do that doesn't materially impact the quality of their statements ... has gone up substantially."

CA Chief Financial Officer Nancy Cooper said she agreed with recent reports from government regulators looking into possible excesses from Sarbanes-Oxley that suggest "a little balance would be very helpful for all companies."

Also during the press conference, Swainson said CA is still evaluating a recent recommendation by CA's Special Litigation Committee (SLC) to sue former chairman and co-founder Charles Wang for $500 million. The committee made the recommendation in a filing before federal courts in Delaware and New York, blaming Wang for past company practices of counting new contracts beyond the end of a fiscal quarter.

That practice helped form the basis of securities fraud convictions against Wang's protege, former CA CEO Sanjay Kumar, who faces 12 years in prison and a minimum $52 million settlement payment to investors. "We believe the court will find in the direction the SLC wanted," Swainson said, but he added that the CA board is "still evaluating" the report.

Twelve CA customers attending the CA World 2007 conference this week here unanimously agreed in separate interviews that CA's past history of securities fraud does not affect their appreciation of various CA management tools. While they all said they are concerned about securities fraud and the honesty of their vendors, they also didn't have strong opinions about whether CA needs to go after Wang.

One CA customer for 15 years, who asked not to be named, said he knew about Kumar's conviction and Wang's leadership role at CA but said going after Wang now "seems late." The customer works as a technology integrator. "If they can get the money, fine, but I'd say what's done is done," he added.

Craig Kelling, a systems specialist at Consumers Energy Co. in Jackson, Mich., said his company is a recent buyer of Clarity, a project management tool. Being a new customer, Kelling said that he didn't have an opinion as to whether CA should sue Wang and that the entire securities fraud incident has not tainted his view of CA or its products. He added, however, that he has "heard all about" Kumar and Wang. "What happened taints my view of industry management at large, not necessarily CA," he noted.

Prosecutors can't criminally prosecute Wang for crimes similar to those brought against Kumar, since the five-year statute of limitations for securities fraud has passed. Wang, who handed over top management of CA to Kumar in 2002, issued a statement attacking the SLC recommendation.

"I find it hard to understand how the Special Litigation Committee could believe the information they were given was credible, when their sources were those who perpetrated the crimes at issue and then lied about them to both internal company investigators and the government," Wang said.

In the press conference, Swainson said that he felt CA has "sort of stabilized things inside the company and is now building on the outside" to return the company to past revenue levels. He and Chief Operations Officer Mike Christensen said that 800 members of CA's sales force have been refocused to concentrate on the needs of the company's 4,000 largest customers, which provide 80% of CA's revenue. A decision to create a business unit focused on the midmarket could take the other 20% of CA's business to one-third of its revenue, Christensen added.

"What CA does best is bring great people and products together," Swainson said. "The thing that has saved this company through all the tough times ... is that it still had great products and people. That is our fundamental strength. What we are trying to do now is build on that strength with real financial systems, real strategies and real business processes and take this company and put some process around it. If we can do that, we can be the greatest management software company in the world."

Copyright © 2007 IDG Communications, Inc.

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