Race to Reform

CFO Bob Davis and his cohorts have nine months left to clean up Computer Associates.

At CA, Davis is focusing on building a strong team and improving internal systems. One top priority: clearing up the three material weaknesses that stand in the way of a clean 404 opinion. With cash flow of about $1 billion a year, Davis says, CA is in a strong financial position. But, he adds, “there’s plenty of opportunity to get the company growing and more profitable.”

Davis is working closely with Clarke, who had championed Davis at CA. Clarke joined CA as CFO in 2004 and is experienced in complex corporate-restructuring projects. He led the team overseeing one of the biggest mergers in the history of the computer industry: Hewlett-Packard’s $19 billion acquisition of Compaq Computer. Like Davis, Clarke has a hefty pay package from CA that could be worth $4.5 million over the next two years.

Indeed, CA’s generosity to its new executive team is stirring controversy among shareholders and corporate watchdogs. CEO Swainson could earn as much as $12.8 million over the next five years. “CA’s board has not yet learned either restraint or resistance” when it comes to compensation, says Nell Minow, co-founder of The Corporate Library, in Portland, Maine, a research firm that rates companies based on corporate-governance practices. Christopher Lofgren, a CA board member and president and CEO of Schneider National, a transportation and logistics company in Green Bay, Wisconsin, defends the company’s pay packages. Seasoned executives with impeccable reputations command a high price in today’s market, he says.

In his one-year tenure as CA’s CFO, Clarke began cleaning up the finance department while working with the board to negotiate the deferred-prosecution agreement with the SEC and the Department of Justice. He restated financial results for fiscal years 2000 and 2001 and began to clamp down on sloppy internal financial procedures. He also helped craft a restructuring plan that involved cutting 5 percent of the workforce and oversaw the $439 million acquisition of Netegrity, a network security software company in Waltham, Massachusetts. Clarke relinquished the title of CFO after Davis came on board in early 2005, and remains COO, a title he garnered in April 2004.

With the independent examiner looking over his shoulder these days, Davis says there’s a heightened “sense of urgency and momentum” on often-tedious compliance work. Richards and the team he has hired to review finances at CA “don’t pull any punches if they see issues,” says Davis. Most of their inquiries, he notes, involve matters that are now part of the routine at CA. “The DPA is basic blocking and tackling for finance,” he says. “If we can’t comply with the DPA, we’ve got bigger issues.”

Imperial Court of China

CA has formed a review group that circulates drafts of quarterly reports to 70 senior managers in its finance, legal, and sales departments before the documents are filed with the SEC. Controllers now oversee the finances of the company’s five business units. The executive roster includes a controller, a chief accounting officer, a new head of internal audit, and a new separate office for financial planning and analysis. Within the finance department, there are 100 subcertifiers for financial statements, which “drives down accountability,” says Davis.

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