Race to Reform

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

Changing CA’s culture is another priority. Under Charles Wang, who founded the company in 1976, CA was run like the Imperial Court of China. Only a few top executives held decision-making power and there was no effective enterprisewide data system. In fact, CA was a breeding ground for fraud in part because its management and technology couldn’t keep pace with its rapid growth in the 1990s.

Federal investigators say the fraud began in 1998 when company executives started backdating sales contracts to boost their bonuses. Wang resigned as chief executive in 2000 but remained as chairman until his resignation in 2002. He was not charged with any wrongdoing in connection with the scandal.

Davis and his colleagues are trying to push accountability deep down into the organization. “We want a team that’s empowered,” he says. Toward that end, Davis says he has hired close to 150 staffers. A new employee “ethics hotline” has received 22 calls since it was established in April. Meanwhile, Davis encourages staffers to E-mail him directly, and holds informal monthly breakfast meetings with small groups of them.

CA is also working to fortify its product line and integrate the companies it has acquired recently. In the past two years, CA has spent $1.2 billion to snap up eight software businesses, including Netegrity; iLumin, a storage-management software company; Niku, an IT-management software company; and Concord Communications, which makes network-monitoring products.

In November, CA introduced a new version of Unicenter, its popular suite of integrated software modules, a move that the company hopes will help propel growth. For the six months ended September 30, 2005, CA’s revenues increased 8 percent, to $1.8 billion, though $73 million was due to currency gains and its two most recent acquisitions. Net income was $135 million, compared with a $51 million loss in the six-month period last year.

Despite the strong results at CA, many industry analysts are reserving judgment. Some are concerned about a slowdown in the market for mainframe software, CA’s primary market. Others are concerned that the product line is dated and lacks true innovation. “It’s wait-and-see,” says Kim Caughey, an equity analyst covering software companies for Fort Pitt Capital Group, in Pittsburgh, which holds a stake worth $11.5 million in CA.

Davis, however, takes such skepticism as a spur to put the overhaul into overdrive. In fact, he says the most stressful part of the job for him is “making sure the urgent doesn’t drive out the important,” such as his long-term goal of creating a training, mentoring, and development program for his finance staff similar to the popular ones at Dell, Cargill, and GE. “When someone graduates from college, I want CA to be on their short list for employment,” says Davis. And so long as the candidates don’t have the travel nightmares Davis faced on his first trip to CA, he’s confident he can win them over. “We may be hitting on only three or four of six cylinders right now,” he says, “but we’re starting to move things in the right direction.”

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