The Information Age interview


About the company

Customers know Computer Associates – and, these days, for all the wrong reasons. Just as the company was beginning to shed its reputation as a home for legacy software products that carried an inflated price tag, it was rocked by a series of accounting scandals. An on-going FBI fraud inquiry and investigations by the US Department of Justice and the Securities and Exchange Commission have left it reeling, with a power vacuum at the top as over a dozen senior executives have left or been sacked. The allegations centre on internal accounting and sales activities in the years around the turn of the century, and involve the movement of revenues between quarters and product areas, and consequently, the mis-statement of financial results.

The man put in charge of cleaning up that mess and restoring customer confidence in the company is Ken Cron. A board member since August 2002, Cron was appointed as CA’s interim CEO in April 2004. Perhaps he was selected by other board members because he is anything but a typical high-tech industry executive.

A psychology graduate and former magazine publisher, Cron moved from magazine house CMP Media to lead a series of entertainment software start-ups before becoming CEO of PC games giant Vivendi Universal Games.

Cron, along with COO Jeff Clarke, is in charge of one of the broadest enterprise software portfolios in the business. It ranges from the Unicenter systems management suite through to database software (Ingres, IDMS and others), security products (the eTrust range), storage management tools (BrightStor) and development tools and portals (AllFusion and CleverPath). The job is now to take the spotlight off the company’s corporate governance woes and move it to the value (and CA still has some bridge building to do there with customers) that these products deliver.



Q: If one looks back at the software industry in the 1990s, it was a standing joke, talked about completely openly, that some of the largest vendors would close their quarter on the 39th of the month or shift revenue from one quarter to another to create a smooth curve for Wall Street. These are the kinds of things CA has been accused of. Do you think that CA has been singled out for practices that had become endemic and accepted in the software industry?

A: The actions that occurred at CA were securities fraud and obstruction of justice. They were by individuals who did wrongdoing. I am not here [at CA] to apologise for that wrongdoing, I am here to fix it so it never happens again. In 1998, the Financial Accounting Standards Board put in place a new proclamation, governing the treatment of software revenue recognition. And it is clear that CA did not follow that accounting [rule]. We are now talking five or six years ago. These issues are in the past – over the last several years, the accounting has been incorrect. Today, though, if you look at our revenue recognition, it is what is known as rateable recognition. It is the most conservative in the industry. CA has the most transparent financials and the most conservative financials.

Q: So do you think that CA was an exception within the industry?

A: The fact is what was done at CA was inappropriate and incorrect. We have to take an incredible number of remedial steps so this will never happen again – changing control systems, moving to a new business model that the rest of the industry is not on. When our competitors – and CA in the past – sell a three year contract for millions in revenue, they take it all that month. We take it over 36 months. So CA has built a process where we are customer friendly. We are indifferent if we close the business in one quarter or the other. We want to be friendly to the customer, to allow them to decide when they want to buy our software, not try to drive [our] financial performance.

Regardless of what the practice in the industry was, one of the things we are committed to is to make sure that the financial reporting has the highest level of scrutiny and financial integrity, and that we are leading the way with a new business model that allows us to take a point of view that is indifferent to when things get booked. And doing that, we think that runs the company in the most effective way for our customers.

In addition, we are going to improve the integrated financial systems in the company, investing $10 million this year so we get a more auditable, more integrated set of financials. Today we use a homegrown system. And the next step is to adopt an SAP, Oracle or PeopleSoft enterprise resource planning package.

We are also going to hire a corporate compliance officer to report directly into the audit committee.

Q: To what extent does the board bear responsibility here for not having demanded a higher level of visibility of what was going on?

A: The issues you are referring to took place pre-2001. My expectation is certainly the current board and probably the past did everything it could in evaluating the company’s practices as it appeared to them. Clearly when you get down into the level of scrutiny in the operating areas, it is hard for the board – any board – to evaluate everything that is going on. Part of the issue around the corporate compliance is to have a mechanism where someone has visibility into the areas that are not easily seen, and that have the possibility to be jeopardised, and then report to the board on that. That is the job of the corporate compliance officer.

The [current] board is very aware of the liability issues, the compliance issues, the integrity issues. So everyone is really heightened to think: what are the right things to do, how do we find out everything we possibly can to make sure the company is going in the right direction?

The board is significantly different from what it was in 2000. A lot of the things that have been going on, especially the investigation into corporate governance, have been as a result of the new board. That’s not a comment on the prior board.

Q: Was there a particular point when the board realised that what was going on operationally in CA was illegal?

A: The company’s own investigation is closed. It resulted in the re-statement of certain financial results. It also resulted in remedial action: 15 people are no longer with the company and other management changes that included [previous CEO] Sanjay Kumar tendering his resignation. It was one of the most thorough internal investigations for situations of this nature. The company spent in excess of $30 million over a year-long investigation. The direction to the law firm we engaged and PwC [Pricewaterhouse-Coopers] as the accounting firm was “Leave no stone unturned”. PwC developed cutting edge corporate forensic methods specifically for this case in order to gather materials. And the law firm used some of the leading edge techniques to recover emails and other documents. The company has borne the cost of this in order to not only meet the spirit but to go as far as is technically possible to make sure this investigation is complete. So from a governance perspective in terms of trying to get to the bottom [of this] and make the appropriate recommendations and re-statements, the board has done an incredible job.

That all said, the government investigation is still ongoing. And we are having discussions with the government and are hopeful that they are going to result in constructive outcomes for the company. So I am not in a position to discuss what those issues are.

Q: CA has a very broad product line – hundreds of products. Is there any question of the company seeking to put its tarnished image behind it by splitting itself into separate units or even hiving off certain businesses?

A: No. When you talk to our customers, it is the integrated approach, it is the management software, its the control dashboard that really makes the company so successful. So really bringing those things together, making sure they all work together properly, building our suite of services for the CIO, that’s where the company is going. We are not going to split up the company.

Q: To what extent have the company’s legal problems impacted customer loyalty. Have you seen customers close you out of deals after doing due diligence?

A: I was concerned about that when I first stepped into this position. I was concerned as to where that issue was going to go in customers’ minds. And because of that I reached out directly to our largest customers. It was really surprising how much customers were really rooting for the company. They said that customer satisfaction in the earlier days of CA was nowhere near what it should have been, but they said we had done a great job in recent years in terms of customer advocacy. I came away with one simple fact: it is time to get back to business.

Q: You were appointed as interim CEO in April. How temporary do you see your role?

A: The search is under way for a new CEO, [but] we don’t have a timeframe for it. There is no urgency to it because myself and Jeff [Clarke, COO] are here running the company. The company is really poised now to move forward. The customer base is intact, and I have reached out to about 60 or 70 customers and their overwhelming response is: “Glad the challenges are getting behind you. We’re enthusiastic about your product and technology strategy. We want you guys to continue to be successful, and supply us with the software that is involved in the infrastructure that supports the mission-critical tasks of our company. We’re rooting for you.”

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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