With Exec No. 3 Gone, CA Had Better Have Good Answers For Customers

CA, still smarting from its $2.2 billion accounting scandal, bid adieu to its CFO last week just after losing its CTO and COO to new jobs. Customers wonder what's going on over there.

J. Nicholas Hoover, Senior Editor, InformationWeek Government

May 19, 2006

4 Min Read

The door leading out of CA's executive suite is still swinging, with CFO Robert Davis the latest to depart last week. Management turnover at the world's fourth-largest software developer has some customers concerned.

"It indicates some instability," says David Moore, CIO at Spectrum Laboratory Network. But during the four hours he spent with his CA reps last week, talking about the company's products and direction, Moore says he was reassured enough to continue working with CA.

CA, still smarting from an accounting scandal that forced the company to restate $2.2 billion, says Davis left "under mutual agreement" after only 14 months on the job. Two weeks ago, CTO Mark Barrenechea split to become a director of investment firm Garnett & Helfrich Capital. COO Jeff Clarke, hired two years ago, left in April to become CEO at Cendant's travel arm, which runs Orbitz and Cheap Tickets.

Swainson bids adieu to his CFO.Photo by James Leynse

Corporate controller Robert Cirabisi will serve as interim CFO while CA scouts for Davis' replacement. Michael Christenson, previously a senior VP, was promoted to COO. The company doesn't yet have a CTO. CA has a "deep top-tier management team capable of running the company during this time of change," a spokesman says.

But can they keep it profitable? CA estimates earnings for its fourth quarter ended March 31 will fall between 0 and 2 cents per share on revenue of $940 million to $950 million--far below an earlier stated expectation of 9 or 10 cents a share--because of an unexpected rise in sales commissions, lower-than-expected bookings, and delays in transitioning over revenue from acquired companies. The company's mainframe software business still accounts for more than half of CA's sales, and it isn't growing. Its stock price has been dropping since March, last week hovering around $22.50, its lowest since October 2003, when it revealed massive accounting malpractice that led to $225 million in fines, criminal prosecutions of several key executives, and a major reorganization. Former CEO Sanjay Kumar pleaded guilty to securities fraud and obstruction of justice in a federal court last month and faces up to 20 years in prison.

More Work To Do

CEO John Swainson, who took over in November 2004, said in a February interview with InformationWeek that his work wasn't over (see "About Face," March 6, p. 36; informationweek.com/1079/ca.htm). He took the same stance in a statement last week: "Eighteen months into the process, it is clear that although we still have a way to go, we have made progress."

CA has until the end of September to meet obligations under a deferred prosecution agreement with the Justice Department and the Securities and Exchange Commission or face charges of fraud and obstruction of justice. It's met some conditions: An independent compliance examiner is tracking accounting, and it hired a chief compliance officer. The company still is implementing a series of expensive financial controls, including an SAP ERP system on which it's spending as much as $100 million.

That kind of cloud hanging over a company can't make it any easier to book sales. Swainson has said it will take years to rebuild CA's operations, product portfolio, customer relationships, employee morale, and reputation.

As for Spectrum's Moore, he'd like to remain a customer. A year ago he licensed several CA Unicenter modules and is considering upgrading to the latest version of Unicenter, r11. He's the kind of customer CA needs--one who thinks the vendor is strategic enough to sit down with for a discussion. "It's like rebuilding the 49ers," Moore says. "They were once a great team. Now they're in a rebuilding phase, and are you going to write them off forever? Of course not."

CA can only hope the bulk of its customer base shares that kind of team spirit.

About the Author(s)

J. Nicholas Hoover

Senior Editor, InformationWeek Government

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