|
Letter to Chairman Inviting Cooperative
Development of Shareholder Oversight Procedures
(December 8, 2004)
Copied below is the text of a December 8, 2004 letter to the
chairman of Computer Associates' board inviting management cooperation in the
development of procedures supporting shareholder oversight responsibilities
described in the
Forum Summary.
The letter proposes starting with programs to (1) improve
the quality of analyst information and (2) monitor the board's decisions
relating to potential claims against directors and officers. It also
addresses the need for confidentiality provisions that will avoid exposing Forum
participants to "insider" constraints, and encourages the establishment of
broadly applicable procedures that will also satisfy the requirements of
Sarbanes-Oxley and the company's DOJ-SEC Deferred
Prosecution Agreement.
Following several weeks of informal discussion, management
proposed a February 9, 2005 meeting to define
their cooperation. Asked at that meeting to make specific commitments in
relation to an example of plans for presenting
shareholder views to the Administrator of the $225 million Restitution Fund,
management responded with a February 11, 2005
decision not to fund the shareholder activities but to attend their meeting.
Upon management's February 25, 2005 confirmation of
their decision, the Forum developed
alternative plans to respond to the Administrator's request for addressing
investor interests.
Subsequently, management
repeatedly declined requests for advice regarding the development of
procedures for the Forum's review and reporting of information needed by
shareholders about the past performance of directors standing for re-election,
requiring resort to a June 27, 2005
court-enforceable demand for records pursuant to
Section 220 of the Delaware General Corporation Law. Although the
company's attorneys stated their intent to comply "amicably" with the demands,
further delays ultimately prevented shareholders from obtaining the information
needed for voting decisions at the 2005 annual meeting. The company's
board was asked in an August 4, 2005 letter to
state its policy for improved responses to investor inquiries.
|
[letterhead]
LUTIN & COMPANY
575 Madison Avenue
New York, New York 10022
Telephone (212) 605-0335
Facsimile (212) 605-0325
December 8, 2004
By telecopier: 631/342-3300
Mr. Lewis S. Ranieri
Computer Associates International, Inc.
One Computer Associates Plaza
Islandia, New York 11749
Dear Mr. Ranieri:
I will appreciate your advice of appropriate CA representatives
for discussions of communication procedures to accommodate the requirements
of responsible shareholder oversight during the next year.
As you know, the “Forum” program I’m managing will be supporting
shareholder needs for the information and exchange of views that may be
relevant to their investment decisions. A preliminary indication of the
issues to be addressed is presented in a “Forum Summary,” dated November 1,
2004, which can be found on the program’s web site:
http://www.shareholderforum.com/CA/index.htm
Procedures for responding to these shareholder requirements
should be developed with CA management cooperation to minimize the costs and
maximize the benefits, so that both investors and board members can be
better informed about the decisions they must make. I propose starting with
the following:
- Analyst information:
Investors, including professional securities analysts, find it difficult
to understand the information CA publishes about its business
performance. The quality and clarity of investment information must be
improved to eliminate this confusion, and to establish management
credibility. (It should be noted that analyst questions during conference
calls reflect problems arising from their inability to reconcile
performance data, and do not appear to involve accounting issues. Efforts
to improve analyst information would therefore be independent of the
oversight requirements for audit and regulatory compliance.) A
collaboration of analysts and CA management, following the example of the
informal professional “workshops” developed as part of a past Amazon.com
Forum to resolve similar “pro forma” reporting confusion, will be required
to define specific information requirements and methods of publicly
reporting the data in usable form.
-
Claims against directors and officers: The board’s performance of
its responsibilities relating to potential claims against directors and
officers is viewed by investors, and by other CA constituencies, as
critical to corporate integrity. To encourage reliance on the board
rather than on independently controlled derivative litigation for the
disposition of this type of claim, shareholders must be assured that they
will be able to find out what is decided and why. This can be done by
creating some form of shareholder “advisory panel” to confer with the
board – or with a “special litigation committee” of disinterested
directors – on matters relating to the potential claims, including the
priorities of DOJ and SEC actions. With a limited number of delegates
representing diverse investor perspectives and the support of independent
legal counsel, the process for review and reporting of shareholder
interests can be made efficient as well as effective.
In relation to these
initial programs as well as other issues the Forum may address, we will also
need to deal with the need for confidentiality restrictions. It should
be understood that the Forum’s purpose is to make information available to
investors for their use in investment decisions, and that most of the
participating investors will not want to constrain themselves as “insiders”
by receiving confidential material. Instead, we will be following the
conventional practice of arranging for attorneys or relevant experts to
review any material that may be considered confidential, and then prepare
reports which contain only information that can be provided publicly to
investors. To do this efficiently, avoiding the costs and delays observed
in court-supervised procedures, we should establish simple steps for routine
submissions of information requests, designations of confidential material,
and reviews of proposed public reports to confirm the absence of material
that is to remain confidential.
I
assume you will support the goal of developing communication protocols that
permit efficient CA management responses to identified Forum requirements,
as well as to a reasonably anticipated range of other investor inquiries.
It is in everyone’s interest to minimize the costs, particularly in avoiding
any confusion or duplication of your efforts to respond to others who may be
seeking some of the same information for different purposes. (I will of
course invite the Examiner’s participation in these discussions, as soon as
the court appoints one.) The protocols should also be designed as a
foundation for satisfying the requirements of Sarbanes-Oxley and your
Deferred Prosecution Agreement relating to investor response procedures.
And if we are successful at this, I would hope that CA may also gain
marketplace recognition for setting the standard to be followed by
well-governed companies.
I look forward to learning who will be involved in these
discussions, and to our progress with the initial programs.
Sincerely yours,
Gary Lutin
|
|