http://www.newsday.com/technology/ny-txca212328757aug21.story

Key Advisory Firm Opposes Wang

Switches to Wyly slate in proxy battle for CA

By Mark Harrington
STAFF WRITER

August 21, 2001

A refusal by Computer Associates International Inc.'s board of directors to consider replacing founder Charles Wang as chairman may have cost it critical support from an influential advisory firm for institutional stockholders in the fight for control of the company.

Institutional Shareholder Services of Rockville, Md., yesterday switched its previous backing of CA management and said it would now support the shorter, four-member slate of Sam Wyly's Ranger Governance Ltd. in the summer-long proxy fight. Ranger initially sought all 10 CA board seats.

Explaining ISS' decision, Pat McGurn, its vice president, said CA's board was unwilling to concede on the subject of Wang's stepping down, which ISS considered important to good-governance changes at CA. ISS in a report earlier this month called CA's corporate governance practices "deplorable," pointing to a stock award to top managers, including Wang, of more than $1 billion in 1998.

"Number one on our list [of needed changes] was Wang going," McGurn said, but he noted that it was "the one step the board of CA was unwilling to take."

CA spokesman Owen Blicksilver said CA "is not going to comment at all on our private discussions with ISS." In a statement yesterday, Wang said he was "disappointed" by the reversal and slammed Ranger's plan, saying it would "hurt the company and its shareholders."

A Ranger spokesman yesterday said the ISS endorsement "gives us real momentum heading into next Wednesday's vote" at CA's annual shareholder meeting.

In reversing itself, ISS joins another influential firm, Proxy Monitor of Manhattan, which Friday switched its previous support of CA management and now backs Ranger. Also last week, CalPERS, the nation's largest pension fund, which owns 3 million CA shares, backed Ranger's board slate.

CA had discussed a series of concessions with ISS, including unspecified changes to its "poison pill" defense against hostile takeovers and the addition of one or two new directors, McGurn said. But "it was clear that [removing Wang] was not going to be one of them." While noting CA under chief executive Sanjay Kumar "does appear to have embarked on a sincere campaign to revamp the constitution of the board," ISS ultimately found that the pace of change wasn't quick enough.

CA noted the fact that it had retained a recruitment firm that was interviewing one or two prospective new board members as evidence of a plan to diversify its board, McGurn said, adding that CA started the recruitment effort during the proxy battle.

But while Blicksilver confirmed that CA is recruiting one or two new directors, he denied the recruitment began during the proxy fight.

McGurn called ISS' decision to reverse itself "unprecedented."

ISS has 700 institutional clients, many of whom are key holders of CA stock. Collectively, institutional shareholders control two-thirds of CA's shares.

In Wang's statement, he noted that management was "disappointed by the ISS and Proxy Monitor decisions." "Under Mr. Wyly's latest scheme," the statement continued, "the Board would include four of Wyly's own hand-picked appointees who would be likely to push a plan designed by Wyly that, in our view, has been discredited"

Observers said the backing of all three groups is crucial for Ranger's chances.

"It's significant in that it reflects a virtually consistent view among professional investors that some change is needed," said investment banker Gary Lutin, who is leading a shareholder forum on the CA proxy fight.