---

One Share, One Vote: One Big Test

SHAREHOLDERS across the nation are finally awakening to the fact that some corporate directors must be forced to live up to their duties and mind the store for the owners they are supposed to represent. To this end, shareholders will be asked to vote this spring on scads of proposals seeking changes in director elections at annual meetings.

These so-called majority-vote proposals would require a company to accept, or at least consider, the resignation of any director who receives fewer than half the votes cast at the annual meeting. So woeful is the state of shareholder democracy in America that such a modest step is seen as real progress.

Happily, one institutional investor has decided to forgo the incremental approach and deliver a potent punch to two directors it views as not up to the job.

That investor is LongView Funds, a family of mutual funds run by the labor-union-owned Amalgamated Bank. Last week, LongView submitted a proposal to CA Inc., the company formerly known as Computer Associates, asking its shareholders to vote to remove two directors at its coming meeting: Alfonse M. D'Amato, a former senator from New York who served on the board when significant misconduct was going on at the company, and Lewis S. Ranieri, a former vice chairman of Salomon Brothers and the chairman of CA's board.

Mr. Ranieri joined the CA board in 2001 after the company's accounting practices had been questioned. LongView recommends that CA shareholders oust him because, as LongView sees it, he failed to get to the bottom of the company's problems quickly and to put things back on the right track.

CA has made some governance changes to satisfy the deferred prosecution agreement it struck with the federal government in 2004 to avoid a possible indictment. But LongView, which owns 9,450 CA shares, argues that further change is needed.

"We deem it important to replace those directors who served during the period of misconduct," the proposal states, "who continued on the board during the board's failure to effectively investigate accounting issues that were raised in 2001 newspaper reports and government investigations, and whose initial response was merely to demote the C.E.O. and offer a $10 million payment to end the law enforcement inquiries." The company made the $10 million offer in 2004.

The proposal also noted that while Mr. Ranieri advised shareholders in 2004 that CA would not tolerate former executives retaining compensation they received based on false revenue numbers, the company has not tried to recover money from any executives who received unjustified pay based on erroneous accounting.

"Why should shareholders be holding onto directors who were on hand when things were happening that shouldn't have been?" asked Cornish F. Hitchcock, outside counsel to the LongView Funds and author of the proposal. "It would have been nice if people who were present during the misconduct had voluntarily chosen to step down before now, but they didn't, and so we're left with the need to raise this issue in a shareholder proposal."

If the story of CA's spectacular implosion has faded from memory, here's a quick recap: More than two years ago, CA announced that it was restating its financial results for 2000 and 2001 because of significant accounting irregularities. (It has revised its initial restatement three times, most recently last May.) The company has acknowledged making false statements to the Securities and Exchange Commission and obstructing a government investigation. Also in 2004, CA agreed to establish a $225 million restitution fund for shareholders.

Several CA executives have been indicted and pleaded guilty to fraud; Sanjay Kumar, the company's former chief executive, goes on trial next month on charges of securities fraud and obstruction of justice.

Filings made last month by prosecutors preparing for the criminal trial of Mr. Kumar and Stephen Richards, a former executive vice president for sales, said CA's board had approved an employee stock plan that enabled Mr. Kumar and other senior executives to extract "over a billion dollars in shareholder value" from the company.

Mr. Kumar cooked CA's books, the government contends, to maintain a lavish lifestyle and to pay for a stake in the New York Islanders hockey team. To help Mr. Kumar make that purchase, CA's board lifted a ban on borrowing against the shares he held in the stock ownership plan in June 2000. Mr. Kumar borrowed $51 million on June 30, 2000, backed by his shares, to buy the team.

On July 3, 2000, when the stock market was closed, CA published a press release warning that it would not make its numbers for the June quarter. The stock plummeted when the markets reopened, wiping out $1 billion in value.

Lawyers for Mr. Kumar and Mr. Richards did not return phone calls seeking comment. Both men have maintained that they did nothing wrong.

Neither Mr. D'Amato nor Mr. Ranieri returned phone calls seeking comment.

Jennifer Hallahan, a CA spokeswoman, said that the LongView proposal was misguided and that Mr. D'Amato and Mr. Ranieri were "outstanding" directors who received support from more than 90 percent of the votes cast at the annual meeting last year. "This proposal ignores the key roles that Mr. Ranieri and Senator D'Amato have played in putting CA back on track," Ms. Hallahan said in a statement. For example, she said, Mr. Ranieri led the negotiations with the government that resulted in the deferred prosecution agreement.

"His guidance and active involvement in the business helped ensure stability during the period when the company was without a permanent C.E.O.," she said. "Mr. Ranieri and Senator D'Amato were key participants in the company's efforts to attract outstanding new leaders, including C.E.O. John Swainson."

Ms. Hallahan said the LongView proposal misstated the company's position on recovering "ill-gotten gains" by former executives. "CA strongly supports these efforts and is actively working with the government," she said.

The company's annual meeting has not yet been scheduled, but last year's took place in late August.

CA may try to keep the LongView proposal off its proxy by challenging it before the S.E.C. That would be an interesting sign of the board's attitude toward the shareholders it is supposed to represent and their rights to vote.

The beauty of the LongView proposal is its simplicity. It does not require an expensive shareholder campaign to unseat a director in favor of another candidate. Nor does it ask the S.E.C. to create any new rights for CA shareholders. It simply asks that CA shareholders be allowed to remove directors by a majority vote of the shares outstanding — something they are entitled to do under the laws of Delaware, where the company is incorporated.

Gary Lutin, an investment banker at Lutin & Company in New York who is an adviser on corporate control matters, has conducted an online forum for CA shareholders since 2001. Mr. Lutin identified CA as a company that needed shareholder oversight when reports of its accounting irregularities surfaced; over the years, he has shown forum participants how to monitor the performance of CA's board and press it to respond to investor and governmental demands for investigations of financial reporting inconsistencies.

"If anyone needed a case to show why our whole system of corporate governance depends on the ability of shareholders to remove their directors, this is it," Mr. Lutin said. "These directors have been given a lot more opportunities than most to do the right thing. Now it's time for shareholders to step in and decide what's right."
 

The Forum is open to all Computer Associates ("CA") shareholders, whether institutional or individual, and to any fiduciaries or professionals concerned with their investment decisions.  Its purpose is to provide shareholders with access to information and a free exchange of views on issues relating to their evaluations of alternatives, as described in the Forum Summary.