NEW YORK (Dow Jones)--Amid ongoing concerns about a
declining stock price and continuous revelations of financial-reporting
errors, software maker CA Inc. (CA) faces opposition to members of the
board and its independent auditor ahead of its annual shareholder
meeting Monday.
Proxy advisory firms Institutional Shareholder Services
and Glass Lewis & Co. are recommending shareholders withhold their votes
for four CA directors including former U.S. Sen. Alfonse M. D'Amato.
Glass Lewis is also recommending shareholders oppose the reappointment
of CA's independent auditor, KPMG LLP, due to concerns about CA's recent
financial restatements.
The influential vote-recommendation firms are also
supporting a shareholder proposal to limit CA's ability to adopt a
takeover-thwarting "poison pill."
CA's shareholders will meet to discuss these issues at
the company's annual meeting, which will be held at the Roosevelt Hotel
in midtown Manhattan. The slew of issues could create a contentious
meeting.
"Each member of CA's board has been invaluable to the
company in their capacity as a director," according to a CA statement
provided by spokeswoman Jennifer Hallahan, adding that the company
recommends shareholders re-elect all of CA's directors.
Financial Reporting Woes
The recommendations come at a weak moment for the
Islandia, N.Y., company, which has been struggling to overcome a
financial-reporting scandal that dates back to 2000. On top of its
earlier reporting woes, CA continues to announce the need to make
financial restatements. Recently, it disclosed a $31 million
commission-expensing error in its third-quarter fiscal 2006 financial
results.
The company in late July also told investors that it
fiddled with the timing of stock-option grants issued to employees
between 1996 and 2001, making it part of the stock-option "backdating"
scandal that has ensnared a growing number of U.S. companies.
Meanwhile, the stock price has been sagging. CA shares,
down 13.6% this year, recently traded at $23.62, down from a 52-week
high of $29.71 a share.
"This is a good opportunity to send the board a
message," said Con F. Hitchcock, a lawyer who represents an
institutional shareholder that attempted to wage a campaign this year to
oust two CA directors via a shareholder resolution. The Securities and
Exchange Commission's staff blessed CA's decision to exclude the
resolution, submitted by funds of union-owned Amalgamated Bank, from its
proxy statement.
Amalgamated, which owns 165,000 CA shares, is
withholding its votes from D'Amato and CA Chairman Lewis S. Ranieri.
Proxy Recommendations
ISS is recommending shareholders withhold votes from
D'Amato Monday, because he was a member of the company's compensation
committee at the time the company issued the questionable stock grants.
Glass Lewis is recommending shareholders withhold votes
from D'Amato, Ranieri, Robert E. La Blanc and Walter P. Schuetze.
Ranieri, CA's chairman, has been at the helm of the board during a time
of significant stock underperformance and management turnover, Glass
said in a report to shareholders. As members of CA's audit committee,
D'Amato, La Blanc and Schuetze oversaw financial reporting that later
had to be restated.
"This ongoing saga of continually changing numbers"
raises questions about "the competence for those responsible," Glass
Lewis said.
Glass Lewis' reasons for opposing KPMG are similar:
"The fact that KPMG served as the company's auditor during the periods
in which the company's financials were subject to restates raises
serious concerns," the firm said.
KPMG officials declined to comment, said spokesman Tom
Fitzgerald.
Shareholders will also be presented with the
opportunity to vote on a controversial proposal that seeks to change
CA's rules on poison pills. Poison-pill plans are used to avoid hostile
takeovers, usually by allowing shareholders to cheaply acquire stock
once anyone else acquires more than a set amount. Shareholder proposals
on poison pills usually ask that shareholders be allowed to vote on the
terms of these plans to ensure they aren't overly protective.
In this case, the proposal would require an unanimous
vote by the board to approve or extend the terms of any poison-pill
proposal that is not approved by shareholders. It would also require
that any poison-pill plan adopted by the board expire in 12 months.
Fight Over Poison Pill
CA asks that shareholders oppose the proposal, mainly
because of the requirement for an unanimous vote by directors. The
company feels it is "bad corporate governance" that "could serve to harm
stockholder interests," said Hallahan, the CA spokeswoman.
Initially, CA barred the proposal from its official
voting materials, or proxy, saying it was a violation of Delaware law,
because it would require the company to change its bylaws if a majority
of shareholders supported it. Usually proposals are advisory, meaning
that companies don't have to adopt them.
SEC staff backed CA's decision, but the drafter of the
resolution - Harvard professor and shareholder-rights activist Lucian
Bebchuk - took the case to court. There, a Delaware judge refused to
rule on the legality of CA's rejection of the proposal, saying the issue
wasn't "ripe" for a decision. This allowed the proposal to appear on
CA's proxy.
A ruling would have shed light on the issue of whether
shareholders have the power to force bylaws amendments on certain
issues, like poison pills, via resolutions. The failure of the court to
rule on this issue means that the legality of the bylaw proposal remains
an unsettled question.
Both ISS and Glass Lewis recommend shareholders vote in
favor of the proposal, but they acknowledge outstanding concerns about
its validity. "ISS recognizes that, if adopted by shareholders, this
binding shareholder proposal will be subject to legal challenges," ISS
said in its report to shareholders.
Bebchuk declined to comment and pointed to his
statements in CA's proxy.
-By Kaja Whitehouse, Dow Jones Newswire; 201-938-2243;
kaja.whitehouse@dowjones.com
