Newsday, February 25, 2007 articles

In a dozen years as president of Stony Brook University, Shirley Strum Kenny has nurtured close ties with Computer Associates International in a relationship that has benefitted the state school, the global software company and herself.

Less than a month after Kenny was appointed president in 1994, she asked the New York State Ethics Commission for permission to accept another lucrative post as a corporate director for CA, one of Long Island's most prominent companies.

But the Ethics Commissioners wrote that they had serious reservations. They were concerned about an appearance of impropriety. They noted that CA was already doing business with Kenny's university, if only in small measure.

So the five-member commission granted her request with strict conditions. She had to recuse herself from "discussions or decisions in any matter" involving Stony Brook and CA, including contracts for the company or donations to the school. Kenny would be allowed to accept a yearly CA salary but not stock options because, they wrote, having a "personal equity interest" would be inappropriate.

"A public servant's actions and affiliations must be above reproach," the commission wrote in an advisory opinion first published a year later. "Any associations that give rise to the suspicion of favoritism, self-dealing, or personal, private gain by state officers and employees shake the public's confidence."

As a CA director, Kenny made decisions affecting the Islandia-based company's future and, for that work, she earned more than $330,000 in cash and stock in her eight years on the board, from 1994 to 2002. She also used her own money to build a portfolio of 14,000 more shares.

At the same time, CA's sales to Kenny's school increased dramatically, the company and its co-founder gave donations to Stony Brook worth $75 million, and the two organizations collaborated in public-private partnerships intended to help both institutions, a Newsday investigation based on records and interviews has found.

Ethics experts said the relationship that developed between the company and her institution was too close for comfort.

Blair Horner, legislative director for the New York Public Interest Research Group, a civic organization that focuses on government ethics, called it a "mistake" to permit a state official to draw income from a contractor.

"I don't understand why the state Ethics Commission allowed it in the first place; you end up in these incredibly complex situations," said Horner, who last week was hired by state Attorney General Andrew Cuomo for a public integrity job. "We don't consider them a vigorous watchdog."

Kenny said that she has done nothing wrong in a December interview and in a written response to questions last week.

"My independence was not impaired in either role," she said.

She said she never accepted stock options, the Ethics Commission signed off on her personal stock purchases and its ruling did not require her to avoid any and all dealings with CA.

"The Ethics Commission didn't say recuse myself from anything," Kenny said. "I would recuse myself from anything that was questionable."

University spokesman Patrick Calabria wrote that "Dr. Kenny fully complied with both the letter and the spirit of the Ethics Commission's guidelines."

During Kenny's presidency, the dynamic between Stony Brook and CA almost immediately intensified, according to State University of New York and campus records, the state comptroller's office, federal securities and tax filings, interviews and news accounts.

The company's sales of software and services to Stony Brook increased seven-fold, from $246,000 in the five years before she joined the board and the university to $1.83 million in the subsequent five years, an average jump from $50,000 to more than $360,000 a year. Kenny said she had nothing to do with software purchases.

At CA, Kenny and other directors voted for an executive payout plan that would award company co-founder and her friend, chairman and chief executive Charles Wang, a $650 million stock bonus - that was later reduced in a stockholders' lawsuit and is still being challenged in court. The following year, Wang promised to donate a showcase building at Stony Brook that cost him $52 million to construct.

She joined Wang's board; within three months, he joined the Stony Brook Foundation board. The foundation awarded Kenny an extra $50,000 the year after she left CA and lost her director's fees. That was on top of her SUNY salary - currently $265,000 a year.

CA formed public-private partnerships with Stony Brook to create a software incubator in 1998 and a wireless technology center in 2002 for which the company committed $20 million. For the wireless center, a project championed by former Gov. George Pataki and applauded by the Long Island business community, Kenny decided, based on the advice of a board she appointed, to seize 246 acres of another company's land through eminent domain. That decision came two years after she left the CA board.

Four years after becoming a CA director, Kenny asked one of her deans for a specific accounting of the software company's escalating financial support to the College of Engineering and Applied Sciences. In a joint Stony Brook-CA news release about the software incubator in 1998, she touted the company as university president without revealing she was a paid corporate director and stockholder.

"She's participated in numerous ways that seem to raise a conflict of interest," said Rachel Leon, the executive director of Common Cause/NY, a government watchdog group. "It definitely sounds like she didn't follow the spirit of the decision."

Current Ethics Commission Chairman Paul Shechtman said the "recusal requirement was a serious one. And if it wasn't honored, that would be a serious matter."

Ethics code for state workers

New York's five-member Ethics Commission is charged with enforcing the ethics code laid out for state employees in the Public Officers Law. The commission can investigate and issue fines or refer cases to an employee's supervisor for discipline, including dismissal. The commission's investigation last year of former state comptroller Alan Hevesi for using state employees to chauffeur his wife led to his resignation and criminal conviction.

The ethics code states that public officials must refrain from investments or activities "in substantial conflict" with their government duties. They must also avoid conduct that could raise suspicion among the public - even if there is no actual conflict of interest.

The Stony Brook president said she always submitted the requisite state and federal disclosure statements that showed her financial ties to CA.

"I did ... more than people - most people - would to make sure that everything was absolutely kosher," Kenny said.

The commission does not monitor compliance with its rulings unless an official complaint has been filed.

University presidents have long been encouraged to develop ties with private industry. As a result, they are invited to sit on corporate boards. In a survey of more than 2,100 college presidents by the American Council on Education, 58.3 percent reported sitting on corporate boards.

Former University of Michigan President James J. Duderstadt was a paid director for CMS Energy and Unisys while heading the school from 1988 to 1996. Without being asked to comment specifically on Kenny, Duderstadt volunteered that he was careful to avoid conflicts and the companies of boards he served on did not have contracts with the university.

"It would have been wrong to use my position as a member of a corporate board of directors to influence, for instance, a charitable contribution to my institution," he added.

SUNY Chancellor John Ryan sits on two company boards and said it's beneficial. He said he has solicited donations from fellow directors and isn't concerned about Kenny's actions as they relate to CA.

"She's off of that board," he said. "I'm an old airplane pilot. Why would I land on that runway?"

In building an impressive legacy at Stony Brook, Kenny, 72, has proved so adept at making powerful friends that, though a registered Democrat, she is revered among politicians from both parties.

"Everything she's been about is about building a stronger and better educational institution," said former Republican Sen. Alfonse D'Amato - who served with Kenny on the CA board and had a Stony Brook professorship named in his honor in 2001. "There isn't anything I wouldn't try to do for Shirley because of her devotion to this school."

Kenny was proud of convincing Wang to switch from Queens College - his alma mater and where she was formerly president - and start donating to Stony Brook. She told The New York Times how she expanded a modest relationship between Stony Brook and CA. "I strengthened it," Kenny said. "[Wang's] direct relationship with us came after I got here."

Ties with business execs

Courting donors to support her schools, Kenny forged close ties with high-powered business executives. In turn, she began serving on private boards and committees - supplementing her public salary.

With Ethics Commission approval, she served on the Toys "R" Us board from 1990 to 2002, earning up to $40,000 a year, plus stock options.

Kenny's friendship with Wang began at Queens College, where she was president from 1985 to 1994.

Born in Shanghai, China, he co-founded CA in 1976 and turned it into one of the world's largest software companies. Kenny said she took him out for Korean food to get to know him. "She gets things done," Wang, 62, once told the Times. He declined to comment for this story, as did CA.

Wang donated to Queens College, joined the board of a foundation supporting the college and many of the school's technology graduates went to work at CA.

In the spring of 1994, Kenny was selected to be the first woman president of Stony Brook. Less than three weeks later, she was nominated to the CA board.

"I think there were two interests in me," Kenny said. "I was the president of an academic institution and that is deemed very important on many boards of corporations, because after all that's where your workforce comes [from] and that's where the research comes [from]. And the other reason that I can conjecture ... is because there were no women on the board."

As a "policy-making" state employee, Kenny was required to obtain permission from the Ethics Commission to sit on the boards of for-profit companies.

The Ethics Commission makes such decisions based on the Public Officers Law. It says: "No officer or employee of a state agency ... should have any interest, financial or otherwise, direct or indirect, or engage in any business or transaction or professional activity or incur any obligation of any nature, which is in substantial conflict with the proper discharge of his duties in the public interest."

The commissioners said they had to apply "careful scrutiny" because of the potential perception that a corporation might profit through its connection to a high-level public official.

In the end, the commissioners decided that the amount of Stony Brook's software maintenance contracts with CA were not "significant" for either the company or SUNY. The commission was told Stony Brook had $18,225 in business with CA for the 1992-1993 school year, although records obtained by Newsday under the Freedom of Information Law show that actually the business averaged $50,000 annually during that period. It is unclear why there was a discrepancy. In addition, CA had donated only $13,300 to Stony Brook from 1990 through 1994.

They granted Kenny permission in a letter dated July 29, 1994, with firm provisos:

"In the event any matter arises, either in your CA or [SUNY] capacity, with respect to the other, e.g. a renewal of an existing contract between CA and SUNY, whether CA will bid to perform new services for SUNY, whether CA will give property or services to SUNY, you must disclose your dual role in the first instance and thereafter recuse yourself from any discussion or vote on the matter."

Stock options prohibited

The commissioners allowed Kenny to receive an annual director's salary from CA, which started at $30,000 a year and rose to $45,000 in 1996. But they told her that she could not accept what then was 2,000 shares a year in company stock options other directors received, ruling that even if she recused herself from business between her two employers, someone might conclude she had used her state influence to benefit her investment.

Kenny asked the commissioners a second time to permit her to accept stock options, but they upheld their decision in a ruling dated May 31, 1995.

"The Commission concluded that any equity interest she held in the [company] would be inappropriate, since she would be in a position to financially benefit from SUNY contracts," the ruling said. "This financial relationship would constitute the type of inappropriate appearance that high level executives in state government should avoid."

The Ethics Commission staff told her independently, by phone, she could buy stock in CA using her own money.

The Rev. Robert E. Eggenschiller, a retired Episcopal minister and former ethics commissioner, dissented in the 4-1 ruling. He said his colleagues didn't want to turn her down.

"They wanted as many high-powered people in those positions as possible," Eggenschiller said from his home in Florida. "They felt that she would be losing money [by taking a public sector job], when she had a bigger financial gain outside, and I think they were trying to bend a few things, if you know what I mean."

Two of the commissioners who supported her, Donald Odell and Barbara Black, explained that the amount of business between CA and Stony Brook was so minuscule as to be practically irrelevant.

"If it were higher, the Commission might not have permitted [Kenny] to serve on the board," they wrote in the May 1995 decision.

Over the following years, the business between Stony Brook and CA grew exponentially.

Payments to CA increase

In the five years before she arrived, Stony Brook paid CA $246,000 for goods and services, state records show. From Kenny's first full year in 1995 until the end of 1999, Stony Brook paid the company $1.83 million, according to records provided by SUNY and the state comptroller's office.

Kenny said she personally had "no involvement in buying any software." Yet her subordinates repeatedly elected to use CA for software and services. The state's Office of General Services negotiates statewide contracts with large vendors that state and local agencies can use. In the area of technology, agencies can choose CA, IBM, Oracle and many other companies.

A university statement said all purchases were made through state contracts or competitive bidding. Much of the new spending was for a product to manage the computer network at Stony Brook University Medical Center. "None of the few other companies considered offered a product as complete as CA's," the statement said. The university named 10 employees who worked on the purchase, and said Kenny had no part in it.

After Kenny left the CA board in 2002, the company's business with Stony Brook dropped to its earlier level. Stony Brook paid the company an average of $50,000 a year, from 2003 through last year.

At CA Kenny collected a $30,000 annual salary in cash for her first two years and $45,000 a year in stock for the final six, paid into a deferred account she could access upon leaving the board. Her job entailed attending six board of directors meetings a year and serving on the audit and nominating committees.

She also bought stock in the company with her own money at least eight times, acquiring 14,000 shares through purchases and stock splits. She owned more than $850,000 in stock at one point in 2000, though the value later plummeted.

CA-Stony Brook ties

On May 25, 1995, in her first full year at CA, Kenny and other board members voted unanimously in favor of the company's "Key Employee Stock Ownership Plan," paving the way for a huge payout to top executives in 1998. Wang would later use the fortune he amassed at CA to buy the Islanders and develop real estate.

Kenny said she voted to submit the bonus plan to shareholders, who approved it. A year later, Wang pledged $25 million for a high-tech, architecturally unique center for Asian and Asian-American culture on four acres at Stony Brook.

In January 1998, Kenny and Wang signed the dollar-a-year lease for the property over to his Kinaja Foundation, a nonprofit Wang set up for the project.

That May, the CA board's compensation committee determined that Wang and executives Sanjay Kumar and Russell Artzt were due a $1.1 billion stock bonus based on the 1995 plan, which called for a top executive payout when the share price remained higher than $53.33 for 60 days within 12-months. The stock was distributed on June 12. Wang's share was worth more than $650 million. Within weeks, CA announced an earnings shortfall, and the stock price tumbled, enraging shareholders.

IRS filings for several Wang charities reveal the flow of money from his CA stock into the Stony Brook building named for him.

Twelve days after the stock payout, Wang donated nearly two million shares of CA stock, then worth more than $114 million, into a charity he used as a funding source for the Stony Brook building. That year, Wang spent $2 million on the Charles B. Wang Center "Celebrating Asian & American Cultures" at Stony Brook.

Meanwhile, shareholders sued CA and its board, including Kenny, for violating their fiduciary duty and overpaying executives. Several ethics experts said her vote for Wang's bonus in combination with his gift to her university could raise questions about her loyalties to the shareholders.

"When you cross the line, or you muddy the line, you just leave yourself open to a lot of criticisms, both as a board member and for the company," said Wayne Shaw, a corporate governance expert at Southern Methodist University. "You want these people to be as independent as they can possibly be."

In 1999, a Delaware judge ruled the payout should be reduced by half because the board had improperly calculated the award in the executives' favor. The executives settled an appeal in 2000, agreeing to return more than $200 million.

CA shareholder Sam Wyly is trying to recoup more money from that and other payouts. His lawyer said Kenny and other directors may be drawn into the litigation.

"Even though someone may be your friend or contributing a bunch of money to your institution, you sign on to the job not to look the other way," attorney William Brewer said. "Not to be a lap dog, but to be a watchdog."

Kenny said she looks back on her service to CA without second thoughts.

"Everything we did was responsible to the shareholders to make sure that they got the best value possible," she said.

By the time the Asian center was completed, its cost grew to $52 million and it increased five times in size, to 120,000 square feet. Constructed in an airy, Asian design, the structure has a 239-seat theater, an octagonal pagoda, two lecture halls wired for laptops, and Jasmine, a restaurant with cuisine from across Asia.

Kenny said there was no connection between the payout she approved and the Wang Center.

"I think that is a very large leap," she said. "This is a very large gift. I mean, if you think about it, Charles would not need my vote. It was a unanimous vote ... He gave us this building because, as he said, 'Shirley, I think that people who benefitted from public higher education ought to give back to public higher education.'"

A university statement noted the center was "not funded in any way by CA" and the donation was from a private Wang family foundation.

On April 9, 2003, after she had left the CA board, Kenny signed the deed accepting the building for Stony Brook.

Computer science training

Soon after Kenny's arrival at Stony Brook, she and her aides quickly began transforming the school's well-regarded computer science program into a virtual training ground for local technology companies, including CA. The software industry was booming, but computer scientists were in short supply.

CA's collaborations with Stony Brook were advantageous to the school and the company. Its students gained access to one of the world's biggest software companies and learned from CA employees who taught there. Along with publicity - including a computer lab bearing its name - the arrangement gave CA the chance to identify top students and their start-up companies, and offered an academic testing ground for software products.

Altogether, roughly $23 million of CA's money or products were given or pledged to the university - $20 million to the wireless center, $2.7 million to help double the number of computer science graduates, $90,000 to the Stony Brook Software Incubator and more than $225,000 for computer labs.

Kenny's point man for technology programs at Stony Brook is Yacov Shamash, dean of the College of Engineering and Applied Sciences. She promoted him to the university's vice president for economic development at a news conference in August 1999 attended by Kumar, then the CA chief operating officer.

"It is exactly what Computer Associates needs, to have a strong partner to work with businesses and the government," said Kumar.

Kenny added: "The big companies, like Symbol or Computer Associates, can't stay here unless they get the work force ... And in an area as expensive as ours, it's difficult for [workers] to stay unless you educate them here."

She took an active interest in the collaboration. At one point, she asked Shamash to detail how much help CA had given the engineering school, which includes the computer science program.

His memo chronicled CA's support since 1996 in three main areas: the software incubator, created to provide fledgling software developers financial support and office space; money for the computer sciences program; and donations of equipment. Calabria, the university spokesman, said Kenny did not participate in those transactions: "Dr. Kenny requested the memo for information purposes as the president of the university."

But Kenny told Newsday she participated in the creation of the software incubator, for which CA promised to connect start-ups with venture capitalists. She said she wasn't required to recuse herself in all situations.

"There was nothing to recuse about the software incubator," Kenny said. "I was involved, absolutely."

Many of CA's contributions were given through the Stony Brook Foundation, which manages donations to the school. There were familiar faces on the foundation board - Wang; former CA director Richard Grasso, the ex-New York Stock Exchange chairman; and ReiJane Huai, a Stony Brook graduate and then-CA vice president.

Dual roles not mentioned

Kenny was not always transparent about her dual roles. As president, she sang the company's praises in a Jan. 14, 1998, news release announcing the partnership on the incubator between Stony Brook and CA.

"Led by such world-class companies as Computer Associates, the software industry on Long Island is becoming a significant force in the global software industry," Kenny said in the release, which omitted any reference to her paid position or personal investments in CA.

Stony Brook student journalists wrote articles questioning whether the company was interested in the joint venture to gain early access to potentially profitable start-ups.

Kenny's departure from the CA board followed four years of legal and public relations problems for the company that began with the 1998 stock bonus, often described as a classic symbol of 1990s corporate greed.

In 2000 and 2001, the company's accounting practices came under scrutiny from federal investigators, the media, and ratings agencies, and CA fended off a takeover bid. Multiple investigations led to the repayment of millions of dollars to settle shareholder lawsuits, and the guilty pleas of eight executives to fraud or obstruction of justice.

Kenny, who sat on the board's audit committee, left in August 2002 as CA instituted term limits for directors. Wang departed three months later.

Although she's no longer on the board, she's still involved with the company. The Stony Brook project in which CA will have played the biggest part is under construction. Before Kenny left the board, the company became a "founding partner" in the wireless center and has committed $20 million.

In the summer of 2004, despite fervent community opposition, Kenny moved to condemn Flowerfield, a 246-acre property adjacent to campus owned by Gyrodyne Co., for the expansion. An appeals court sanctioned the condemnation, but litigation over the $26.3 million price of the land is ongoing. The former owners have asked for $158 million.

Ethics commission will review Kenny's role on board

How lucrative relationship developed

College president who also served as a director of CA defends dual roles and denies any conflict of interest