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[letterhead]
LUTIN & COMPANY
575 Madison Avenue
New York, New York 10022
Telephone (212) 605-0335
Facsimile (212) 605-0325
August 27, 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:
Many shareholders appreciated Wednesday’s annual meeting
statements assuring them that you are “taking aggressive steps” to prevent
future management misconduct. But many others, as you observed, were
disappointed that you were not more specific about your past or planned
actions. And asking them to be patient only increased their frustration.
It is apparent that the confusion has not been resolved.
Investors continue to wonder why CA’s board has not yet done what every
other company has done when it needed to correct management misconduct and
restore corporate integrity. This naturally leads to concerns about board
leadership. And in that context of intensified scrutiny, more questions
have been raised about both the functional and regulatory independence of
the board’s members.
Under these circumstances I
encourage you to address a single issue that can be resolved quickly and
cleanly, as an example to win investor confidence. The Forum recently noted
that CA’s public reports have not presented sufficient information about the
“extraordinary services” provided by Mr. Schuetze to determine whether his
$125,000 additional payment was for work performed in his capacity as a
member of the audit committee, or whether the payment would disqualify him
as an independent director under applicable NYSE and SEC rules. This is not
a question about the value or competence of his services. It is simply a
question about Mr. Schuetze’s ability to serve as an independent member of
the board after he performed the work and got paid extra for it.
There are two ways you can resolve this demonstration issue.
One is to publicly report sufficient information for investors to know
exactly what Mr. Schuetze did. The other, if the information cannot be made
public, is to ask the SEC staff to review the facts confidentially.
The new SEC regulations
have a provision, in Rule 10A-3(b)(iv)(f), which appears to anticipate
exactly this need for reviewing relationships, and also for allowing
exemptions from the independence requirements when appropriate.
It is of course important to resolve the issue of Mr. Schuetze’s
independence, and to do so promptly, independently of its demonstration
value. I assume you will appreciate the concern of investors who know only
what you have told them so far: that directors who are being sued,
personally, decided to give one of their colleagues a $125,000 bonus for
heading up an investigation of the evidence against them, and that they
decided to call their colleague independent. This is not a foundation for
confidence.
As an investment professional,
you must be aware of the effect confusion has on shareholder value. It is
certainly a major factor in the pricing discount of CA stock, trading today
at 33% below the average premium to book value of invested equity capital
for other companies in the Reuters software industry index, and 52% below
their average multiple of free cash flow. To eliminate these pricing
discounts, you must eliminate the confusion.
Please let me know how the shareholder Forum program may support
your efforts. Its primary purpose, as you know, is to eliminate confusion.
Sincerely yours,
Gary Lutin
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