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New York Times, December 3, 2002 article

 


December 3, 2002

Market Place; A Gift Raises Questions On Computer Associates

The criminal investigation of Computer Associates' accounting practices and a $1 billion payday for its top officers has put a big charitable donation by the company's former chairman in a new light.

While he was chairman and chief executive of Computer Associates International, Charles B. Wang donated more than $40 million to the State University of New York at Stony Brook for a new center for Asian-American studies.

Shirley Strum Kenny, Stony Brook's president, was a member of the Computer Associates board at the time. Some specialists in corporate pay and governance now say that the contribution posed a conflict for Ms. Kenny and may not have been fully disclosed to investors.

During the late 1990's, Ms. Kenny was one of only four outside directors on the seven-member board. Moreover, she was one of only three members of the audit committee, which is responsible for overseeing the company's accounting practices.

Federal prosecutors and the Securities and Exchange Commission are now investigating whether the company broke accounting rules to inflate the sales and profits it reported to investors from 1997 to 2000. During that period, Computer Associates paid Mr. Wang more than $700 million, mostly in a stock grant that became vested when the company's shares rose to a certain point. Computer Associates has said its accounting was proper.

Mr. Wang's initial donation to Stony Brook, which was initially announced as $20 million to $25 million, was publicly announced in 1996 and widely reported. But in proxy statements and other reports to investors during the late 1990's, the company failed to disclose Mr. Wang's donations.

James D. Cox, a professor of corporate and securities law at Duke University, said Ms. Kenny had faced a conflict of interest by remaining on the company's board after Mr. Wang made the donation. A $40 million gift ''bears on the independence of the directors,'' Mr. Cox said.

In addition, Mr. Cox called Computer Associates' failure to disclose Mr. Wang's gift in its proxy statements ''astounding.'' By carefully drawing up the proxies to identify Ms. Kenny as a ''nonemployee'' rather than an independent director, Computer Associates may have avoided violating the letter of the securities laws, Mr. Cox said. But the company unquestionably misled its investors, he said.

Graef Crystal, who specializes in executive compensation and who harshly criticized Mr. Wang's pay in the late 1990's, said he did not know whether Computer Associates had been legally required to disclose the donation because it had come from Mr. Wang and not the company. But he said the gift probably represented a conflict of interest for Ms. Kenny. ''She would have a terribly warm feeling for him,'' Mr. Crystal said. ''It's troublesome.''

In a statement, Computer Associates said Mr. Wang's donation was unconnected to Ms. Kenny's position on its board. ''Any suggestion that Charles Wang's private donation to SUNY Stony Brook was improperly dealt with when it comes to disclosure is ridiculous,'' the company said. ''Moreover, this gift had absolutely nothing to do with board and company matters. To suggest otherwise is ludicrous. Charles Wang's only motivation was philanthropy.''

Ms. Kenny, who stepped down from the company's board in August after serving as a director for eight years, said in a statement that Mr. Wang had long been a donor to Stony Brook. ''To suggest that his generosity was the result of some sort of effort to curry favor with a member of the C.A. board of directors is personally offensive to me,'' Ms. Kenny said.

Other Computer Associates directors have also benefited from Mr. Wang's largess. Former Senator Alfonse M. D'Amato joined Computer Associates' board in 1999 and became a member of its compensation committee, responsible for determining the pay of Mr. Wang and other senior executives. The previous year, Mr. Wang had been a major donor to Mr. D'Amato's unsuccessful campaign for the Senate, giving $25,000 to New York Salute 1998, a political action committee controlled by Mr. D'Amato, as well as $100,000 to the National Republican Senatorial Committee and $10,000 to the Republican National Committee.

Computer Associates never disclosed Mr. Wang's donations to Mr. D'Amato, who remains a director and member of the company's audit committee, which oversees its accounting.

Mr. D'Amato said that his performance as a Computer Associates director had not been compromised by Mr. Wang's gifts and that Computer Associates had no reason to disclose them to shareholders. ''I don't believe that whatever political support he may have given to me in any way may have reflected on my conduct,'' he said. ''It's ridiculous; it's silly. I think you're out of line.''

Computer Associates said in its statement that its board members had the ''right as private citizens to contribute to political candidates.'' It added, ''Any suggestion of impropriety is offensive.''

Before Mr. D'Amato and Roel Pieper, a venture capitalist, joined the Computer Associates board in 1999, the board had four nonemployee directors: Ms. Kenny; Richard A. Grasso, the chairman of the New York Stock Exchange; Willem F. P. de Vogel, a money manager; and Irving Goldstein, the chief executive of Intelsat, a satellite company.

Through a spokesman, Mr. Grasso declined to comment about his role on the board. Mr. de Vogel did not return calls for comment, and Mr. Pieper could not be reached. Mr. Goldstein died in 2000.

The company's three inside directors were Mr. Wang; Sanjay Kumar, its president; and Russell Artzt, its executive vice president for research and development. Those three men split a $1.1 billion stock grant in 1998, one of the largest paydays in the history of business in the United States, after Computer Associates stock reached $53.33 a share. The stock closed yesterday at $16.05.

Since last year, when the Texas billionaire Sam Wyly tried to replace the company's directors with his own slate, Computer Associates has substantially revamped its board. In March, the company added Walter Schuetze, the former chief accountant of the Securities and Exchange Commission, and Jay Lorsch, a corporate governance consultant. Four more new directors, including Thomas H. Wyman, the former chief executive of CBS, joined in August, when Mr. Grasso, Mr. de Vogel, Mr. Pieper and Ms. Kenny stepped down.

 

Copyright 2007 The New York Times Company

 

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