DAVOS: In
Ironic Twist, CA Benefits From Sarbanes-Oxley
By PETER LOFTUS
January 29, 2005 10:35 a.m.
Of DOW JONES NEWSWIRES
DAVOS, Switzerland -- The climate of heightened
scrutiny of corporate financial statements can be traced partly to the
history of accounting troubles at software maker Computer Associates
International Inc. (CA).
So it's something of an ironic twist that the 2002
Sarbanes-Oxley corporate-reform law,enacted to counter financial
irregularities, is spurring sales of CA's business software, which can
help corporate clients automate compliance with the law.
John Swainson, president and incoming chief executive,
said Saturday on the sidelines of the World Economic Forum here that
annual sales of CA's compliance-related software and services could
reach a "couple hundred million" dollars, compared with roughly $10
million to $20 million now. CA had $3.3 billion in revenue in fiscal
2004.
"Ironically, here's where I think there is a very
interesting business opportunity for my firm," Swainson told Dow Jones
Newswires. "We expect our customers will make fairly extensive use of
that."
Computer Associates, of Islandia, NY, went through a
messy accounting scandal that brought down top management last year and
led to criminal charges against some former executives, including ex-CEO
Sanjay Kumar.
Even in the years before the indictment there were
questions about CA's accounting, which fed the growing investor
suspicion of companies that culminated in Sarbanes-Oxley.
After Kumar was ousted, CA director Kenneth Cron took
over as interim CEO. Swainson was lured away from an executive post at
International Business Machines Corp. (IBM) to become permanent CEO, a
post he'll assume shortly.
Swainson's charge is to help CA recover from the
accounting scandal. Part and parcel to that is CA's implementation of
the Sarbanes-Oxley requirements, which among other issues forces
companies to take steps to guarantee the accuracy of financial
statements.
"Part of it is of our own creation," Swainson said of
Sarbanes-Oxley. "We as a company had a significant lapse of fiscal
probity. Certainly we were in need of remedial action."
But while acknowledging CA's own role in the souring of
investor faith in financial statements, Swainson said he has mixed
feelings about the law. He echoed a concern cited by many other
executives in Davos - that some provisions of the law have landed
companies with greater-than-necessary expenses.
CA itself is paying heavy costs, though that's not
surprising given its tainted past. Swainson estimated the company will
have spent $50 million preparing a required review of its internal
controls, which is due after its fiscal year ends March 31.
He said he spends about three to four hours a week
meeting with a team of CA employees dedicated to Sarbanes-Oxley. Some
200 CA employees work on Sarbanes-Oxley compliance.
"This is enormously expensive and time consuming,"
Swainson said. "While it has value, to be sure, I'm not sure the
cost-value equation is necessarily in synch." He said the burden falls
most heavily on companies smaller than CA.
He did say, though, that CA has gained valuable
insights as a result of the internal review.
For instance, CA found that it could save money by
consolidating several back-office operations in Europe into one
location. Swainson added that he had no problems with an earlier
Sarbanes-Oxley rule requiring CEO's to certify the accuracy of their
financial reports.
Separately, Swainson said he expects consolidation in
the software industry to continue. He said CA, which acquired two
companies late last year, anticipates doing more acquisitions. Ideally,
such buys would strengthen CA's position in sales of systems-management
and security software, he said.
-By Peter Loftus, Dow Jones Newswires; +41 79 423 6770,
peter.loftus@dowjones.com
