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CA Turns
To SEC In Fight Vs Proposal On Directors' Ouster
By PHYLLIS PLITCH
April 27, 2006 5:13 p.m.
Of DOW JONES NEWSWIRES
NEW YORK -- CA Inc. (CA) is fighting back against an
activist campaign to dump two prominent directors, asking the Securities
and Exchange Commission for permission to block a shareholder proposal
calling for their ouster.
The shareholder resolution, submitted by a union-owned
bank, seeks an annual-meeting vote to remove CA chairman Lewis Ranieri
and director Alfonse M. D'Amato, a former New York senator.
The fight brewing over the resolution appears to be
coming down to a battle over state shareholder rights versus federal
proxy rules and SEC staff legal interpretations of the rules. In its
resolution, the proponent, Amalgamated Bank's Longview funds, argues
that in Delaware, where CA is incorporated, the law "expressly
authorizes shareholders to remove directors."
In its letter to the SEC, however, CA's director of
corporate governance, Lawrence M. Egan Jr., countered that the SEC staff
has previously given companies its blessing to exclude similar proposals
because they relate to the election of a director. Under an increasingly
controversial provision of the proxy rules, companies can omit a
proposal if it "relates to an election for membership on the company's
board."
Washington, D.C. attorney Con Hitchcock, who is
preparing a response on behalf of Amalgamated, is sticking to his guns
on the legal grounds for the proposal.
For one thing, activists who floated such proposals in
the past didn't strongly press the issue of shareholders' rights under
state law, so the SEC didn't "have a chance to adequately consider the
issues," he said.
And because the company doesn't allow shareholders to
call special meetings, the annual-meeting proposal is shareholders' only
alternative, he added. Further, Hitchcock doesn't agree with the staff's
prior position that the director-election provision should exclude a
proposal urging removal of a director.
"It begs the question of whether the SEC should be
snuffing out a core shareholder right, particularly at a company that
has had the troubles CA has had," Hitchcock said.
Even though the company, formerly known as Computer
Associates, has been trying to put its scandal-scarred past behind it,
Hitchcock said the company won't be able to make a clean break until the
two directors exit the board. The two were targeted in part because both
were on the board in 2001 when questions about accounting issues first
surfaced and the company was slow to respond, he said. Ranieri joined
CA's board in June 2001 and D'Amato has been a member of the board since
1999.
In the fall of 2002, for example, former chief
executive Sanjay Kumar - who pleaded guilty to securities fraud and
obstruction of justice charges just this week - publicly announced that
a board investigation found no accounting irregularities. Various
updates from the company about the state of the investigation followed,
but Kumar didn't leave the company until June 2004. Several months
later, Computer Associates announced it reached agreements with
regulators in connection with improper accounting practices during the
period between Jan. 1, 1998 through Sept. 30, 2000.
"They haven't put the past behind them and it's time to
make a clean break," Hitchcock said. "This is the way to do it."
In a statement, CA said the proposal was "misguided,"
calling the two directors "outstanding board members."
"This proposal ignores the key roles that Mr. Ranieri
and Senator D'Amato have played in putting CA back on track," the
statement said, "Shareholders will be well served by their continued
contributions."
Ranieri played a critical role in launching the
independent audit committee investigation into the company's accounting,
which led to the removal of many of the company's top managers, the
company said. "And, as a member of the audit committee, Senator D'Amato
was instrumental to the success of that investigation."
-Phyllis Plitch, Dow Jones Newswires; 201-938-2357;
phyllis.plitch@dowjones.com
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