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[letterhead]
LUTIN & COMPANY
575 Madison Avenue
New York, New York 10022
Telephone (212) 605-0335
Facsimile (212) 605-0325
July 28, 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:
Monday’s news report of your support for CA’s interim manager as
a potential permanent CEO may be interpreted by some observers, including
alternative candidates for the position, as an abandonment of your efforts
to recruit a qualified outside executive. Under these circumstances, it may
also be assumed that the board will be considering the alternative of
selling the company to a buyer that can effectively manage the enterprise
before its strategic values deteriorate.
Proceeding with a sale alternative, however, will not reduce the
importance of shareholder concerns addressed in our recent correspondence.
The same conditions that would discourage a prospective CEO candidate will
also dampen the bidding of a prospective buyer. Whether you intend to
attract buyers or CEO candidates to assume responsibility for CA’s
management, you must first resolve these issues:
§
Corporate integrity: The company has not yet taken
actions to adjust miscalculated compensation or to recover damages from
individuals whose misconduct has been established, and management’s recent
offer of a $10 million payment from shareholder funds to end government
investigations suggests a preference to avoid rather than correct the
problems. The board must show that violations of corporate integrity will
not be tolerated, and that the company’s managers will not be rewarded for
either misconduct or mistakes.
§
Financial reporting: Three of the six analysts who
asked questions during CA’s July 22nd earnings conference call
raised issues about the company’s accounting. If top professionals have
trouble understanding the numbers, the reporting simply isn’t satisfactory.
Logically, management must have access to sufficient data to make informed
business decisions. This data must also be presented in a form that can be
used by the public to make informed investment decisions.
Many of CA’s shareholders will want to monitor the board’s
progress with these and any other issues that may have a significant effect
on the value of CA stock, and some of those shareholders will also be
willing to offer their views for the board’s consideration. As indicated in
recent correspondence, planning has been initiated to accommodate these
monitoring and communication functions in a shareholder “forum” program
similar to the one conducted in 2001. But the benefits will be much greater
if, unlike CA’s 2001 management, the current CA management participates
cooperatively. This would assure the board’s understanding of investor
interests, and, at the same time, assure the shareholders’ appreciation of
the board’s efforts to address those interests. And the board’s embrace of
shareholder support would show investors – as well as a growing list of
litigants and government agencies concerned with the protection of those
investors’ interests – that current management can be relied upon to make CA
viable.
I invite you to work with me to develop a program that will
allow CA’s board to make good use of the strong shareholder interest in your
success. Please let me know if you wish to participate in the planning
process.
Sincerely yours,
Gary Lutin
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