Why CA is suing its former CEO
The sad saga of a software giant continues. But CA's suit against disgraced executive Sanjay Kumar is part of the healing process, argues Fortune's Nicholas Varchaver.
NEW YORK (Fortune) -- The news this morning that CA, the $4 billion a year (revenues) software company formerly known as Computer Associates, has filed suit against its former CEO, Sanjay Kumar, to recoup the legal fees it paid to defend him, is the beginning of an attempt to remove one of many sore points between the company and its shareholders.
More than two years ago, shareholders expressed anger at CA's annual meeting that CA (Charts) wasn't doing enough to seek recompense from Kumar, who stepped down as CEO in the spring of 2004, and other former executives. At the time, CA chairman Lewis Ranieri begged for patience.
Since that time, of course, Kumar has pleaded guilty to securities fraud and obstruction of justice and making false statements as part of CA's $2.2 billion accounting fraud and cover-up. On Nov. 2, Kumar was sentenced to 12 years in prison. (Seven other former CA executives have also pleaded guilty.) CA has always said it would pursue executives who defrauded the company, but suggested it was better to let the criminal cases resolve themselves first.
CA chairman Lewis Ranieri was clearly frustrated by accusations that CA was dragging its feet on the matter. In an interview with Fortune last month, Ranieri said, "Nobody ever wanted to get the money back more than us. We were the guys who sat here and lived with all of the fallout. So by definition, nobody ever wanted the money back more than me, or the rest of the board, for that matter... I firmly believed, and still do -- and we'll see -- that in some instances here the person most able to get the money is the government, because the government has powers that we don't."
Ranieri emphasized that CA was right to wait for convictions before pursuing Kumar and his cohorts. It's not possible, Ranieri said, to say, "'give me my money back' and we get it. First of all, you had to convict all these guys or you weren't going to get anything. My telling them to give me money wasn't going to do anything. Right? Or suing them? We'd have one more guy suing. You have to win! Okay? The government, in winning, wins for all of us. Because then the issue is how much, not if. You follow? Everybody is still on line behind the government. The fact is, they won. Everybody pled guilty. So it's a lot simpler at this point. You go figure out what there is, and you go ask for it. But they had to win first. So yeah, it's a lot of time, but that's because they had to win. What could we have done had they not won? We'd still be chasing each other around."
For troubled CA, the continual re-appearance in the news of disgraced ex-leaders such as Kumar is a recurring nightmare. But taking the first step of suing Kumar is a good moment for the company. And the filing of the suit may actually loom larger than the actual amount of cash recovered in beginning the long process of repairing relations with shareholders. It also shows, unfortunately, that more than two years after CA's accounting scandal was resolved, how much the company continues to be haunted by its past.