Computer Associates failed to sufficiently address media criticism
and subsequently found itself under attack. Last month's shareholder
revolt has left the software company's PR division somber, but wiser.
Jim Edwards reports.
Computer Associates may have emerged victorious after a two-month PR
battle against a renegade shareholder who used the press to draw
negative attention to the company's stock performance and its
management. However, the PR division is visibly shaken.
In June, Sam Wyly, a Texas shareholder and chief of an investment
vehicle called the Ranger Governance group, launched a surprise attempt
to replace the entire board of directors at Computer Associates. The
company's VP of PR Bob Gordon admits the fourth largest independent
software maker was "blindsided."
Two phone calls - one from The New York Times, the other from The Wall
Street Journal - arrived within two minutes of each other late on June
20. Both papers wanted comment on Wyly's bid to replace the board.
Gordon had to call them back to find out what they were talking
Hindsight is 20/20, of course, but even so, Computer Associates might
have paid more attention to the storm clouds that were on the horizon as
far back as October 2000.
It was then that The New York Times' business reporter Alex Berenson
began a series of stories criticizing the company's accounting
The articles culminated in a lengthy piece on April 29 of this year,
headlined "A Software Company Runs Out of Tricks; The Past May Haunt
The story alleged that Computer Associates' success was no more than a
series of accounting maneuvers that hid a far worse picture. It also
stated that a change in its accounting procedures made it impossible to
compare past and current results. The company denies the allegations,
and in fact launched an all-out media campaign to refute the claims.
Whatever the reality of the situation, The New York Times headline
proved to be true. Wyly, using IR agency Joele Frank Wilkinson Brimmer
Katcher, cited criticisms raised by The Times and asked shareholders to
vote by proxy at the company's August 29 general meeting. Wyly took out
full-page ads in The Wall Street Journal and The New York Times to
propose his own slate of directors, and to pan the company's treatment
of its customers.
One of the first things Computer Associates' Gordon did was to call in
his own IR help. The firm hired Citigate Sard Verbinnen of New York, an
agency with a history of handling shareholder proxy fights. "I think
they knew right away you don't handle this on your own; they brought us
in the next day," says Citigate principal Owen Blicksilver.
Wyly had two months to prepare his attack; Computer Associates had much
less time to respond, says Blicksilver.
"We needed to get up to speed and take the time to prepare the
counterattack ... it took about a week." Citigate assigned about seven
people to the job, complementing the 18 PR staffers at Computer
VP of investor relations Lisa Savino did much of the heavy lifting with
the institutional investors. That work was done the old-fashioned way,
with personal visits and phone calls. She saw a crucial win in the first
five days when Swiss billionaire Walter Haefner, who controls 21% of the
company, sided with Computer Associates. Other investors were a mystery,
however, such as the controllers of index funds who own the stock as a
matter of policy rather than because of a specific interest in the
Usually, Savino says, "They're not interested. They don't generally go
to tech conferences ... but we did have an opportunity to speak with a
lot of these folks."
In the meantime, Citigate's Paul Verbinnen and Computer Associates
decided on focusing on Wyly's biggest weaknesses: the fact that he owns
only 100 shares (though his options are larger), and that he wanted to
split up the company. As Blicksilver put it, "If I have 100 shares of
stock in a company, I don't expect that I'm entitled to a seat on the
The seriousness of the debate meant that PR execs at Citigate found
themselves in touch with CEO Sanjay Kumar and chairman Charles Wang on a
The two executives, plus CFO Ira Zar, made themselves available to IR
chief Savino whenever she needed them.
Complicating the picture, however, was CA-World, a conference for 10,000
Computer Associates customers and 400 or so journalists, which took
place in Orlando, FL in July. What was traditionally a time for Wang and
Sanjay to meet casually with industry hacks became a formal Q&A session
on the proxy vote issue, Gordon said.
By August, the war of words had heated up significantly, with both sides
regularly taking ads to express their views. But in the 40 days or so
between Wyly's announcement and the vote, Computer Associates' campaign
began to gain ground. Wyly's plan to completely replace the board seemed
too radical. It was later scaled back to request the replacement of four
board members. Even so, the California Public Employees Retirement
System, which owns 3.1 million of the firm's 577 million shares,
switched its support to Wyly in late August.
The dust settles
That still wasn't enough for Wyly to win. After the final vote on August
29, Computer Associates gained more than 60% of shareholders' votes,
with less than 20% voting for Wyly's team. The rest abstained.
Dan Katcher, principal at Joele Frank Wilkinson Brimmer Katcher in New
York, handled Wyly's crusade among investors and the public. The firm
was hired when Wyly found out that his first option, IR firm Robinson,
Lerer & Montgomery, was owned by Young & Rubicam, which is used by
Computer Associates for advertising.
Katcher declined to comment on the role his agency played, except to say
that Wyly's supporters preferred the less radical option over replacing
the whole board. "Shareholders were more receptive to a short slate,"
Although proxy fights are rarely won by insurgents, Computer
Associates' victory came at some cost to its reputation - mainly from
The Times' stories and the non-stop ads. Nonetheless, the fight taught
Computer Associates' PR execs some lessons, according to Gordon and
others. It is perhaps to their credit that they appear to have quickly
learned and successfully applied those lessons during the 40-day
The final vote was a vindication of their efforts. But Wyly may yet have
brought reforms to Computer Associates. PR execs Gordon, Savino, and
Blicksilver all say that Computer Associates intends to become much more
open about its business. The company that once released unfavorable
financial results at midnight on July 3 now knows that "we need to
communicate better ... it's something we need to improve on," Gordon
Even the IR department is ready for change. "We'll be out banging on
people's doors (in the future) and making sure they have a better
understanding of what we're doing," Savino says.
Blicksilver agrees: "I think this is a company that would admit that
over time it has made mistakes in dealing with the media. In the wake of
this proxy fight, and leading up to it, the company has become more
accessible and better at communicating. I think going forward, that will
Even The New York Times' Berenson gives the company credit: "They
learned sometime this spring that they are a big public company, and
that it's appropriate for reporters to cover them and ask
While the press may be satisfied that Computer Associates has changed
its ways, Wall Street analysts are not yet totally convinced of the new
Melissa Eisenstat, managing director of CIBC World Markets, says she
will remain suspicious of the firm's numbers until its new accounting
method is old enough to produce results that can be compared with the
prior year. "The company is so confusing to follow," she says. "People
are left hanging; there's not a lot of information you can get."
Vice president of IR: Lisa Savino
Vice president of PR: Bob Gordon
Outside agencies: Citigate Sard Verbinnen (proxy fight); The Weber Group
(regular software business issues)
Budget: $10 million on proxy fight over 40-day period (Majority
of fee spent on PR/IR, advertising produced by Citigate. Figure includes
legal fees and proxy solicitor).