How’s this for a job come-on? Experience the vicious personal proxy fight we’ve got going! Grapple with a pile of shareholder lawsuits against us! Experience first hand the ongoing SEC and government investigations against us – and angry ex-employees trashing us in the press! Oh, and our stock price has slumped badly, too!
Troubled software firm Computer Associates (CA) didn’t word its job vacancies to potential new board members exactly like this around 18 months ago, but the reality wasn’t so very different. To its credit, CA managed – despite a storm of allegations against it, including accusations of questionable accounting and sales practices – to lure a slew of top names to its board, such as Walter Schuetze, a top former SEC chief accountant, and Harvard Business School governance expert Jay Lorsch.
CA also appointed 56-year-old securities law expert Bob Lamm as the company’s new chief governance officer and charged him with spreading the word on how CA’s stained corporate governance stripes have now – Lamm claims – been thoroughly washed and aired. He’s also got the formidable job of trying to establish governance regulations across a company that bestrides every continent, from the US to Asia to Europe.
‘Many of the core values from our new CEO Sanjay Kumar pre-dated my arrival,’ says Lamm quickly. ‘In September 2002 he told the Council of Institutional Investors he wanted CA to be the ‘gold standard’ in corporate governance. Some institutions came to me after that meeting and said, We may or may not agree on some issues, but the fact that your CEO came to that meeting and wasn’t defensive about the past was something.’
Internal affairs
The change in CA’s tone wasn’t aimed just at outsiders, either. Fence-mending and better communication was needed from within – not easy given the company’s cross-border turf. ‘We’re learning increasingly about educating our employees around the world,’ admits Lamm. ‘US corporate governance law does not translate around the world in some areas. We’ve also got the federal and state dichotomy, as well as self-regulating organizations like the NYSE. Getting the message across – because some employees don’t realize how management works, or know our core values – continues to be a major effort.’
Lamm describes IR support for his better corporate governance mission as ‘a fairly easy division of labor’, alluding to the twin paths of sell-side and governance performance. However, this doesn’t preclude IROs from taking on the governance agenda, when necessary. It’s also an ongoing assignment. ‘I often say, both to inside and outside audiences, that there’s no finish line to corporate governance,’ Lamm says. ‘Right now, sure – it’s a very hot topic. Certainly it will become less trendy in the future, but it won’t go away.’
He expects interest in corporate governance to swing increasingly into new territories – one such hinterland being executive pay. ‘It’s the next big area of focus,’ Lamm predicts. ‘Global imbalances have the institutional community very concerned. Right now stock options generate a lot of buzz. But CA is the only IT firm that is expensing stock options at the moment.’
This accounting step mirrors other measures designed to bolster credibility with the Islandia, New York-based firm’s investors. The average length of IT contracts has been slashed from six years to three, giving customers more flexibility (sales staff get no extra incentive for contracts lasting more than three years). Lamm says such moves mean balance sheet and quarterly performance results are now easier to predict.
The downside for CA’s renewed scramble for credibility, though, was a tumble in reported revenue, from near $6 bn at the end of March 2000 to near $4 bn a year later.
But the price for such transparency – and it is a considerable one – is worth paying, says Lamm. ‘I speak to a lot of institutional investors and I’m told the number of companies who try to communicate with them as we do is low,’ he notes. ‘We don’t believe in letting sleeping dogs lie.’
