Sanjay Kumar resigned Wednesday as chairman and chief executive of Computer Associates International Inc., as the software company’s long-simmering accounting scandal finally reached the top.
After running the company for four years, Kumar stepped down from his executive positions and the board of directors. He will take a new position of chief software architect.
The CEO position is temporarily remaining open.
Computer Associates, a $3 billion maker of software for corporate computing systems, is being investigated by federal prosecutors and the Securities and Exchange Commission for misrepresenting the timing of contracts in order to meet Wall Street’s quarterly expectations.
Four former finance executives have pleaded guilty to fraud or obstruction of justice charges, including Ira Zar, the former chief financial officer.
Zar implicated two other high-ranking executives; though their names were not disclosed, prosecutors noted that Zar reported to Kumar. And in January, a former senior vice president who pleaded guilty said Islandia, N.Y.-based Computer Associates had a “widespread practice” of inflating revenue by closing the books on a quarter a few days late.
Separately, the audit committee of Computer Associates’ board, led by a former chief accountant for the SEC, is looking into whether the company should restate earlier financial results. The committee has acknowledged that CA “prematurely recognized revenue” in fiscal 2000, but has said it does not believe such accounting practices continue.
Even so, the board’s investigation led to the firings Monday of five people in CA’s finance department and four in the legal department.
Investors mainly have been unfazed by the investigations, and with Kumar’s fate within the company apparently resolved, Computer Associates shares were up 80 cents, or 3 percent, at $26.37 on the New York Stock Exchange.
“We believe the decisions we have made today are fair and responsive to the situation and in the best interests of CA’s customers, shareholders and employees,” said CA director Lewis Ranieri, who is taking over as chairman.
“The changes in Sanjay’s role are not based on the conclusion that he engaged in any wrongdoing. Nonetheless, the conduct in question occurred during his tenure, and the board felt this action was appropriate.”
Analysts have pointed out that Kumar had not designated a successor. However, the company was praised this year for hiring Jeff Clarke, a well-regarded executive who formerly held the CFO position at Compaq Computer Corp. and helped shepherd the company’s acquisition by Hewlett-Packard Co.
Kumar’s career at Computer Associates has traced a dramatic and turbulent arc.
Born in Colombo, Sri Lanka, in 1962, Kumar and his family emigrated to the United States when he was 14. He was only 25 when he joined CA.
Kumar had been director of software development of Uccel Corp., which CA purchased in 1987. He rose through several senior positions before becoming president and chief operating officer in 1994.
Kumar took over as CA’s chief executive in 2000 and chairman in 2002, the protege and hand-picked successor of Charles Wang, who had founded the company in 1976. Together Wang and Kumar bought hockey’s New York Islanders in 2000 for an estimated $190 million, and the New York Dragons of the Arena Football League.
That was hardly the first time Kumar and Wang made news with big money.
In 1998, Kumar, Wang and executive Russell Artzt shared a stock bonus worth $1.1 billion just months before Computer Associates warned of a slowdown in business. The board’s compensation committee at the time included New York Stock Exchange chairman Richard Grasso — who resigned from the exchange in 2003 amid outrage over his $187 million pay package.
Three years ago, billionaire investor Sam Wyly pushed for the ouster of Kumar, Wang and Zar for a “lack of integrity.” Wyly lost his proxy fight but took credit for forcing changes at CA.
In a speech last year, Kumar said that when he became CEO “it was clear to me that the company had become a lightning rod for all kinds of allegations, that our motives were being constantly questioned.” But he conceded that CA “had brought much of this trouble upon ourselves with an aggressive, ‘seat-of-the-pants’ approach to doing business.”
He said he would make CA, which employs 16,000 people, the “gold standard” in governance, creating a position for director of corporate governance and increasing the number of independent directors on CA’s board. CA’s official biography also credits Kumar with enhancing “the clarity and timeliness” of the company’s financial reporting.
“We are pleased that Sanjay has agreed to assume the role of chief software architect, enabling CA’s stakeholders to continue to benefit from his extraordinary knowledge, expertise and experience,” Ranieri said. “He is highly regarded in the industry and has made remarkable contributions to CA’s business.”