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Trying to turn the page at CA

CNET's Mike Ricciuti says Computer Associates' new chief executive will need tools to get beyond the software maker's turbulent history.

The resignation of Sanjay Kumar on Wednesday as chief executive of Computer Associates International opens a new chapter for the troubled software maker.

But can the new CA shake its controversial past?

For the first time in its 28-year history, CA won't be run by either Kumar or his predecessor and mentor, Charles Wang, who founded the company in 1976. Wang earned a reputation as a ruthless CEO who bought troubled competitors at fire sale prices in order to rake in huge profits from maintenance revenues paid by customers under long-term licensing deals.

Over 26 years, Wang assembled Computer Associates from the parts of more than 200 companies. In the 1980s and 1990s, he bought down-and-out software makers, including Ingres, Sterling Software and parts of the former Digital Equipment. Each acquisition was followed by the almost immediate firing of top executives and other key employees, which alienated both employees and customers.

Despite those problems, Wang's strategy paid off: CA grew into a $3 billion company; the world's fourth-largest software maker.

Over 26 years, Wang assembled Computer Associates from the parts of more than 200 companies.
And Wang--a Chinese immigrant-?became the software industry's most highly paid CEO, until an earlier accounting scandal forced his resignation.

Now, it's Kumar's turn. His undoing as CEO stems from another long-simmering accounting scandal. CA's policy of keeping quarters open beyond the calendar date, which investigators referred to as the "35-day month practice," allowed the company to prematurely record more than $1 billion of revenue in the fiscal year ended March 31, 2000, according to the U.S. Securities and Exchange Commission.

Computer Associates ousted its chief financial officer last fall. It fired nine employees earlier this week. Kumar remained in place, but few who followed the company over the years--and saw Kumar's rise as an extension of Wang's reign--expected him to keep his post.

Kumar stepped down to become chief software architect today.

Kumar's rise to the top of Computer Associates was unlikely, given the company's insular culture. Wang rarely relied on outsiders and filled top positions at CA with family members. His brother Tony served as president and chief operating officer until 1992.

CA's new chief executive will inherit a radically different company with many problems and great potential.
And Wang's second wife, Nancy Li, served as CA's chief technology officer in the late 1990s and later as president of the company's iCan subsidiary until earlier this year.

Fittingly, Kumar joined CA in 1987 through the company's acquisition of Uccel in 1987. Kumar, who grew up in Sri Lanka, became one of Wang's closest friends--the two co-own the New York Islanders hockey team--and they formed a potent management team. While Wang was famous for his quick temper and brash personality, Kumar was known for his level-headed intellect and can-do style.

Kumar seemed to try to distance himself from past scandals in an address last month to the Software 2004 forum in San Francisco. He stressed the importance of good corporate governance in restoring the confidence of investors and customers in big business in general and in Computer Associates in particular.

In changing CA's accounting practices to a subscription-based model, "we're doing the right thing by customers, and I think customers will stand behind us," he said. He also said he was one of the first to expense stock options, "which made me very unpopular with my peers." When he became CEO in late 2000, Kumar said, "revenue was falling, and the bubble had burst. It was the right time to change the business model."

Under Kumar's lead, Computer Associates began to branch out from the profitable yet stodgy world of mainframe computer management software and into distributed computing, systems management and, lately, utility computing strategies. Kumar said he'd even worked to change CA's previous "chop shop" acquisition tactics.

In the past year, CA reached outside to hire Jeff Clarke, a Hewlett-Packard executive, as CFO, and Mark Barrenechea, a former Oracle executive, to run product development. Barrenechea understood the significance of that move, and told CNET last fall that he was looking forward to reinvigorating the company.

Now, he'll have to do that without Kumar at the top. In the end, Kumar's long tenure as Wang's right-hand man was his downfall, and the board decided he had to go.

CA's new chief executive will inherit a radically different company with many problems and great potential. In time, Computer Associates may move on from past scandals and continue its push into the profitable business of systems management software. But one of the most visible links to the company's checkered past is gone.

CNET's Karen Southwick contributed to this column.