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November 19, 1999
ELECTION 99
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Whose $ 550 Million Is It Anyway?
R S Shankar in New York
A few days before the $ 3.5 billion merger, Sanjay Kumar, the 38-year-old president of CA, had spoken to Filipowski and brought him around to accept the merger was in the best interest of Platinum. The deal was agreed upon without attorneys intervening. It took Kumar a few hours to fly to Filipowski's headquarters, have lunch at an Italian restaurant the Platinum boss loved, and nudge him into agreeing to the merger. At CA, the computer software giant, Kumar and his idol, Charles B Wang, chairman of the firm, mostly get what they want. And they feel they deserve it.
"Ultimately, CA is in the business of innovation, and innovations come from people," said Deborah Coughlin, CA senior vice-president of human resources. "Creating a work environment that attracts talent and nurtures it is essential for any business whose success is based on the excellence of the people it employs." Early last year, when the board of directors awarded million of stocks to Chairman and Chief Executive Officer Wang, President and Chief Operating Officer Kumar, and Executive Vice-President Russell M Artzt, it was generally agreed that they deserved the big bucks. However, one shareholder thought the three executives had received far in excess of the company's bonus plan. Rallying a handful of other upset shareholders, Lisa Sanders sued CA in a Delaware court. The company has its headquarters there. Last week a judge, in a stinging rebuke to CA, ruled that 9.5 million shares of stock, now worth about $ 550 million, had been improperly awarded to the three executives and he ordered the stocks be returned to CA. Wang had been granted 60 per cent of the stock, followed by 30 per cent to Kumar and 10 per cent to Artz. While Sanders's lawyers painted a picture of corporate greed at CA in detailing their case, at CA's board rooms there were sighs of anger and frustration. A CA spokesman announced that the judge has not completely grasped the finer points of the bonus plan. And the firm would appeal his judgment. Wang said the judgment would not affect the company's business in any way. The compensation committee that oversaw the award stays committed to its decision. Willem F P de Vogel, its chairman, argued the plan was designed to retain key executives whose performance is outstanding. According to him the plan was triggered by a $ 17.4 billion increase in the market value of CA measured by specific performance milestones, and that the reward would be equal to 3.75 per cent of its equity. Compensation committee members, who are parties in the legal action, said the judge's ruling "frustrates the (stock) plan's central purpose." The controversy arose when CA awarded the bonuses just months before warning of a spending slowdown by its corporate software customers. CA's stock plunged 30 per cent at the time as its bonus plan, enacted in 1995, became a symbol of excessive executive compensation. Wang, who received a $ 670 million stock grant in May 1998 under the plan, was ranked 145th last month on the Forbes list of the richest people in America. The court order supersedes a vote in August by Computer Associates shareholders to let the executives keep their compensation, which reduced CA's earnings by $ 1 billion last year. The court also ordered Wang, Kumar and Artzt to account for any profits tied to the 9.5 million shares they received. "It now appears that the company will recapture more than half that amount,'' said Martin Unger, an attorney who brought the suit on behalf of shareholder Sanders. "The lesson here is that company directors are obligated to shareholders to follow the plans as written.'' RELATED FEATURE:
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Andrew Filiposwki, who declared he would rather die than let his firm, Platinum Technology, merge with arch rival Computer Associates, ate humble pasta early this year.
After all, it is under their aegis that CA has become a global success story. Last year, CA was among Fortune magazine's '100 Best Companies to Work for in America.' The editors cited training courses, stock options, free health and dental plan, an on-site Montessori-based child development center, on-site fitness centers and free daily breakfasts as among the benefits available to CA employees.