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Computer Associates International

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Computer Associates International

Computer Associates has undertaken a major change in its business model, followed more conservative financial reporting, and improved its corporate governance. Despite these changes, the company has taken a beating:

(i) It has come in for some harsh criticism in the financial press. E.g. NY Times:? As measured by standard accounting rules, Computer Associates' sales have fallen almost two-thirds over the last six months. To cover that, the company has begun presenting its financial results in a way that confuses even the Wall Street analysts who follow it.?

(ii) Its stock price has suffered:

(iii) It faces a proxy contest with a large dissident shareholder (Sam Wyley) who argues that:? The company has abused and alienated customers, employees and shareholders alike. Management's use of accounting gimmicks and its excessive compensation for lackluster performance have strained credibility with the financial community (iv) Short sales in the company are high.

The objectives of this case analysis are to explore the changes made by the company, to try to understand why the company found it so difficult to get acceptance of the changes, and to recommend a course of action for the CEO, Sanjay Kumar.

Questions to Guide/Be Addressed in Your Case Analysis:

1. What was CA trying to accomplish by the change in its business model? How did the changes accomplish these goals? What risks does the new model create?

2. How does the change in accounting fit with the new business model?

3. Do you agree with the company's decision to produce pro forma earnings numbers?

4. What action plan would you recommend for Sanjay Kumar?

Develop your case analysis as a paper with an introduction, statement of the issues/problems, body/analysis and conclusions/recommendations sections. You may include a post script to your paper, which comments on recent events associated with the company; however, do not let the "Monday morning quarterback" syndrome drive your analysis. Your analysis should be independent of what has transpired after the situation/time period described in the case

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Introduction:
Computer Associates Inc made a change to its business model. It also changed its accounting principles presumably to match its new business model. However, when the accounts revealed declining revenues and earnings, CA was challenged by investors.
Statement of issues/problems:
The issues faced by Computer Associates are that the company has changed it business model and needs a change in accounting principles to match its new model. The next issue is that the revenues and profits of CA are declining. The final issue is that the change in accounting has been perceived to be fraudulent by investors who have challenged the management and has questioned their integrity.
Body /Analysis
1. What was CA trying to accomplish by the change in its business model? How did the changes accomplish these goals? What risks does the new model create?
According to the case study CA was trying to undertake a change in its business model. According to the case study, it was attempting to follow a more conservative financial reporting and this led to improvement of its ...

Solution provided by:
Hatim Baxamusa, MBA
Education
  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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