Computer Associates Books Affirmed

Before a group of pension fund and money mangers, Kumar also defended his decision to pay $10 million to end a proxy contest earlier this year.

Kumar said the review was conducted by PricewaterhouseCoopers under the direction of Computer Associates board member Walter Schuetze.

Kumar, who was speaking at a Council of Institutional Investors meeting in New York, said PwC "had found no accounting irregularities or violations of generally accepted accounting principles."

He said he believed the findings were submitted to the Securities and Exchange Commission and the U.S. Attorney's Office, who are investigating Computer Associates' bookkeeping.

The review covered the third and fourth quarters of the company's 1998 fiscal year. Critics contend the company inflated its financial results during that period to lift its stock price and trigger a $1 billion stock grant to Computer Associates' top three executives, including Kumar. The executives, who were sued by shareholders, later agreed to return some of the shares.

Kumar said the company was working toward improving its corporate governance practices, including naming a lead independent director, expensing stock options and instituting director term limits.

Pension fund representatives gathered at the meeting gave Kumar a nod for facing a somewhat hostile audience. Indeed, several investors grilled Kumar about his decision to pay Texas billionaire Sam Wyly to retreat from his proxy fight earlier this year.

"Do you agree with negotiating with terrorists?" asked Andrew Shapiro, president of Lawndale Capital Management, a San Francisco activist money manager. Shapiro said the company made itself vulnerable to any "gunslinging activist" looking for an easy $10 million.

Kumar remained unbowed, saying he believed his actions were in the best interests of shareholders. Among the reasons he cited were moves by Wyly in June to contact a number of large customers, prompting worries that the customers would hold up orders and cause Computer Associates to have a shortfall in fourth-quarter earnings. "I believe what he was going to do this year was a distraction," Kumar said.

Ted White, director of corporate governance at the California Public Employees' Retirement System, or Calpers, also questioned the board's decision to pay what many investors view as "greenmail" because ultimately, Wyly's agitation probably prompted many of the very changes that Kumar touted during Tuesday's meeting.

White said it should have been left to shareholders to either elect or reject Wyly's dissident slate of directors. "The precedent set is a bad one," White said. "The decision should be ours."

Wyly, whose bid to wrest control of the company was defeated by shareholders last year, launched another proxy battle this year. He promised not to launch another proxy contest for five years after settling the matter for $10 million in July.

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