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CA's Kumar: Down -- and Finally Out

Former Computer Associates International (CA) CEO Sanjay Kumar's June 4 departure removes one of the last barriers to the software maker's goal of finally freeing itself from the taint of a two-year accounting scandal. The last hurdle: Reaching a settlement with the Justice Dept. and the Securities & Exchange Commission to resolve investigations of securities fraud and obstruction of justice (see BW Online, 5/6/04, "More Hot Water for Computer Associates?").

Investors reacted positively to Kumar's resignation. CA's stock was trading up by a little more than $1, about 3%, to $27.17, as of Friday's closing bell. "This is very positive. He has been a drag on the stock for the past year," says analyst Gene Munster of Piper Jaffray. "The feeling I get from investors is CA isn't a credible company until Sanjay is completely gone."

THREAT OF INDICTMENT. Kumar stepped down in April from the CEO position under pressure from the board, assuming the title of chief software architect. But his presence remained a cloud.

On May 24, at the opening of CA's annual user conference in Las Vegas, acting Chief Executive Kenneth Cron made it clear that Kumar played a very minor role -- describing him as an envoy to customers. In CA's press release on June 4, Kumar said, "It has become increasingly clear to me in the past few days that my continued role at CA is not helping the company's efforts to move forward."

CA is under pressure to show the federal government that it has cleaned up its act, and Kumar's resignation helps make that case. The outfit faces the threat of a criminal indictment on securities fraud and obstruction charges, and if it's convicted on those charges, it could lose the ability to win government contracts.

THE NEXT CEO. Companies under investigation are expected to cooperate fully with the government -- or risk paying a steep price, according to legal experts. CA set aside $10 million toward a potential fine, but analysts expect it may have to come up with $40 million or more.

Kumar's resignation may help with another challenge facing CA: finding a new chief executive. When Kumar relinquished the CEO spot, management experts warned that it was a mistake for him to stay around, since any new chief would want to start with a clean slate and not have the former boss lurking in the wings. Says Piper Jaffray's Munster: "This is part of the process of getting somebody new." By Steve Hamm in New York

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