Software's Tough Guy, Part 1

Charles Wang muscled his way to the top. Now he wants respect

Computer Associates International Inc.'s annual trade show, "CA World," has evolved into an extravaganza. Last summer, 28,000 people from 80 countries packed the New Orleans convention center to pay homage to the software giant and Charles B. Wang, its chairman and chief executive. A stuntman doubling as Wang arrived for the keynote speech on a motorcycle that roared down an auditorium's center aisle on its back wheel, sped up a ramp, and hurtled airborne through a video screen, triggering a flash of light and thunderous sound effects. Later, the real Wang materialized on stage toting a 30-pound tuna. (Don't ask.) "We take the theme of fun software very seriously," he deadpanned.

Even so, "fun" is not a word that most people would associate with CA or its software. Mention Wang to the average PC user and the response is likely to be, "Huh?" In 1999, CA sold $5.6 billion worth of software, trailing only Microsoft Corp. and IBM, but did not take in a dollar from the consumer market. CA makes a vast array of programs for managing large, diverse computer systems. "We are all the plumbing behind the scenes, as opposed to all the pretty faucets," says Wang, 55.

Wang, who emigrated to New York City from Shanghai as a boy of 8, made himself a force in a quintessential New Economy industry using methods adapted from the Old Economy--the very Old Economy. Wang (pronounced "Wong") founded CA in 1976 and built it the same way that John D. Rockefeller built Standard Oil or Andrew Carnegie built U.S. Steel: consolidate and conquer. Completing a portrait in sepia-tone, this Robber Baron of Software lives in an old Roosevelt mansion near Oyster Bay on Long Island's North Shore, in the heart of Gatsby country. Wang's estate is close to CA headquarters, but it's about as far as you can get--in every sense--from glamorous Silicon Valley.

RECORD-BREAKER. In a tour de force of dealmaking, Wang assembled CA from the parts of some 200 companies. Along the way, he repeatedly broke the software industry record for the largest acquisition, the latest being the $4 billion purchase of Sterling Software Inc. announced on Feb. 14. Wang probably also holds the record for firing programmers, most of whom were canned just days after CA took control. The top executives of acquired companies were always the first to go. "This dragon has only one head," Wang liked to say. He was no less ruthless with his customers, taking them to court if necessary to enforce CA's onerous licensing agreements to the letter. In 1992, CA even sued its largest customer, Electronic Data Systems Corp., alleging licensing violations.

Wang's methods were harsh but effective. Today, CA extracts about 40 cents of operating profit from every $1 of revenue, making it the most profitable software company not named Microsoft. Wang, a billionaire twice over, succeeded beyond the wildest imaginings of his immigrant youth but at the cost of making himself into an info-tech pariah. By some accounts, he outdid even William H. Gates III, the notoriously sharp-toothed Microsoft mogul, in making enemies. "There was a period when CA was the most disliked company in all of high tech," says Christopher W. Mortenson, a veteran software analyst at Deutsche Banc Alex. Brown.

Wang feigned indifference to his critics but by 1994 was so exasperated by the EDS litigation that he handed it off to Sanjay Kumar, now 37, his newly appointed whiz-kid president. In short order, Kumar negotiated a settlement that not only salvaged CA's relationship with EDS but also expanded it and made it more lucrative. Both chastened and inspired by what Kumar had accomplished, Wang gradually shifted focus from squeezing profit out of CA's quasi-monopoly franchise in mainframe computing to chasing abundant new opportunities opened by the Internetization of commerce.

MAKING NICER. Instead of firing employees en masse to make acquisitions quickly pay for themselves, Wang began treating acquired companies as launchpads into new software markets. At the same time, CA moved beyond the role of software "chop shop" to become an innovator in its own right and took pains to accommodate the very clients it had bullied for so long. "If we'd talked a few years ago, you'd have heard me furious about CA," says Bruce P. Starr, a technology executive at Salomon Smith Barney. "But we've worked through the issues they were unwilling to even talk about in the past and now have an agreement that allows us to run the business as it should be run."

Wang and Kumar have managed to maintain the company's exceptional profit margins while doubling its base of business over the past four years. Most important, CA has extended its dominance of systems management from the slow-growing mainframe sector to client-server systems, which are booming along with Internet traffic. According to International Data Corp., CA has 30.6% share of the $4.3 billion client-server market, with IBM second at 11.1%. Today, CA derives fully 30% of its revenues from facilitating the e-commerce of its customers--an impressive figure considering that its traditional bricks-and-mortar clientele is just beginning to assert itself online.

These accomplishments have won CA a measure of new respect, but nowhere near what Wang believes he and his company are due. For all its recent progress, CA's stock still trades at an Old Economy earnings multiple of about 22, in part because its 15% revenue growth rate falls well short of New Economy standards. But to Wang, the real problem is that CA is overlooked and misunderstood. "We're long on technology, but short on PR," he says. "It's my own doing, so I'm going to fix it."

Wang's willingness to pose in a tuxedo for the cover of BUSINESS WEEK is in itself emblematic of a radical change in attitude. For most of his career, Wang embraced anonymity as if it were success, relishing CA's status as "the biggest software company no one ever heard of." Even as CA grew into a giant, Wang practiced an autocratic, patriarchal style of management, creating a defiantly insular culture. He rarely hired outside advisers, relying on the legal and financial expertise of his older brother, Anthony W. Wang, CA's longtime president.

But even in the days when the brothers Wang were running roughshod over the software industry, Charles' tough-guy persona masked an acute sensitivity to slights. "He would become irate if anyone disrespected the company. Their name went into the black book, so to speak," says A. David Tory, a former CA executive who was among Wang's closest confidants throughout the 1980s. "I had the sense sometimes that the focus of what CA was doing was not driven by pure business considerations, but by Charles' view that we ought to go and get someone."

Revenge still seems to matter to Wang, but he has mellowed to the extent that he now subordinates its pursuit to CA's business interests, notably its public-relations campaign. In recent years, Wang has traveled relentlessly, making speeches and graciously fielding questions from all comers. Last fall, he made his second appearance at investment banker Herbert A. Allen's celebrified Sun Valley (Idaho) gathering of media moguls. Wang has written two books, which he uses as calling cards: Technovision, a primer for the technologically inexpert, and Wok Like a Man, a lavishly illustrated Chinese cookbook. In November, CA launched a glitzy $25 million corporate image campaign featuring the first television advertising the company has ever done, with the tagline "Software That Thinks."

Even some of Wang's archrivals are warming to CA. Wang "has done a great job in operations, a spectacular job. We could learn from that," says Oracle Corp. CEO Lawrence J. Ellison, who as recently as 1996 dismissed CA as "the scavenger" of software's ecosystem. Adds Paul Mason, a veteran International Data analyst: "At first, people were cynical about a kinder, gentler CA. But I think Wang is basically a decent individual who decided he didn't want to be remembered as the Attila the Hun of Software."

Even so, putting a sheen on Wang's reputation promises to be a long-term project--and not just because the image of him as a mercenary brute is burned into the collective memory of info tech. Despite his best intentions, the fiery Wang remains ill suited to the role of statesman. New York Stock Exchange Chairman Richard A. Grasso, a CA director, likes to tease Wang about his temper. "Charles," Grasso says, "you're too Italian." It's a good line, but the fact remains that Wang's blunders periodically tarnish CA's image anew.

The most damaging of Wang's recent mishaps was a decision to take a massive write-off in mid-1998 to fund a grant of $1.1 billion in stock to CA's three senior execs: himself, Kumar, and Russell Artzt, executive vice-president of research and development. Wang's cut: $670 million, the most any CEO has ever made in a year. The grant was part of a complex plan to bind the executives to CA for 12 years. Wang and his board inflamed investors by awarding all 20 million shares on one day, instead of parceling out the stock (and the earnings write-downs) over a period of years.

CA was hit with at least 10 shareholder lawsuits and an avalanche of bad publicity that established Wang as the new face of CEO greed. Last November, a federal judge in Delaware ruled that Wang, Kumar, and Artzt must return nearly half the shares they were given because CA's plan lacked the customary clause adjusting the award for stock splits. Wang appealed the ruling, which he terms "ridiculous."

It has fallen to Kumar to try to smooth the feathers Wang seemingly cannot help but ruffle. "Charles is outspoken on any topic he discusses. It doesn't cross his mind not to be," Kumar says. "He's just not tactful." In Kumar's view, Wang's excess of candor is rooted in a two-tone worldview forged by the harshness of his early immigrant experience. "What defines Charles," he adds, "is that he sees things in black and white--things that most people see in shades of gray."

It is almost midnight by the time that Wang returns to the airport in New Delhi and boards his Gulfstream IV jet. He closes the door to the jet's rear compartment, sheds his Brioni suit and power tie, and emerges in black jeans and a white T-shirt. In the front of the cabin, Wang climbs atop one of the oversized padded passenger seats and rests one bare foot on each armrest. He tosses a stack of papers to an aide sitting across from him. "I did these today. They're not my problem," he says and then starts taunting her in a playground sing-song. "Na, na-na, na, na. Not my problem."

SHOWMAN-IN-CHIEF. The surprise upon meeting Wang is that a man of such exacting performance and fearsome reputation could seem so casual, so loose. Whether en route or on stage, he goes about his business with such gaiety, such high-energy bombast, that it's hard to believe that a major corporation has been entrusted to his care. For someone who has spent much of his life avoiding the spotlight, Wang seems awfully comfortable basking in CA World's glow.

Wang is CA's paterfamilias as well as showman-in-chief. The company headquarters in Islandia, N.Y., contains one of the finest child-care centers in Corporate America. All employees with children are eligible to use the facility, which opened in 1992 in what had been the executive dining room. Wang stops in regularly to see his own kids and at times joins in group play. Certifiably kid-crazy, he even lobbies childless CA managers to reproduce. "Charles kept saying, `When are you going to start a family?"' says Gayle Kemper, a top CA sales executive who had her first child in 1999. Kemper was relieved to know that becoming a mother wouldn't hurt her career. But Wang's enthusiasm was wearying. "It almost got to the point where I didn't want to come in," she says.

Wang is not only a doting corporate father but also a strict one. Smoking is anathema to Wang, who keeps fit by playing a rugged brand of pick-up basketball and racquetball. At the last CA World, Wang spotted a mid-level manager smoking a cigarette just outside the convention center. He sped out the door and grabbed him by the lapels in midpuff. Wang laughed, but the smoker seemed paralyzed by surprise, if not fear. "He almost swallowed that cigarette," Wang says happily. "He'll remember that."

(continued in part 2)

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