Computer Associates: Clearing A Cloud
Just one month after John A. Swainson joined troubled software maker Computer Associates International Inc. (CA ) last November, he found out what a mess he was in. He was summoned to a windowless room in the Manhattan offices of AXA Insurance. Across the table sat one unhappy customer: Leon Billis, head of AXA's technology department. Billis, with several serious complaints, said he was considering dumping CA. "It was an awful meeting," recalls Swainson. "You have just taken over a company, and one of your top customers is considering kicking you out."
It only got worse. As Swainson settled into his new CEO job at CA's Islandia campus on New York's Long Island, he got one piece of bad news after another. Products were late and sloppy. He had to fire executives for breaking the rules. Accountants poring over the books kept turning up past mistakes. And all of this came after a group of newly hired execs had been working for months to clean up the wreckage left by the former regime. In June, Sanjay Kumar, the former CEO, was slapped with a fresh round of fraud charges related to the accounting scandal that had rocked CA. His trial, in which he has pled not guilty, begins next spring.
Swainson's journey at Computer Associates is a case study of how one chief executive is struggling to pull off a disaster-recovery project. No turnaround is easy, but patching up an outfit that has been beset by scandal is one of the most challenging situations an exec will face. While few will ever have to deal with such an extreme case, the hurdles Swainson faces at the $3.5 billion company can provide leadership lessons for any manager.
It's a juggling act. A leader confronting this kind of turnaround has to deal with regulators, appease customers, make peace with Wall Street, boost staff morale, and fix the core business -- all at the same time. Management experts say the key steps are getting rid of all the bad actors, putting strict accounting rules in place, and changing the company's reputation with employees, customers, and investors. "You have to fix the business, culture, and image. The more pieces you have to fix, the harder it is," says Joseph M. Pastore Jr., professor emeritus at Pace University's Lubin School of Business.
A CLEAN BREAK
After a year of feeling his way around, Swainson is signaling a clean break with the past. At the company's customer conference on Nov. 13, he plans to change its name -- trading Computer Associates for a simple CA in hopes of dispelling the taint of scandal. He's introducing the company's first major new products in four years, ending an innovation drought. And he's opening a satellite headquarters in Manhattan. The message for customers and partners: No need to brave Long Island's traffic jams. We'll accommodate you.
Swainson has the steady disposition for the job. Before arriving at CA, the 51-year-old worked his way up through the ranks at IBM for 26 years -- holding key product development and sales jobs. When he first arrived at CA, he read books on turnarounds and consulted with executives who had done it before, including Edward D. Breen Jr. of Tyco International Ltd. (TYC ) and Michael D. Capellas of MCI Inc. (MCIP ).
The Capellas consultation came at the World Economic Forum in Davos, Switzerland, last January. Capellas warned Swainson he'd have "good days and bad days, but more bad surprises than good ones." Also, he advised him to communicate constantly with employees, customers, and investors. "You probably think you're overcommunicating, but you cannot," Capellas recalls saying.
Swainson already knew one of his most important tasks was changing the culture at CA. His first move was to send a strong signal to the company's 5,500 software programmers: Innovation matters. During the 1990s, CA added software by buying other companies rather than developing much new stuff itself. It amassed thousands of products in nearly a dozen markets. Meanwhile, the place was so bureaucratic that one former engineering chief set up a number-dispensing machine outside her office, like at a deli counter. People took a ticket and waited their turn to see her.
Swainson set out to change all that. He spent countless hours during his first few months meeting with small engineering teams in a conference room in the executive suite. Out of that exercise came a new strategy of focusing on three related corporate markets: systems management, security, and data storage management. Swainson's display of interest boosted morale. Most developers had never spoken to executives before. Now they felt like first-class citizens. Also, Swainson invited anyone with an idea or complaint to e-mail him directly, and they took him up on it. "I routinely send John e-mails suggesting new technologies we should be doing, and he replies," says Kouros Esfahany, the leader of a 10-person development team.
But Swainson doesn't coddle his engineers. Early this summer, they were champing at the bit to release their first major upgrade in four years of a product called Unicenter. At a July meeting on the sixth floor of CA headquarters, a dozen engineering managers gave Swainson and other execs what was supposed to be the final presentation before shipping. After a tense meeting, the CEO rendered his verdict: No go. The release didn't measure up to the IBM-style standards he had set. "He said these products need to clear a higher bar," recalls Jeff Clarke, the chief operating officer, who was at the meeting. After a flurry of improvements, Unicenter will launch next week.
Step two for Swainson was reforming the 2,500-person sales force. A new sales management team had cleaned out most of the bad apples, but more needed to be done. CA had traditionally paid salespeople commissions up front, based on the size of the contracts customers signed. It was easiest for them to simply renew old contracts. A new comp plan pays higher commissions for sales of additional products, and commissions are paid over the life of a contract. That pressures salespeople to make sure customers are satisfied.
Before Swainson's arrival, CA had been patching up relationships with customers, but he found a lot more soothing was needed. He has had one-on-one talks with more than 200 customers. His effort is starting to show results. AXA, the insurance company that nearly dropped CA last December, has decided to expand the relationship. Last month, AXA said it would buy more than $7 million worth of new products and services.
Next on Swainson's to-do list is gaining credibility on Wall Street. He's concentrating on cranking out results, though, rather than schmoozing analysts and institutional investors. Last quarter, CA's revenue grew 9%, to $942 million, while net rose to $41 million -- up from a $98 million loss the year before. Still, the stock, at 29, is about where it was when he came in.
Investors have reason to be skeptical. CA has promised cleanups and turnarounds for years. Plus, one lingering issue is beyond Swainson's control as chief executive. Two board members, Chairman Lewis S. Ranieri and former Senator Alphonse M. D'Amato (R-N.Y.), are holdovers from the troubled years. Management experts say that in situations like these it's best to make a clean sweep of the board.
A year ago, Swainson naively figured he could turn CA around in a year. But Capellas warned him at Davos that it might take three or four. Swainson is now reconciled to the long grind. "It took a long time for CA to get so screwed up," he says. "It will take a long time to get it unscrewed up, and it will take even longer for people to recognize it."