Wendy Only

Computer Associates Case Study

Three former executives of Computer Associates International pleaded guilty in April 2004 to criminal charges resulting from an investigation by SEC and Department of Justice into the company’s bookkeeping practices. Former chief financial officer Zar pleaded guilty to charges of securities fraud and conspiracy to obstruct Justice. Zar faces a sentence of up to 20 years for the two offenses. Two other senior financial executives pleaded guilty to similar charges.

The U.S. Department of Justice and SEC had been investigating the incident for two years prior to filing charges at the U.S. District Court in New York. The complaints allege that the account executives had committed accounting fraud by holding the books open at the end of each quarter while recording revenue from contracts that had not been finalized. The three executives also misled outside auditors. In some cases, the executives concealed their misdeeds by using contracts that were preprinted with signature dates from the previous quarter.

The continued efforts to obstruct the government investigators demonstrated the corrupt culture of the company and its management as they sought to hide their misdeeds until court documents made them public knowledge. Financial results for the company penalized stockholders following the criminal activity, as Computer Associates’ stock declined in value by 50 percent over the period of one year and the company’s revenues dropped by 51 percent over two years since the disclosure of the wrongdoing. Economic factors may have contributed to some of the losses, but the executives’ wrongdoing certainly had the greatest impact. A positive result of the investigation by the Department of Justice and SEC was a renewed interest on the part of CA to follow best practices in the future regarding corporate governance. The company recently made changes to its board of directors, and additional measures to rein in corruption were planned.

Computer Associates Case Study

Executives of companies can be held personally responsible if they do not keep their financial records accurately, especially if the company is publicly traded on the stock market. The regulations in different countries and on different markets may affect a company's decision as to whether they want to be publicly traded though.

Read the Case Study at the end of Chapter 11 of the textbook. Select three reasons a company may choose to have annual board self-evaluations to ensure that executives follow all applicable policies.

Then answer how the New York Stock Exchange guidelines for independence affect corporate governance.

Explain what some of the benefits and drawbacks might be if the company was listed on the London Stock Exchange and had to follow its guidelines. Include at least two benefits and two drawbacks.

In addition, identify the individual contributions of each member of the group.

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