After nearly three years of tumult and uncertainty, Computer Associates International Inc. (CA) finally seems to be on the road to stability. On Nov. 23 the board announced it had appointed IBM (IBM) veteran John Swainson to be its president and CEO-elect.
Swainson, 50, is just what Wall Street ordered. Over the summer, after it seemed that CA's board might make director and interim boss Kenneth Cron its next CEO, analysts warned them off, calling for an outsider with software industry experience. Swainson has plenty of that: In 26 years at IBM he held a wide variety of such jobs, most recently running the software division's sales operations. "This is great for CA. They need somebody who's a proven technologist with impeccable integrity," says Michael Lawrie, chief executive of software maker Siebel Systems Inc. (SEBL) and former head of IBM's worldwide sales.
But it won't be easy for Swainson. He has never run a company as large and complicated as CA, a $3.5 billion maker of software for computer systems management, security, and storage. Moreover, While CA's business has held up amid a sluggish tech market, growth is weak. Swainson will be under pressure to change that -- while also rebuilding credibility with investors and customers wearied by years of accounting scandals. "He knows a lot about software development, but CA is not a development challenge. It's a business challenge," says John R. Patrick, a longtime IBM executive who now runs consultancy Attitude LLC. "He's going to have his hands full."
CA has been a pressure cooker since February, 2002, when the company revealed a Justice Dept. accounting probe. A total of 15 executives and other employees have left since last October in connection with the investigation, which culminated with the September indictment of former CEO Sanjay Kumar. He was charged with securities fraud and obstruction of justice but pleaded not guilty. At the same time, CA settled, agreeing to pay $225 million into a restitution fund for shareholders.
CA plans to let Swainson acclimate gradually. He'll be president in charge of software strategy for four to six months before he takes over the CEO spot. In the meantime, Cron will remain at the helm. "We wanted to give John the best chance to succeed," says CA Chairman Lewis S. Ranieri. "It seemed like a good opportunity for John to get his arms around the software strategy and ease him into the big job."
The unusual CEO-in-waiting arrangement could prove to be awkward, though. That's because Cron, who was appointed interim CEO last April, wanted to keep the job, and it might be difficult for him to give up control. In addition, according to Jeffrey A. Sonnenfeld, a professor at the Yale School of Management, the tactic seems to show a lack of confidence in Swainson's ability to lead. "This guy comes in as an understudy," says Sonnenfeld. "It delays the taking-charge process."
Swainson is quick to dismiss such concerns. Though he has never overseen broader corporate areas such as finance, he ran a large product group. "For seven years I ran a bigger operation than CA," he says, referring to IBM's $11 billion middleware business. He has firm ideas about CA's future. No longer will it be primarily an acquirer of other companies. Swainson plans on spotting opportunities to fill in gaps in CA's product offerings, either by developing technologies internally or making strategic acquisitions -- like the outfit's recent purchase of Web security specialist Netegrity Inc. (NETE) for $430 million.
Swainson should have no trouble establishing credibility as a software visionary. IBMers credit him with spotting the potential in an e-commerce program that an engineer had written for the 1996 Olympics and turning it into WebSphere, the company's software for building and integrating corporate applications. Introduced in 1998, WebSphere now represents about $1 billion in revenues and is the linchpin of IBM's software strategy. To get CA surging again, Swainson may have to produce another such miracle.
By Steve Hamm in New York