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Two years ago the legal department at Computer Associates International, Inc., was a tough place to work. Morale was low among the 33 attorneys. The chain of command was unclear. And there was little contact with the department’s diffident chief, general counsel Steven Woghin, attorneys say. Some lawyers had little to do for extended periods and looked for jobs outside the company. But for those who stayed, the general attitude was: Keep your head down, do your work, and don’t ask questions. One in-house lawyer, Alexander Arato, says the department devolved into a few opposing cliques, like “being in high school again � you were wondering if you were sitting at the popular table, or the jock table, or the Dungeons and Dragons table.” Contrast that with CA’s legal department today. An engaged and approachable GC, Kenneth Handal, meets regularly with his staff, which has more than doubled since he came on board in July 2004. The organizational structure is clear, with groups assigned to contracts, intellectual property, and other specialties, each with an attorney in charge. And the company has instituted a rigorous compliance program and made it easier for anonymous whistle-blowers to report wrongdoing. Now the attorneys say they aren’t talking about leaving. Handal has even rearranged the lawyers’ physical space, which used to be a cubicle farm. The office suite now looks more like a traditional legal department, with private offices and conference rooms so that the attorneys can have confidential conversations with their clients. It’s been a stormy few years for the Islandia, New York � based CA. In September 2004 the business software maker admitted that it had engaged in accounting irregularities. It’s a familiar story by now: Dishonest accounting � inflated earnings � nearly $2 billion in CA’s case � led to a drastic downward restatement, followed by the indictment of top brass. (Four members of the law department, plus the GC, left during the scandal, too.) And in April, the CA story takes another Enron-like turn as the company’s former president Sanjay Kumar and head of sales Stephen Richards go to trial in Brooklyn federal court on ten counts each of securities fraud and obstruction of justice. Both men have said they are innocent. (Woghin pled guilty to one count each of conspiracy to commit securities fraud and obstruction of justice in September 2004 for his role in helping to cover up the accounting irregularities; he’s awaiting sentencing.) CA started to turn itself around in 2004. It put a new executive team into place and negotiated a deferred prosecution agreement (DPA) with the government. In the agreement, the company and its legal department agreed to clean up its act and restructure a wide range of business functions by this September � or else federal prosecutors will formally indict the company. The stakes are high. If the company violates the DPA, the impact of any sanctions could be catastrophic, even resulting in a complete shutdown. But “the potential sanctions against the company would be within the discretion of a sentencing judge,” says Foley & Lardner’s Seth Levine, a former prosecutor for securities fraud and white-collar crime in the New York U.S. attorney’s office, who is not involved in the case. Part of CA’s corporate makeover involved the hiring of the new general counsel, a quiet man with a steady voice, who was charged with bringing the company’s legal department back from the dead. Most recently, Handal was an associate general counsel at New York � based Altria Group, Inc., and before that a partner at Arnold & Porter. He has a solid reputation in compliance and in white-collar criminal defense dating back to his days as an assistant U.S. attorney in Manhattan. As CA’s new GC, Handal has had to overcome years of indifferent supervision and abysmal morale in the department. A culture of mismanagement had filtered down from the top, observers say; for the legal department, that meant the attorneys didn’t get the guidance they needed, and compliance was a nice word in a written ethics policy. So, like chief legal officers in such scandal-plagued companies as Tyco International Ltd. or KPMG International, Handal has had to reestablish trust and rebuild morale in his department, fast. His efforts have involved the seemingly mundane � remodeling the physical plant to convey a more businesslike message for his department’s office suite � to the inspirational, with an innovative pro bono effort. Most importantly, Handal is trying to empower his attorneys to be the conscience of the company. He says he’s pleased with what he’s accomplished so far: “We’ve really turned a corner. We’re acting like a world-class legal department.” Founded in 1976 by Chinese immigrant Charles Wang, Computer Associates was once a colossus of the business software industry, ranking third behind Microsoft Corporation and Oracle Corporation. (The name change earlier this year to CA, Inc. was part of its makeover.) The Long Island campus resembles many high-tech company headquarters, with lush lawns and recreational facilities, a swanky cafeteria, and Technicolor decor that’s softened by sunlight pouring in through rooftop windows. CA’s downward spiral began in the late 1990s, when the company booked earnings for future sales and licensing agreements as revenue for current quarters. This sleight of hand allowed it to pump up revenue by $1.75 billion � a sizable boost for a company that takes in $3.5 billion in a typical year. Additionally, trying to beat investor expectations, CA began operating on a 35-day month, improperly tracking sales and revenue for a longer time period to create the illusion of more revenue flowing into company coffers. By 2002, the jig was up. A story in Newsday questioned CA’s financial results, and that February the Securities and Exchange Commission began investigating the company. In 2003 CA’s audit committee hired Sullivan & Cromwell to head an internal investigation centered on the roles of Woghin, four top-tier legal executives, and CA’s former president Kumar. (Calls and e-mails to Woghin’s lawyers were not returned. Woghin could not be reached for comment on this story.) Tensions were high among CA employees, including its in-house counsel. Some members of the legal department interviewed for this story say that Woghin was a distant leader who, while physically in the office, made little effort to reach out to his employees. Arato says the former GC treated the legal staff as an afterthought to the financial and sales teams. Moreover, the reporting system for any wrongdoing was inadequate, the attorneys interviewed for this story said. The complaint hotline went directly to the GC’s voicemail, which is normal practice at many companies. But the DPA later called for a more independent reporting system. Arato, who was employed in the licensing group at the time, says the scandal meant additional stress, both at work and at home. Originally from California and an avid cyclist who averages 125 miles per week, Arato was brought in-house in 2000 after working on CA � related matters at Heller Ehrman. Back then, he says members of the legal department were reporting to the financial department, and acting more as “enablers” for the business side. As the scandal grew, chaos swirled around the company while government and internal investigators interviewed legal department employees. He says it was hard to know whom to trust. Morale had hit an all-time low. Arato says he started to check his exit options: “I went home day after day and told my wife I had to get out of there.” But being a lawyer at CA made him less marketable: “Litigators are a dime a dozen, and I didn’t have any clients anymore.” So he stayed � and bided his time. By early 2004 four members of the legal department had been terminated for their involvement in the scandal. And Woghin admitted to participating in the cover-up of such abuses as the 35-day accounting month. Handal’s arrival on July 12, 2004, signaled a turnaround for the battered legal team. CA’s board of directors approached the former compliance counsel for Altria, the parent company of Philip Morris International Inc. and Kraft Foods Inc., in April 2004. After six weeks of interviews, Handal was hired and charged with making CA’s legal team the ethical heart of the corporation. Handal, a family man who reverse-commutes from his home in Manhattan to Long Island, says he came from a well-run company with a well-run legal department. What he walked into at CA was a very different story. The office itself was poorly organized, an impersonal, wide-open space with cubicles, where even the most privileged conversations were easily overheard. Lawyers had desks, but few had offices, so they had to keep confidential documents locked in drawers at all times. The company barely managed a sprawling list of nearly 300 outside counsel. (Handal has since cut CA’s outside firm roster to less than a dozen.) Years of dealing with white-collar crime in the U.S. attorney’s office had shown Handal what scandal looked like from the outside, but CA gave him a chance to help get involved in fixing things from within. “I knew there were risks, but the challenge of doing it . . . would be tremendous fun,” he says. Handal began, literally, with construction, making the department’s digs look like a real legal division, complete with neatly stenciled lettering on glass doors, private offices, and conference rooms designated for exclusive use by the legal staff. Handal also reorganized the department by putting together sales, litigation, intellectual property, products, and technology groups. The department boosted its total attorneys to 61 worldwide. Handal was once the man to know at Georgetown University in the mid-1960s because of his generosity, smarts, and his sporty yellow GTO, in which he drove classmates around campus and out of town. “We’ve been good friends ever since,” says William Lytton, a Georgetown classmate of Handal’s, who now serves as Tyco’s general counsel. “There are some people that are really good and decent, and you’re happy to be able to count them as friends.” (Handal and Lytton are both members of Corporate Counsel’s editorial advisory board.) Today Handal may ride in a sensible minivan, but his employees say that he’s still the man to know. He invites feedback, and his door is always open. When he made his initial organizational changes, Handal met individually with every employee in the department. He asked everyone from top attorneys to personal assistants what they did and what they’d like to do. Assistant GC Bonnie Yeomans told her new boss that she wanted more responsibility. For nearly 15 years the Long Island native had carried out routine legal duties on software and licensing matters. Now Yeomans was ready for a challenge. Handal gave her a new legal role in the PR and marketing department, and she took on government relations and privacy issues. Prior to Yeomans’s PR oversight duties, any lawyer with a spare moment quickly glanced over the company’s media releases before they were distributed to the public. Today, she edits the releases’ content. “It was a little scary, but I knew I had a learning curve,” she says. “It was exciting to do something totally new.” Arato also moved up in the legal ranks, taking on additional management responsibilities. He left the licensing group in favor of litigation and eventually was appointed managing attorney. Handal soon realized that very few of the law department’s international staff had ever met. So on August 4, 2004, he hosted the first ever worldwide legal department meeting at the Long Island headquarters. It’s since become an annual event, complete with speakers, ethics training courses, and team-building activities. “The message was that we needed to be the conscience of the company,” says Handal. “As lawyers, we needed to act as a team and work to advise our clients and get through this.” One of Handal’s biggest problems was devastatingly low morale, something not easily solved with pep rallies or big dinners. So, drawing on his experience with Altria’s pro bono program, Handal decided to introduce CA’s lawyers to a similar project, only six months after walking through the door. The timing seemed risky; he still had organizational issues to clear up. But for Handal, it was exactly the right time. “It’s a great way to give back to the community,” he says, “and it can be a strong recruiting tool.” Once again, Yeomans stepped forward and volunteered to head up the new program, which has partnered with local nonprofits like Nassau/Suffolk Law Services Committee Inc. to help low-income and needy families with such personal matters as divorces. Handal chose the program because it could be up and running quickly, without requiring more specialized skills on the part of his lawyers. In addition to local community partnerships, CA’s pro bono program has since expanded to work with the David Project, an AIDS organization, where CA attorneys assist in writing wills for AIDS patients. It has also partnered with Human Rights First and Nixon Peabody, to assist in political asylum cases. It was a smart move, says Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. The pro bono program helps to send an ethical message to investors, customers, and employees. “People are judged on their actions and their deeds,” he says: The new initiative helps to set “a clear vision of culture” for the legal department. CA needed a total compliance overhaul, too. The company had a written code of conduct, but it mostly stood as an example of good intentions. For example, in some instances, allegations of misconduct were not properly investigated, say the attorneys. To remedy the shortcomings, CA’s DPA contains specific steps that the company has had to take to implement an effective compliance system. Under the agreement, it must cooperate with both the government and investigators in the continuing probes of former executives and business practices, and put a new accountability system in place. To ensure that the company keeps its promise, securities lawyer and former federal prosecutor Lee Richards III was named as an independent examiner. Richards, a partner in New York’s Richards Spears Kibbe & Orbe, says the order appointing him examiner does not permit him to comment on CA. CA took such steps as making in-house whistle-blowing easier with an anonymous complaint line. But active compliance training is at the heart of CA’s compliance effort, and outsiders say reforming the culture will be hard work. “Given where Computer Associates has been, it’s going to be tough,” says Elson. Under the new system, education is key, and the board hired Daniel Kolenda to head CA’s training program the same week Handal started. The Boston-based Marine JAG, who holds the title of vice president and senior counsel, runs ethics training courses worldwide, educating employees on antitrust laws, confidentiality, and competitive intelligence. Since the program was introduced, Kolenda has connected with 5,000 of CA’s 16,000 employees worldwide. “We teach them that the law is either yes or no,” he says. “There’s nothing else.” Kolenda works in conjunction with another lawyer-soldier, Patrick Gnazzo, CA’s chief compliance officer. The former first lieutenant retired from his post as chief compliance officer at United Technologies Corporation on January 7, 2005, and reported for duty at CA January 10. “I took the weekend off,” he quips. Gnazzo’s position was introduced postscandal as part of the DPA, and while he’s got the same job title that he had at United Technologies, there are several key differences. He has to stay in close contact with examiner Richards, and to issue a quarterly compliance report. And most of the compliance issues Gnazzo faces at CA are related to employee conduct and the company’s restructuring, rather than more routine matters like products and services. Gnazzo says his main goal is to inculcate workers with the new, more rigorous corporate culture. Employees, he says, “can’t make their own choices when they’re part of a corporation.” CA has also implemented a number of other key reforms. It has made it easier for stockholders and employees to communicate with board members by soliciting feedback on a regular basis; and it has amended the audit and compliance committee’s charter to include oversight of compliance programs. The company has also formed an executive disclosure committee that meets regularly, and CA has worked to reorganize and restructure the finance department. Handal and his team have been intimately involved in these efforts. The former Altria lawyer was given the opportunity to “create a great legal department from scratch,” says Rees Morrison of the Somerset, New Jersey � based legal consultant firm Hildebrandt International, Inc., who doesn’t have CA in his client roster. Morrison predicts that from now on, “lawyers will have a higher stature” at CA. That’s been Handal’s goal since day one, and so far, his cultural revolution seems to be successful. But it’s still a work in progress. While he doesn’t plan any other big initiatives before the DPA is presumably lifted in September, Handal’s ultimate goal is to weave the agreement’s principles into the fabric of the company. “I’ve always said the DPA is a road map to good corporate governance,” says Handal. “It’s been a lot of work, and it will continue to be a lot of work.”

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