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The Number - How the Drive for Quarterly Earnings Corrupted Wall Street and Corporate America

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THE NUMBER
How the Drive for Quarterly Earnings
Corrupted Wall Street and Corporate
America

ALEX BERENSON

RANDOM HOUSE
NEW YORK

FOR MY BROTHER DAVID,

A TRUE FRIEND

It is difficult to get a man to understand
something
when his salary depends on his not
understanding it.
UPTON SINCLAIR

Prologue
One of Many
January 22, 2001, 5:30 P.M. Darkness has
settled over the East Coast, but the mood
is sunny in the executive suites at the
Islandia, New York, headquarters of
Computer Associates. The world’s fourthlargest independent software company has
just released its quarterly earnings for the
three months ending December 2000, and
the report is a good one. Sales and profits
are higher than Wall Street anticipated.
No one will benefit from the news more
than Charles Wang, the chairman of

Computer Associates, and Sanjay Kumar,
the company’s chief executive, good
friends who have just bought the New
York Islanders professional hockey team.
Wang owns 30 million shares, more than
$1 billion, of the company’s stock. Kumar,
a relative pauper, has about $200 million
in Computer Associates shares. Those
fortunes will grow the next day, as
investors bid Computer Associates’ stock
up almost 6 percent.
After issuing the report, Computer
Associates holds a conference call to
discuss its results with the Wall Street
analysts who follow the company. Kumar
can’t resist bragging. Although the
software industry is in its worst downturn
in a decade, his company has

demonstrated its strength. “We’re
extremely pleased with the performance
we pulled off,” he says.1
If she had been on the call, that news
would have come as a surprise to Mary
Welch. Welch, a Computer Associates
sales rep, had been fired by the company a
week earlier, one of three hundred
employees laid off as 2001 began. Like
most of the fired employees, Welch was
told she would not receive any severance
pay, because she had been dismissed for
poor performance. Yet she had received a
positive job review only two weeks
before. Welch and many other fired
employees believed that Computer
Associates wanted to avoid paying
severance by disguising a company-wide

cutback as individual firings. The layoffs
were necessary because the company’s
sales had plunged in the December
quarter, the fired employees claimed.
“They did a mass layoff,’’ Welch said.
At the time, Welch’s complaints seemed
nothing more than the gripes of a
disgruntled ex-employee. After all,
Computer Associates’ financial statements
showed that bus...
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