Corporate Governance

Was there debate within PeopleSoft that it might be a bit shortsighted not to give steady-as-you-go maintenance?

Other than from me? You had development lining up on the side of, 'Absolutely hold to these support polices.' The consulting group wants to sell upgrade services. The development organization only wants to support a limited number of product lines, and there are practical reasons for that. They can't technically support 10 lines forever. In general, they were just incensed it accreted life to releases that they wanted to see retired.
Isn't this a problem for all software?

Everyone has to carry forward their baggage, and a backwards compatibility. Very rarely do you come out with a brand new release that has no connection, in technology, to what you had before, because then you open up the whole competitive realm. 'Well, hell, if your new product isn't really an upgrade, it's a migration, then I might as well look at everybody's else's if I am going to move to a migration.'
How have companies managed this problem before your software maintenance businesses existed?

They thought they could basically use the stick to beat customers forward by threatening them. You've seen that with Oracle. Siebel is the same way -- basically, if you don't upgrade, we're going to pull your support, you'll rue the day, you'll get nothing from us, and we'll still charge you the full amount.
What are the reasons your customers opt for third-party software maintenance?

They do it for different reasons. The small customers were making the move, because it was right after the dot-com meltdown. Prior to that, people were very optimistic, thinking they would be growing 10 times their size. They went in and bought PeopleSoft; it was the Rolls-Royce of HR systems and finance. So now they're stuck with the Rolls-Royce. They love it; they don't want to get rid of it. But they can't afford to keep it. So, a lot of those people, by switching to third-party maintenance, actually were able to keep the software they loved at price points they could afford.
Why did you leave TomorrowNow after the acquisition by SAP?

I left three months after the SAP acquisition; as an entrepreneur I needed to be on to my next thing. I actually was going to go build a software company, but after looking at it, I couldn't stay away from the maintenance stream. When you've got a 90% profit margin, it's just too hard to resist. And TomorrowNow didn't even take 1% of the market. As soon as Oracle announced its acquisition of Siebel, I decided to launch Rimini Street and offer the first third-party alternative into Siebel space.
Oracle must love you, especially given its suit against SAP -- targeted at TomorrowNow.

Oh yeah. I announced Rimini Street at OracleWorld 2005 and I think the words were, 'He's back.' As soon as my noncompetes expired with PeopleSoft and J.D. Edwards products, we introduced those at Rimini Street, too. So now you have two companies -- the captured, SAP-TomorrowNow and our independent Rimini Street -- and we are the only two really credible companies in the industry.
The Oracle lawsuit against TomorrowNow is notable for its strong language -- "corporate theft on a grand scale." Some analysts said that one of the aims of the lawsuit was to scare companies off using third-party maintenance.

Just to give you that color from the lawsuit -- it hasn't deterred the business. The lawsuit actually opened up business -- because some people didn't even know there was a choice. A lot of people read the lawsuit and said, 'My God, Merck and Honeywell, and all these large companies using third-party support.' And instead of saying, 'Wow, look what happened here!' The issue really is, 'Holy gee, am I the only guy paying full price?'
What about maintenance of SAP software at Rimini?

I have a noncompete that expires in January. Let's just say, we're looking with interest at the SAP market. With 30,000 customers, who wouldn't be? They recognize what is good for the goose is good for the gander. You can't complain and say you want Oracle to open up and allow third parties more access and think that is not going to boomerang back on you. They know this is about open access.
AMR analyst Jim Shepherd makes the argument that because everything is changing -- the software platform, the underlying components, your company's business -- that the software needs to be continuously updated.

That's not what we're hearing from clients. They have incredibly stable platforms that they feel like they can run their business on for 10 years. And, in fact, if you look at the recent enhancements from the PeopleSoft product line, it is akin to heated and cooling cup holders -- they're really cool, but it doesn't help me pay my employee any faster.
Who do you go to when you make your pitch? The CEO, the CIO -- who is most receptive to your message?

It's gotta be the CIO and the CFO. The reason is, this is a lot like outsourcing. You're not going to go pitch the IT team how great it is to send your jobs to Infosys. When we come in, how much excitement is there to tell a team, 'Hey, we've got some great news for you -- you guys are going to drive the same car for the next five to seven years instead of that new one you were hoping to play with.' A lot of IT folks do want the excitement of getting new tools and new technology to play with -- and that is part of the fun of it.

Our decision is very much a cost-driven decision, so it is very often the CFO or the CIO who says, 'I'm the guy who has to go before the board and justify we need to spend $2 million on an upgrade when we did it just three years ago, and I can't put down on paper how that money is going to be returned to us in benefits.'

What about people who have just upgraded to the newest version of software -- are they off-limits?

We used to work primarily with more retired or retiring-level versions of the software. Today, 30% to 40% of our business is on the latest versions of the software, so it is people who literally go and do the next upgrade and say, 'You know what, we are done for the next decade. And all that money we bank over the next decade? We will then do a capital expense because a whole new version of software is coming.' In 2015, '17, as late as 2018, you'll see a mature Fusion product against a mature NetWeaver product from SAP, hell Microsoft will probably be offering a full enterprise-level product at the rate they are investing. Rather than play the upgrade game every two or three years that doesn't necessarily yield results but ties up the entire IT team, costs a fortune, instead we're going to make a generational change.
How long should a company hold on to a software product?

We have more customers than ever looking for five- and 10-year guarantees for support. No one makes this change for a six-month change; it is not worth it.

Let us know what you think about the story; email: Linda Tucci, Senior News Writer

It doesn't take much to get Seth Ravin badmouthing big software companies. Ravin co-founded TomorrowNow, which he sold to SAP, and eventually went on to found Rimini Street Inc., an independent provider of enterprise software support services for Siebel Systems Inc., PeopleSoft Inc. and J.D. Edwards & Co. licensees. The companies share the same aim: make software last longer. Ravin's idea of software maintenance evolved from his work at PeopleSoft in the late 1990s. He was in charge of getting 4,000-plus customers through Y2K. The board authorized Ravin to quietly sell customers a Y2K package of support -- on top of their regular maintenance support -- so they could stay on their older releases.

Indeed, as word of the special program spread, enthusiasm reached fever pitch. By 1999, Ravin had customers left and right willing to pay him more than regular maintenance fees, so they wouldn't have to upgrade. Not long after, he left PeopleSoft to join former colleague Andrew Nelson, who had a little consulting business, TomorrowNow.

What is the difference between record-keeping of VoIP messages versus traditional telephone messages?

There are going to be different types of records created by telephone calls when you do things digitally. When you do things digitally as opposed to the old-fashioned way, it creates new challenges in terms of retention. For example, if you look at old voicemails, analog form, there wasn't much expectation in the way of preserving them.

With digital voicemail systems and systems that turn voicemails into wave files that then get e-mailed, now you have this whole new possibility and treasure-trove evidence and information that would be potentially subject to preservation obligations, just like any other form of information. The key thing to remember is that the type of media in which the records are stored is largely irrelevant when it comes to determining your obligations to preserve. And, as the types of media that are creating these records with different types of digital information multiply -- for example, records created through VoIP -- it becomes more and more critical for companies to be very focused on their policies and practices regarding information management.
How does a company decide what to retain?

What you need to retain is going to be dictated by subject matter, not by type of media. So, for example, if there are records created by a VoIP system that deals with your 10K, the fact that some records are created by VoIP has no bearing whatsoever on your preservation obligations. You're going to have to figure out a way to deal with that. You can't say, oh well, this is stored in this type of media and these records are created by this type of software application, therefore I don't have to worry about preservation.
When you talk to companies, do you find that many believe they don't have to keep a record of it because it was done over the phone?

Absolutely, there is a lot of uncertainty in terms of what exactly is the extent of preservation obligations with respect to certain types of media. The big issue that still predominates that discussion is backup tapes. While it is entirely possible that at the end of the day the court might say, 'Well, I really don't think it was reasonable to expect you to preserve that type of information,' the way the preservation obligation is generally interpreted is more media neutral. At the end of the day, there might be arguments you could make in terms of burden and cost, as to why you shouldn't have to keep that information, but in the absence of a ruling that says, for example, VOIP is not the kind of information you need to preserve, you'd better preserve it, if it's relevant to subject matter that falls under some preservation obligation.
What are the biggest errors in judgment companies routinely make when dealing with electronic records?

One is keeping information that they're not required to keep. The consequence of that is tremendous cost, when in response to either regulatory investigation or litigation they are required to retrieve and search that information and review it for production. They find they have needlessly multiplied their burden by keeping information that has no business use and wasn't governed by some legal preservation requirement.

No. 2, is not having thoroughly thought out and implemented information management policies and practices. You would be amazed at the big companies with vast sprawling corporate networks generating gigantic amounts of information -- a lot of it very sensitive -- that have not made much headway into implementing policies and practices, so they can have some measure of control and can explain why they have certain information and not other information.

No. 3, is they are not in touch with the de facto information policies -- what actually happens at the company. A lot of what happens is driven by IT people. So, for example, somebody in IT decides that because of storage capacity issues, they are going to purge e-mail on active servers every 90 days. Then a litigation happens, or there is an investigation, and either no one was aware of the purge or thought to communicate with IT that they need to perhaps to suspend the purge.

This gets to the heart of our audience. So CIOs need to be brought into the loop?

Absolutely, the interface between CIOs and lawyers is the story. In all these cases where companies have been punished for losing electronic information, 99% of the time it can be attributed to some kind of communications failure between lawyers and IT people. Not bringing IT into the loop on legal issues is a common and serious mistake. Morgan Stanley is probably the most prominent example. A few years back, there was a case, Keir v. UnumProvident Corp., a big insurance company. The decision gives a fascinating inside look at what happened in terms of the miscommunication between the outside lawyers and the in-house lawyers down to the inside tech people at the company and their vendor, IBM, which handled their backup systems.
What makes VoIP messages such a potential nightmare is that to produce voicemail that has been sent and saved digitally, you have to listen to it real time and transcribe it.

That's right, and the burden involved in that may result in not having to produce it. But it might not, and when you're dealing with regulators, they are less sympathetic to the burden argument.

Now you don't have to create records that wouldn't otherwise exist. If it is not your normal practice to record those oral communications, you're not required to go out and record them and create records just because you have some preservation duty. It doesn't mean I now have to walk around with a tape recorder and anytime I say something to someone that is relevant to a litigation or investigation I now have to tape record it.
Adam I. Cohen is a partner in the litigation department in the New York office of Weil, Gotshal & Manges LLP. Nationally recognized for his work on discovery and document retention issues associated with electronic information, he is the co-author of Electronic Discovery: Law and Practice. The authoritative 2003 primer has already been cited in four landmark e-discovery decisions by federal district courts. SearchCIO.com asked Cohen how CIOs should be treating that murkiest of electronic records -- Voice over Internet Protocol (VoIP) data. The takeaway? Do exactly as company lawyers tell you to.

Who do you report to?

The COO [chief operating officer]. We don't have a dedicated CIO role right now; our CTO is largely performing that function. However, my boss is a former CIO. The CTO and I report to the COO.
What percentage of your job is spent working on compliance regulations?

In 2004, I spent approximately 40% of my time on compliance. Things really fired up in 2004. When I came on board, compliance activities had been building for at least the last 12 months. I was originally hired NOT to do compliance directly. I was to handle the security aspects of compliance only. Then last fall, my boss asked for me to become corporate compliance officer, in addition to my role as CSO. So now I'm involved with other compliance issues. There was no single, executive-level focal point before I took it over. Prior to that, each business unit would identify their issues and address compliance at their own levels.
Do you have any other staff dedicated to compliance?

I have one full-time coordinator and two part-time coordinators working on compliance. We also involve the appropriate business people. The full-time coordinator is a temporary position, ending later this year (2005). Then we'll be relying upon the part-time positions to provide program coordination and help the individual contributors when they have problems. The full-time temporary person was needed initially to get the program on its feet.
What compliance regulations have you had to comply with in the past year? Which were the most challenging?

In 2004, our emphasis was on two areas. First with Visa. Visa has a cardholder information security program. We had to demonstrate compliance with that. Most people might not consider Visa compliance as a big deal compared with SOX [Sarbanes-Oxley] or GLBA [Gramm-Leach-Bliley Act] -- but it was important to our organization. There were real consequences if we didn't meet their test -- they could revoke our right to process Visa transactions. Visa has to approve anyone that wants to process transactions. This security program is a big strategic initiative for them. It also includes a lot of risk for us -- considering we could lose a huge revenue stream.

The other big regulation challenge in 2004 was getting our SAS 70 Type 2 compliance report. We needed to get this report for our customers -- all financial institutions. SAS 70 is a third-party attestation, a common instrument used when two parties work closely together and they want to make sure the other is doing what they're contractually obligated to do. When a bank outsources work to a vendor, examining the SAS 70 report is typically part of the financial institution's risk management program. The banks will look for certain controls in the vendor's organization.

It's an annual event for us; 2004 was our first one. Industry-wide, the increased emphasis on SAS 70, which has been around for quite some time now, has developed as a direct result of increased regulatory pressure on financial institutions. Financial institutions need to demonstrate good risk management practices when they are working with particular vendors or service providers. It's a reality for any financial institution because almost all of them outsource some aspect of their IT or tech operations, thus placing customer date at risk.
You're not a publicly traded company, so you didn't have to meet the SOX deadline. But do you have to meet any of the guidelines indirectly since you work with mostly publicly traded companies?

We have decided to adopt various aspects of the SOX requirements. We think it's just a matter of good business practice. We're currently analyzing now which practices we should adopt and how and when to do it. Most business leaders would probably tell you that if you're a company today that's not subject to SOX or other major regulations, it's just a matter of time before you will be. Eventually, I believe the government will extend these requirements to nonpublic institutions.
All of your customers are financial institutions. Is there even more pressure from them for you to be 100% compliant at all time?

Yes. Since we only serve financial institutions, we are getting increased pressure. I believe there are two specific reasons. First, the auditors themselves are getting more sophisticated on how they evaluate financial institutions. Secondly, the regulations are getting much more strict. As most people know, it's a common practice among financial institutions to outsource some or all of their IT to TSPs [technology service providers]. The regulators have guidelines that tell financial institutions how they should manage TSPs. One specific requirement is that financial institutions can not outsource risk management.

Banks in the past have tended to implicitly outsource risk management along with the systems. Regulators are now demanding that financial institutions prove they are actively conducting risk management on any technology outsourcing contracts. One thing we try to do is recognize what the burden is on the customer. From the auditors -- we try to deliver our services in a way that they meet that burden of proof. We see a lot of the compliance work we do on behalf of our customers as a way to differentiate ourselves in the market.
Do you send any work offshore? If so, is compliance an issue when working with an offshore customer or partner?

We don't send work offshore. We have customers who do that, though. We try to work with our customers on how to manage their risk with offshore partners. For example, we perform a certain amount of systems monitoring and forward anything we find to our customers. I'll give you a specific problem for which there is no easy answer: We bond all of our staff which requires a certain amount of background checking, which is fairly straightforward in the U.S. When a customer of ours is doing business with an offshore partner, our customer typically will want to perform similar background checks. However, it's not always clear how to do that with people overseas. It's usually an issue of how do you find a level of scrutiny that's equivalent to a check you've done with a U.S. worker. But, how does that work in India or wherever your offshore partner happens to be? What's considered to be equivalent?
Have you been audited for any compliance regulations? If so, did they uncover any issues?

Yes, we largely have had customers auditing us. In 2004, we had no less than 10 external audits. We also had six internal audits.

Issues have come up, but nothing I consider to be serious. One example is we had some faulty maintenance performed on an exterior door to our building. When the auditor was checking our physical perimeter, they found the door didn't close completely all the time. Even though that door provided no direct access to a protected area, the incident was noted in the report and we did a follow-up with the maintenance group to explain how important this issue was.

Some of our time and effort working with external auditors is spent working with auditors to help them interpret the regulations for our specific context. These regulations are very complex themselves. Issues brought up by the auditors are often matters of interpretation. We sometimes have to point out to the auditors that there isn't an issue and why -- typically because we have a different control or other compensating controls. But in the end, if the auditor is insistent, we will usually accept the issue and make the necessary changes for the customers. However, there have never been any real show stoppers.
Does the business side fully support any efforts and spending for compliance? Do they realize the value and importance of these initiatives?

Yes, for us it's very obvious. There's a clear connection between compliance and business success. We have no problems with having the business recognize the value of compliance. However, because there is so much compliance that needs to be done, the business often has a difficult time prioritizing what needs to get done.
I read that you have an off-site business continuity and disaster recovery site in Colorado. I assume DR/BC [Disaster Recovery/Business Continuance] plans are essential to the success of compliance regulations. Is that correct? Did you have this site set up before many of the regulations and auditors starting coming out?

There are several compliance initiatives that officially told us we had to have this; VISA CISP, for example. Even so, the reason we have DR/BC is that the business recognizes that the money spent today to ensure business continuity will pay off. You're talking about companies [our customers] that if they're not able to process transactions, the revenue loss for them could be astounding, much more than they are paying for the DR/BC plans. Therefore, the first priority is how to prevent loss of revenue. I think compliance issues are also addressed in there, but ensuring continuous revenue is our No. 1 goal here.
Do new customers ask about your compliance plans or situation? Is it as important to them?

We make sure our compliance goals are included in our initial marketing pitches -- we state we're very in-tuned with their compliance needs. In some cases we're more aware of their compliance regulations than they are. On their side, there's an initial line of questions about whether we're compliant -- basically to make sure we're credible. Most of the customer's effort then moves to making sure we can deliver on their technological goals and that we come in at a good price point. Once they know we're viable -- they'll do more due diligence on us. My point is that they're interested in our compliance efforts, but it's not their No. 1 priority. They want to make sure we can deliver the service first.
Kip Boyle was hired as chief security officer of Pemco Corp. in October 2003. Compliance was not originally part of the job. But as compliance activities grew and became more important at his organization, Boyle was asked to take on the role of corporate compliance officer -- in addition to his current role -- and oversee the company's compliance efforts. In this exclusive interview with SearchCIO.com, he discusses his most challenging compliance issues and how to deal with both internal and external audits.

a twist on the SaaS model it believes corporate customers will find more palatable.

The Cambridge, Mass.-based provider is launching a BPM Platform as a Service (PaaS...

executives and risk-associated corporate positions, in which 12% of respondents said their companies have fully implemented ERM. That's an increase from 4% in 2006.

...