September 7, 2006
The Hewlett-Packard Flap
The financial press is closely following the revelations on the board of director disagreements at Hewlett-Packard. The Chair's efforts to remove one director, for talking to the press, have led another director to resign. There is the usual interest in the blow-by-blow accounts of two power struggles in the company -- first, the Compaq merger that pitted the new CEO against the son of one of the founders (which the CEO won) and, second, the decision to fire the CEO when company performance lagged. But the revelations have two unwanted twists: first, the company's disclosure to the public (and the SEC) on the resignation of a director do not appear to have been as candid as one would expect. This is a securities law violation. And second, the company's internal investigation involved the highly questionable practice of using a private investigator who misrepresented himself as a board member (twice) to acquire the board member's phone records (pre-texting). Two states and two federal agencies had taken the position that this is illegal. Plaintiff attorneys, state attorney generals and the SEC are now interested in the company's conduct. More heads will roll at H-P (the Chair ?). For the rest of us, it is a reminder how far many large United States corporations are from being able to handle, civilly and professionally, disagreements at the board level. Until a healthy new culture of discussion develops at boards in the United States, we are going to hear more about petulant responses to dissent on boards of directors. I am commonly instructed on how a director who wants to dissent at the board level must do a complex and subtle choreographed dance, involving extreme tact and misdirection, to make even the mildest of objections. Those who miss a step (forget a required reservation; make a statement rather than a timid question) are gone. It reminds me of the clothing requirements of a ball in pre-republican France. The proper wigs and lace are required. We will also get more CEOs demanding loyalty oath equivalents, such as forcing new board members to sign over-reaching confidentiality agreements with draconian penalties.
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Posted by: jonny | Sep 16, 2006 12:36:57 AM