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HP: When to Step Down from the Board

Friday, Apr. 5, 2013

Thursday, Hewlett-Packard announced that board chairman Raymond Lane had stepped down as chair, but will continue to serve on the board, while two other directors resigned from the board entirely. Lane, along with other directors, have been key supporters of a series of mishaps that led to HP writing off $18 billion from failed acquisitions in the fiscal year of 2012 alone; most notably the $11.1 billion acquisition of Autonomy, considered to be among the worst acquisitions in history. Ranging from the Autonomy acquisition to the ill-fated appointment of former CEO Léo Apotheker, who was hired without meeting many of the board members, shareholders accused the board of serious shortcomings in its role of providing risk oversight. At the HP investor meetings last month, Lane received only 59 percent of the vote for reappointment to the board. While a majority vote is technically enough for reappointment, such a low percentage is indicative of very low shareholder confidence. Were HP’s board members duty bound to resign, despite obtaining the majority vote?

  Patrick: Yes, I think the board members were duty bound to resign, but not for the reason implied. In terms of shareholder support alone, majority vote is sufficient for accepting reappointment. The truth of the matter is that Lane and the other board members are obstacles to HP’s turnaround, and their presence alone was a detriment to the company—out of this concern alone were they duty bound to resign.

  Kirk: I think the HP directors were late in resigning and I think Lane should have resigned entirely from the board. We allow CEO’s to “bet the company” on giant acquisitions and reversals of strategy, subject only to the board’s evaluation of the risk involved. If directors fail miserably in that risk assessment, they should immediately apologize to shareholders and resign. We need a much stronger sense of accountability in all areas of American life, but particularly among corporate directors.

H.P. Chairman Steps Down as 2 Resign From Board

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Comments Comments

J.A. Schmid said on Apr 10, 2013
I?m sure Meg Whitman has uttered Oliver Hardy's famous line more than once "Well, here's another nice mess you've gotten me into!" So what were the roles and accountabilities that got HP here? Without a doubt the board is the epicenter starting with the mass upheaval in 2010 which has to be a piece of the root cause. Apotheker's restructuring drive and frustration to move HP into software and divest computer manufacturing overloaded the board. The board's compensating decision to split up into two groups (one working on the divesture and the other group working on Autonomy); and then the board's decision to depart from the established HP due diligence protocol (which just goes to prove that the longest distance between two points is a "shortcut"). Deloitte (Autonomy's auditors) and Ernst & Young (HP's auditors) own part of this. There were red flags that went up (if the press is believable). As far as rendering "punishment" I'm sure in the end the U.S. Department of Justice, the SEC, and U.K. Serious Fraud Office will figure that out, that is a legal matter. Regarding ethical accountability it rests squarely on the board. Which then leads to "discipline" (self or imposed); and the root Latin word meaning of "student" and "to learn". Should there be a wholesale dismissal/resignation of the board? I don?t think so, there has been enough "house cleaning". There should remain on the board a "legacy memory" of what went wrong to ensure things are put in place so the shareholders can be confident that a similar scenario will never recur, the "learning". These remaining board members are now the "guardians". As to the rest of the board, I agree they are ethically bound to resign, yet at the (a.k.a. an ethical dilemma). Is Lane a right choice to stay, who knows. The need for urgency still exists. Whitman now has a clear shot at leading them through this mess starting with a unifying concept of what HP must be and do. Something Apotheker never got to. Here's an interesting nuance for a screenplay: maybe with all the internal acrimony around Apotheker's leadership he was set up to fail. Now that is an ethical issue that goes well beyond the board. Diligence teams number in the 100's range. There is a lot of ethical accountability to go around. - Like - 2 people like this.
Patrick said on Apr 10, 2013
Great post, I definitely agree that there's a whole lot of accountability to go around. An interesting aspect is how HP handled the resignations (or lack thereof). In particular Mr. Whitworth's announcement at the shareholder's meeting: "All boards should evolve...you can expect some evolution of the board in the coming years -- months maybe." Seems as if they wanted to "test the waters" and see if the resignations would be demanded from the shareholders, but regardless, it resulted in an inflated vote perhaps out of sympathy. While some gamesmanship is expected, I'd like to see them call it as it is and step down when it's best for the company, not when they are forced out. Thanks for the post Joe, I look forward to your future comments. Patrick - Like
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