Rebuilding HP’s board

By Felix Salmon
August 11, 2010
Nell Minow, saying that Hurd "falsified his expense accounts in a tawdry series of incidents", say the board should have fired Hurd for cause, rather than allowing him to resign. On the other side of the argument, Hurd defenders like James Stewart and Henry Blodget point out that Hurd was cleared of the sexual-harassment charges against him, and didn't do his own expenses, which makes the claimed violation of HP's Standards of Business Conduct har

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One of the interesting things about the fall-out from Mark Hurd’s ouster at HP is that no one is happy with HP’s board. On the one hand, critics like Nell Minow, saying that Hurd “falsified his expense accounts in a tawdry series of incidents”, say the board should have fired Hurd for cause, rather than allowing him to resign. On the other side of the argument, Hurd defenders like James Stewart and Henry Blodget point out that Hurd was cleared of the sexual-harassment charges against him, and didn’t do his own expenses, which makes the claimed violation of HP’s Standards of Business Conduct hard to find.

Both sides, it seems, would agree with Michael Schrage that the board itself bungled the whole affair horribly, largely on the advice of panicked PR advisers at APCO.

And indeed there’s a case to be made that Hurd paid the price, not for his own sins with Jodie Fisher, but for the board’s own prior sins. Here’s Minow:

in order to do any business with the government (including eligibility for certain licenses to do business abroad), companies need to be able to demonstrate that they have “tone at the top” ethics and compliance in place. It says a good deal about our system of corporate governance — and our media and ourselves — that the announcement a few days ago that HP was settling a false claims charge with the government for $50 million did not result in either disciplinary action against the CEO or headlines in the financial press or mainstream media.

When the government investigates companies in these cases, the authorities have to decide whether to prosecute criminally or settle for a civil fine. They also have to decide whether to target the company as a whole or just some lone, unauthorized employee. To make such decisions, the government has said it will look to see whether the top management — starting with the CEO — has sent unambiguous messages that noncompliance will not be tolerated. Has misconduct been punished in the past? Have people been fired for violations? Or does management turn a blind eye for the sake of business expediency? If it’s the latter, the government says the whole company will be penalized…

The HP board has been a serial corporate governance offender, so we should not be surprised that they have bungled this one… This is the board that mis-handled the hiring, direction, and firing of Carly Fiorina and then mis-managed the “pretexting” scandal following the investigation of a leak from the boardroom. This is the board that TCL has rated as high-risk for its inability to manage incentive compensation.

And this is the board which, now, decides to roll out the cool and trendy board member as its official spokesperson, in a failed attempt to make its latest fiasco marginally more palatable to the investing public.

It seems to me that the board’s first duty is to shareholders, and that one look at the HP share price will show that on that front it bungled matters atrociously. I can understand that the board might want to set a zero-tolerance precedent when it comes to CEO shenanigans, especially in the wake of the other recent scandals. I can also understand that it doesn’t want to get into a public fight with the Hurd camp, especially now that the decision has been made and can’t be undone. But it’s hard to see, at this point, why shareholders should have any faith at all in the HP board. Marc Andreessen is a good guy, but while he’s searching for a new CEO, maybe he should search for a new chairman at the same time. Who ideally won’t be the same person, and who will be able to bring a bit more credibility to a tattered board.

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