HP Shareholders Reject Proposal to Reform Board Member Nominations

The same day Hewlett-Packard’s former chairwoman avoided jail time in the HP spying case, shareholders met, but rejected a reform proposal that arose from the scandal.

Shareholders rejected a proposal at their annual meeting Wednesday that would allow for shareholders to nominate candidates for HP’s board.

Shareholders asked several questions of HP executives at their meeting in Santa Clara, Calif., one of them criticizing the “country club” atmosphere of the board. A few miles away in a courtroom in San Jose, a state judge had just dismissed felony charges against ousted HP Chairwoman Patricia Dunn and three others implicated in the HP pretexting scandal.

They were charged for their role in a scheme uncovered last year in which phone records of HP directors and reporters were obtained under false pretenses to find out which directors were leaking news of board deliberations to the media.

At the shareholder meeting, HP President, Chairman and CEO Mark Hurd acknowledged the controversy.

“No one is proud of what happened here last year, and we will work to create a board you can be as proud of as you are proud of the company,” Hurd said.

The scandal prompted the resignation of Dunn and two other directors: George Keyworth, who was identified by the internal investigation as the one who leaked news to a reporter; and Thomas Perkins, a wealthy venture capitalist who quit in protest over the pretexting tactics and the treatment of Keyworth, a board colleague.

The reform proposal was presented by representatives of several public employee pension programs in the United States that are institutional shareholders of HP stock.

They argued in a statement included in HP’s proxy document that shareholders have no meaningful way to nominate directors. Often, nominees from shareholders are screened by a nominating committee, but if they’re rejected, shareholders’ only recourse is to launch an expensive dissident election campaign. The resolution called for shareholders to directly nominate board candidates and for those nominees to be placed on the ballot.

Management opposed the idea. In a letter to shareholders March 7, Hurd argued that nominations from the shareholders would result in the nomination of “special interest candidates” with an agenda that may conflict with the company’s best interests. Hurd also said the matter would be better addressed by the U.S. Securities and Exchange Commission so it would affect all public companies in the United States.

Hurd alluded to the scandal in his letter: “While HP has faced a number of serious and very public challenges over the past year, the HP board already has acted decisively to address those challenges. The directors involved have resigned, and we believe that the board is now functioning effectively.”

Shareholders also failed to pass a resolution to require HP to separate the positions of chairman and CEO. Hurd was hired in 2005 as CEO, but was not given the chairmanship, reversing an arrangement under predecessor Carly Fiorina. But Hurd ascended to the chairmanship anyway in September 2006 upon Dunn’s resignation.

Shareholders approved a resolution tying executive pay more closely to performance. Management opposed that resolution but said it “will review its policy.”

-Robert Mullins, IDG News Services (San Francisco Bureau)