Hurd scandal pushes HP back into the middle of public crossfire

Ever since a scandal over a botched leak investigation drew national headlines four years ago, Hewlett-Packard’s board of directors has been happy to keep a low profile while CEO Mark Hurd overhauled the venerable tech company and pushed its profit and stock price ever higher.

But a new scandal that led to Hurd’s unexpected resignation has pushed the board back into the middle of a very public crossfire this week, as Hurd supporters accuse them of overreacting and governance experts contend that directors should accept more of the blame.

Hurd resigned Friday after the company said the veteran CEO, once widely acclaimed for his business prowess, had submitted false expense claims and demonstrated “a profound lack of judgment” about his relationship with a female marketing contractor.

“They obviously did not make it clear enough to him what their expectations were, or this would not have happened,” said corporate governance expert Nell Minow, adding that the board is responsible for making sure the CEO knows he will be held accountable. “They did not evaluate the risk, and that’s their No. 1 job.”

Minow’s comments represent just one of several attacks launched this week against a board that had enjoyed relative calm and quiet for the last four years. She spoke one day after the well-known CEO of another major Silicon Valley company publicly blasted HP’s directors from the opposite direction. In a letter released Monday, Oracle’s Larry Ellison accused HP directors of sacrificing the company’s best interests by throwing his friend Hurd overboard without good reason, to satisfy public relations concerns.

Meanwhile, on Tuesday, attorneys for a Massachusetts municipal retirement fund filed an investor lawsuit accusing the HP board of allowing Hurd to misuse corporate assets.

Echoing Minow and other critics, the lawsuit noted that five of the 10 current directors were on HP’s board when it was rocked by a different scandal in 2006, when the company admitted using private investigators to obtain the phone records of reporters and directors under false pretenses.

That earlier scandal led to the ouster of then-board Chairwoman Patricia Dunn. Hurd was called to testify before Congress and the company eventually was forced to settle lawsuits filed by investors and the state attorney general.

Since Dunn’s resignation, Hurd had served as both CEO and chairman of HP’s board — an arrangement that some critics say gave him vast authority and little oversight.

The other 10 directors include experienced business executives, such as John Hammergren, the CEO of McKesson; and Robert Ryan, the former chief financial officer of Medtronic. But except for Marc Andreessen, who founded Netscape and has been involved in other high-profile startups, the other board members have mostly avoided the public spotlight in recent years.

An HP spokeswoman declined to comment Tuesday, saying only that, “the company is focused on running its business and the opportunity ahead.” Board members contacted by the Mercury News declined to comment this week.

But questions continued to swirl around the board’s handling of Hurd’s resignation, and some critics have wondered why he was allowed to keep a severance package estimated at $35 million or more.

“Many investors are confused. There’s a lot of suspicion about whether there are other reasons” for Hurd’s resignation “that weren’t disclosed,” said Unni Narayanan, CEO of Primary Global Research, which analyzes the tech industry for institutional investors.

HP officials said the board launched an investigation after attorney Gloria Allred filed a sexual harassment complaint in late June on behalf of Jodie Fisher, the sometime actress who also did marketing work. Officials said the HP investigation did not substantiate the harassment complaint, but it found that Hurd submitted inaccurate expense reports and that Fisher had received payments “where there was not a legitimate business purpose.”

Sources close to Hurd have said he denied any harassment and never intended to submit false claims, although he acknowledged in a formal statement that he had failed in unspecified ways to live up to his own “standards and principles.” Both Hurd and Fisher have denied any sexual relationship. And the company has provided no further details of its findings.

“Part of the problem is that everyone in this debate is operating on incomplete information,” added Patrick McGurn, special counsel to the consulting firm ISS, which advises investors on corporate governance and proxy measures.

Despite her criticism of HP’s board, Minow, editor of the Corporate Library, an independent research firm that evaluates corporate boards, said Hurd had to leave.

“If the board can’t trust the CEO, he can’t stay in the job,” she said. “It would be disastrous to keep him.”

Another corporate governance expert, Santa Clara University law professor Stephen Diamond, said the scandal could lead to a shake-up on the board.

Directors who were on the board through both scandals may especially face pressure to step down, he said. “And then I’d start bringing in some senior figures in the valley who might understand how HP seems to have lost its way.”

Mercury News staff writer Pete Carey contributed to this report. Contact Brandon Bailey at 408-920-5022; follow him at Twitter.com/BrandonBailey.