H-P Board Sued on Hurd Exit

Originally Posted in the Wall Street Journal 


Hewlett-Packard Co.’s directors got slapped with a lawsuit over the departure of Mark Hurd—the same chief executive who handpicked most of the board’s members—even as they face the task of finding a replacement for the former CEO.

A Connecticut-based law firm filed a shareholder derivative suit in Santa Clara County Superior Court in California on Tuesday against H-P’s board, alleging directors violated their fiduciary duties in connection with the events surrounding the resignation on Friday of Mr. Hurd.

The suit, which seeks corporate-governance changes at the company, lists H-P shareholder Brockton Contributory Retirement System as the plaintiff.

The suit also seeks to reclaim the severance paid to Mr. Hurd and to force the board’s members to reimburse H-P for any damages their actions caused. It also seeks punitive damages. Any money recovered would be awarded to H-P, not the plaintiffs.

An H-P spokeswoman and a spokesman for Mr. Hurd declined comment on the suit. An attorney at Scott+Scott LLP, which filed the suit, didn’t respond to a request for comment.

H-P’s board is ramping up its search for a new CEO. H-P is interviewing executive-search firms for the assignment, according to people familiar with the matter, after which the search is expected to pick up in earnest.

“There’s a lot of pressure on this board,” said William W. George, retired CEO of Medtronic Inc. and a professor of management practice at Harvard Business School.

Jim Balassone, who directs business-ethics programs at Santa Clara University, said H-P’s board faces governance questions such as whether to split the chairman and CEO roles.

H-P’s board finds itself at the center of a firestorm following Mr. Hurd’s resignation Friday over business-conduct violations related to a relationship with marketing freelancer Jodie Fisher. Ms. Fisher had alleged sexual harassment by Mr. Hurd.

While an internal H-P investigation cleared Mr. Hurd of those claims, it found he failed to disclose a “close personal relationship” with Ms. Fisher and filed inaccurate expense reports.

H-P’s board consists largely of directors that Mr. Hurd helped recruit. Seven of the 10 directors got their seats after Mr. Hurd arrived in late March 2005.

The board’s makeup changed following a boardroom spying scandal in 2006. In its wake, three directors resigned—including its chairman. Mr. Hurd apologized before Congress and pledged to hold H-P to higher standards. He was named H-P chairman in September 2006.

H-P’s CEO-search committee is made up of venture capitalist Marc Andreessen, Joel Z. Hyatt, former CEO of Hyatt Legal Plans Inc., McKesson Corp. CEO John H. Hammergren and former Verizon Communications Inc. executive Lawrence Babbio. Mr. Andreessen has been the board’s public face, answering questions on a conference call following Mr. Hurd’s resignation.

Fellow directors probably relied on Mr. Andreessen because “he’s so well connected to global technology,” a person familiar with the matter said.

The lawsuit against the board also names Mr. Hurd and Cathie Lesjak, the H-P finance chief who is now also interim CEO.

Among other things, the 45-page suit alleges that H-P’s board violated its corporate-governance guidelines by failing to inform shareholders of the investigation. It also attacks details of Mr. Hurd’s exit package, which is estimated at above $35 million.

Shareholder derivative suits have become common in recent years. They are typically suits brought by shareholders on behalf of a company against a third party. In this case, the complaint was filed against the defendants on behalf of H-P.

—Don Clark contributed to this article.