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Responsibility for the public fracas that has split Hewlett-Packard’s directors rests with the company’s chairman, according to experts in corporate governance. But it also highlights broader problems on HP’s board and disruptive changes under way in US boardroom practices.
The decision by Patricia Dunn, the company’s independent chairman, to carry out an investigation of HP’s own directors to find the source of press leaks was widely condemned in governance circles.
The inquiry by an unnamed private investigator included “pre-texting”, or unauthorised access to directors’ phone records, which has prompted the California attorney-general to launch his own investigation of the legality of the action.
If directors believe their communications are not private they will be afraid to talk directly to a company’s managers or dissident shareholders, said Charles Elson, professor of corporate governance at the University of Delaware. “It’s a very, very dangerous thing – once you do that, it compromises the ability of the directors to carry out their fiduciary obligations,” he said.
Ms Dunn should at least have discussed the investigation first with the independent director who chairs the board’s nomination and governance committee, said one legal expert on the board of another leading Silicon Valley company.
Tom Perkins, who chaired that committee at HP, resigned in anger in May after discovering that Ms Dunn planned to expose the director she believed was responsible for the leaks, George Keyworth, at a full board meeting.
In a letter to HP’s board, he said his committee had not known about the investigation. “All the arrows have come back at her,” said Pat McGurn of ISS, the shareholder advisory group.
Two contributing factors appeared to have precipitated the public row that followed. One has been HP’s inability to create a more cohesive board in the wake of earlier boardroom failures. Recent changes among its independent directors, and the creation of a non-executive chairman – still rare in the US – may have complicated relationships between directors and added to factionalism between different groups on the board, said Mr McGurn.
The second contributing factor was a wider change in the expectations of how directors in the US should go about their jobs.
Heightened legal obligations have brought a clash between “old school” and “new school” boardroom practices, as directors are torn between following more stringent legalistic ways of working and the old relationship-based way of operating, said Mr McGurn.
Mr Perkins claimed that the two had a personal agreement to deal with HP’s leak problem quietly, though HP said that Ms Dunn had received legal advice that she needed to bring the issue up before HP’s board.
“You’re going to see more of these battles inside boardrooms” as a result of changing boardroom culture in the US, Mr McGurn said.