The oft-criticized HP board of directors staged an annual shareholder meeting Wednesday with a minimum of upheaval, although a special committee that has been appointed to investigate its Autonomy purchase came under fire. And two sitting board members only squeaked through in their bid for re-election.
HP acquired Autonomy, a sophisticated business analytics system, in 2012 for $13.1 billion. But in a move soon afterward, CEO Meg Whitman was forced Nov. 20 to take an $8.8 million write-down on the purchase, in a move that shocked both HP investors and Wall Street. Whitman and other officials have said HP was misled on Autonomy's real value by suspect accounting.
HP said the write-down was "linked to serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy." Autonomy founder Mike Lynch denies any irregularities and has set up a website disputing HP's claims.
During the Q&A part of the annual meeting, a representative of the Service Employees International Union (SEIU) raised a question about whether a committee had been appointed to investigate the purchase. Company officials acknowledged it had, consisting of Ralph Whitworth, an activist investor who joined the board in 2011; Gary Reiner, former CIO of GE; and former Wachovia CEO Kennedy Thompson, who was also a member of the committee that oversaw the Autonomy purchase.
[ Want to know what Meg Whitman had to say about HP's future during the first-quarter earnings report? See HP CEO Dismisses Break-Up Talk. ]
SEIU has substantial pension funds invested in HP, its representative said during the meeting, and any investigation of the purchase should be kept clear of board members who advised or participated in it. "Mr. Thompson's participation (on the committee) is a great conflict and will not benefit the company in the long run," said the speaker.
The comment was noted, but the committee membership remained unchanged. "The independence of this committee is established ultimately by a court of law," Whitman advised the spokesman.
Institutional Shareholder Services had opposed the re-election of board chairman Ray Lane, as well as McKesson CEO John Hammergren and Thompson. Glass Lewis & Co. recommended re-electing Lane, but encouraged investors to oust several directors, including Hammergren, Thompson, Rajiv Gupta and Internet pioneer Marc Andreessen.
After the votes had been counted, all 11 board members received "the requisite 50% of the votes" to win re-election, it was reported at the end of the meeting. The report masked the fact that the votes for two board members, Hammergren and Thompson, had been unusually close, according to the Associated Press. Some institutional investors and stockholder rights groups felt the pair should take some of the responsibility for HP's missteps over the past year and had campaigned against them. They were re-elected with 54% and 55% of the vote, compared to the 81% each received last year.
The two are the longest-serving members of the board and were members of committees with oversight of the Autonomy acquisition and an earlier deal to acquire EDS. They were also the most experienced parties present when the board botched its handling of a dispute with former CEO Mark Hurd and ended up accepting his resignation. Public confidence in the company plummeted as the board hastily replaced him with Leo Apotheker, who took the company on an 11-month downhill ride before being dismissed. Half of the company's market value disappeared in the process.
Lane was opposed by Institutional Investors Services and Glass Lewis & Co., a shareholder advisory firm. He received 59% of the vote, a wider margin than Hammergren and Thompson, but still tight compared to the historic norm of 75-80% of the vote for a sitting director. By HP rules, if a director receives less than 50% of the vote, he or she must resign.
Most of the board's proposals received wide majorities in the voting. But when a questioner asked if any soul-searching was going on within the board, activist investor and board member Whitworth responded: "I think you can expect to see some evolution of the board in the coming years, months maybe." It was a surprisingly contrite note, as other board members and CEO Meg Whitman maintained more of a stiff upper lip.
Asked whether she thinks she could do her job better with a revamped board, Whitman responded: "I feel the board lineup we have right now is helping us turn around the company." A shareholder speaker then warned her that some board members might not be re-elected, and "the board should comment on that" if it happens.
Whitman extended her endorsement to existing HP employees, saying, "HP people are remarkable people ... You see confidence in their step. They're saying, 'We're coming back, and we're coming back strong.'"
Asked how she would restore the spirit of Hewlett and Packard, Whitman responded: "It's really a hard thing to kill founders' DNA in this company, and that's a good thing for HP."