When will the
board learn the most fundamental lesson of
corporate governance and public relations?
That lesson is simple:
Disclose all relevant facts, get ahead of the media, and don't turn a
one-day story into a media frenzy.
Mark Hurd: resigned
Clinton Wallace/Globe Photos/ZUMAPRESS.com
Jodie Fisher: "saddened"
In U.S. public companies, the directors are supposed to serve the
owners—the shareholders—and not management or themselves. Shareholders
deserve, and are entitled by law, to material information about the
company. Boards should err on the side of transparency. Concealing
facts only breeds suspicion, not to mention intense media coverage.
That someone might be embarrassed by full disclosure is irrelevant and
shouldn't factor in any disclosure decisions.
It was just four years ago that H-P, caught up in a boardroom
scandal over director's leaks and spying on reporters, claimed it had
learned that lesson the hard way. Then-chairman
Patricia Dunn resigned along with two other directors; criminal
charges were filed (though those against Ms. Dunn were subsequently
dismissed) and Congress launched an inquiry, all due, in part, to
H-P's clumsy and belated disclosure of the facts. Chief Executive
Mark Hurd, who escaped any blame in the affair (which began under
Carly Fiorina) pledged to restore ethical standards and do better.
And it seemed he did, driving up H-P's profits, revenue and share
Mr. Hurd was forced to resign last week, ostensibly for filing
false expense reports amounting to about $20,000. H-P deemed this sum
"not material," which is beside the point. Anything related to Mr.
Hurd's departure is plainly material, since on Monday the news shaved
$8.7 billion off H-P's market value.
So why did the board ask Mr. Hurd to resign? The reason, obviously,
is an actress, realty-TV contestant and corporate consultant to H-P
named Jodie Fisher who accused Mr. Hurd of sexual harassment. Ms.
Fisher has certainly emerged as the star of a reality TV soap opera
far more gripping than any part she was offered in Hollywood. You
don't hire celebrity lawyer Gloria Allred unless you're courting the
glare of publicity and fame, however short-lived. Surely Ms. Fisher's
declaration that she was "surprised and saddened" by Mr. Hurd's
resignation ranks as one of the most disingenuous remarks to have
emerged from the affair. So what was her intention? A made-for-TV
movie deal and a line of designer jeans?
H-P hired a law firm to do its own investigation and has exonerated
Mr. Hurd of sexual harassment, saying he didn't violate H-P's
guidelines, even while refusing to disclose Ms. Fisher's allegations
or H-P's findings. As a result, H-P shareholders have no way of
evaluating the validity of H-P's claim. Mr. Hurd did reach a
settlement with Ms. Fisher, the terms of which have also not been
disclosed. Both Mr. Hurd and Ms. Fisher have said no sex was involved.
So what was the basis for Ms. Fisher's claim? (A spokesman for Mr.
Hurd declined to comment. Ms. Allred said Ms. Fisher declined to
comment, as well.)
Apart from the expense-report issues, exactly what services was Ms.
Fisher performing for H-P? The company said she was an outside
marketing consultant, and its general counsel indicated she may not
have provided all the services she contracted for. But what were those
services, and what were Ms. Fisher's qualifications? Her resume
doesn't include an M.B.A., to put it mildly, although it appears she
did work in real estate and in sales for Xerox in addition to her
movie work and appearance on NBC's "Age of Love." Supposedly she was a
glorified hostess at H-P sales events, making sure big clients got
face time with Mr. Hurd. Who hired her and why, based on what
Mr. Hurd's alleged expense account abuse can't be evaluated without
knowing the context of Ms. Fisher's relationship to H-P and Mr. Hurd.
Like most CEOs, Mr. Hurd apparently didn't even prepare his own
expense reports. It could have been a simple mistake or
misunderstanding, for which he surely wouldn't have been discharged.
If he had a motive to conceal Ms. Fisher's role, that's another story.
But if so, what was the motive?
The Wall Street Journal reported that a big factor in the board's
deliberations over Mr. Hurd's fate was fear that the details of Ms.
Fisher's allegations would prove embarrassing. As I said before, that
should be irrelevant. And embarrassing to whom? Mr. Hurd, perhaps, but
who else? What is the board trying to conceal?
By withholding information, the H-P board is only prolonging the
agony and feeding the press a juicy mystery. I suspect the truth,
however tawdry, would be a one- or two-day story, assuming H-P is
correct that it doesn't amount to sexual harassment. However painful
for Mr. Hurd and his family, it would soon be forgotten. Delay is only
playing into Ms. Fisher's and Ms. Allred's hands, as a bidding war for
Ms. Fisher's story will no doubt ensue (even though Ms. Fisher signed
a confidentiality agreement). By remaining silent, H-P isn't doing Ms.
Hurd—or the shareholders—any favors.
When I contacted H-P, a spokesman declined to answer any of my
questions and said the company had nothing to add to what it said
Friday when it announced Mr. Hurd's resignation. He wouldn't say
whether, as part of Mr. Hurd's agreement to resign, H-P promised not
to disclose Ms. Fisher's letter or any details of what its own
investigation uncovered. In my view, that is not good enough.
H-P still has plenty of questions to answer, including its
justification for paying Mr. Hurd an exit package worth more than $35
million even while forcing him to resign. Until it does, it is hard to
have any confidence in the judgment of H-P's board—and as an investor,
I'd avoid the stock.
—James B. Stewart,
a columnist for SmartMoney magazine and SmartMoney.com, writes weekly
about his personal-investing strategy. Unlike Dow Jones reporters, he
may have positions in the stocks he writes about. For his past
columns, see: www.smartmoney.com/commonsense.