HP called out for director selection improprieties

A shareholder advisory group says Hewlett-Packard's board violated its own rules by allowing CEO Leo Apotheker to play a role in nominating new slate of directors.

Erica Ogg Former Staff writer, CNET News
Erica Ogg is a CNET News reporter who covers Apple, HP, Dell, and other PC makers, as well as the consumer electronics industry. She's also one of the hosts of CNET News' Daily Podcast. In her non-work life, she's a history geek, a loyal Dodgers fan, and a mac-and-cheese connoisseur.
Erica Ogg
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HP CEO Leo Apotheker Dan Farber/CBS Interactive

A week before Hewlett-Packard's annual meeting, a shareholder advisory firm is urging clients not to endorse the company's newly nominated board members.

International Shareholder Services sent a report to clients that accuses HP and its new CEO Leo Apotheker of not following the board's own guidelines for director appointments, in particular saying Apotheker should have had no role in the process. ISS says HP board members are to be nominated by independent directors only, which would rule out Apotheker.

Bloomberg got its hands on the report and published excerpts today. According to the report, ISS writes: "The direct participation of Apotheker in the appointment of five new directors raises red flags...The board is responsible for representing shareholders and overseeing management, in particular the CEO."

On January 20, HP announced four board memberswould retire and nominated five new members: Shumeet Banerji, CEO of Booz & Company; Gary Reiner, former CIO at GE; Patricia Russo, former CEO of Alcatel-Lucent; Dominique Senequier, CEO of AXA Private Equity; and Meg Whitman, former president and CEO of eBay and recent California gubernatorial candidate.

ISS points out some extra-familiarity Apotheker has with four of the nominated directors--he and Senequier are both board members of Schneider Electric; and he counted Whitman, Russo, and Reiner as customers while he was chief executive at SAP. ISS says that is not necessarily in shareholders' best interests since these directors, if elected, will essentially be Apotheker's bosses.

When asked for comment, HP defended its selection process and said the ISS report was based on a "misinterpretation."

"HP has strong and robust governance practices. We believe that ISS's recommendation is based on their misinterpretation of the process that HP employed in identifying, selecting, and nominating our directors," said an HP spokesperson in a statement. "We do not believe that it would be in the best interests of HP's stockholders to lose the service of the experienced and dedicated Board members who have been delegated primary responsibility for establishing and maintaining those governance practices and who, by any standard, have carried out their obligations in a fully compliant manner."

Shareholders will have an opportunity to vote next Wednesday, March 23 at HP's annual meeting.

This story was corrected on 3/10 to reflect that Apotheker did not sit on AXA Private Equity's board, but on AXA's board.