Embarrassing Claims Against HP & Ex-CEO

     SAN JOSE (CN) – Hewlett-Packard directors carelessly announced the departure of CEO Mark Hurd “without a formal succession plan in place,” causing HP share price to drop by 10 percent, “erasing $9 billion in market capitalization,” shareholders say in a derivative complaint. The named plaintiff, a pension plan, also objects to Hurd’s $40 million severance package.

     The plaintiff, Brockton Contributory Retirement System, claims that Hurd sold million of dollars of HP stock just before the disclosure of sexual harassment allegations against him, and before the company announced that he had padded expense reports to hide $20,000 in discrepancies.
     The shareholders claim that then-CFO Catherine Lesjak – now the interim CEO – sold $266,110 worth of her own HP shares a week before HP announced Hurd’s dismissal.
     The complaint in Santa Clara County Court names Hurd, Lesjak and other HP officers and directors as defendants.
     The derivative complaint states that shareholders lost faith in HP after a 2006 scandal in which its chairman and legal counsel were found to have spied upon “its own directors and members of the financial press.”
     HP was ordered to pay a $14.5 million penalty and to adopt a series of corporate governance changes, including revisions to its Standards of Business Conduct to restore its credibility with shareholders, the complaint states. But the shareholders say HP did not implement the changes, but allowed Hurd to treat the company “as his own private fiefdom.”
     According to the complaint: “Hurd threw exclusive marketing events for potential customers billed as CEO executive summit meetings, often lasting several days, purportedly designed to woo top customers. At HP’s expense, Hurd obtained the services of 50-year-old former reality television contestant, Jodie Fisher (‘Ms. Fisher’). Despite having no background in the high-tech industry, Ms. Fisher, who had previously appeared in racy movies with titles such as ‘Sheer Passion’ and ‘Intimate Obsession’ and recently a television dating show, was hired to help ‘organize’ HP marketing events between the fall of 2007 and the fall of 2009 and to ‘greet’ executive at those gatherings.”
     The complaint continues: “But in the mind of Hurd at least, it appears that Ms. Fisher’s primary responsibility was to entertain Hurd, including frequently dining with him after these events. HP has stated that Hurd approved paying Ms. Fisher anywhere from $1,000 to $10,000 per event.”
     The shareholders say that Hurd stopped HP’s payments to fisher in November 2009, and that in late June this year, “Ms. Fisher claimed Hurd – and thus HP – had sexually harassed her.”
While investigating the sexual harassment claim, shareholders say, HP discovered Hurd’s illegitimate expenses: “What the Board discovered was that Ms. Fisher’s first meeting with Hurd occurred in Los Angeles. For her second ‘interview,’ Ms. Fisher was flown to Denver, where Hurd was staying, and the two dined together. After Hurd hired Ms. Fisher, she attended more than a dozen events in a number of different locales, some overseas. After these events, she often spent the evening dining with Hurd. However, as the HP Board’s investigation revealed, the expenses submitted by Hurd in some instances concealed that Ms. Fisher was his guest. Instead, they stated that he dined alone, or in some cases with his bodyguard. On a couple of occasions Ms. Fisher was reportedly paid fees and travel expenses to attend an executive summit meeting where none was held, but at a location where
     Hurd was staying for other purposes.
     “Yet, rather than going public with their findings, before disclosing anything to
     Shareholders, the HP Board hired the public relations consulting firm APCO to evaluate the damage such a revelation could cause if made public. A debate subsequently erupted within the HP executive and director ranks over whether HP needed to disclose the charges against Hurd publicly. APCO told the HP Board that the Company would most likely endure a devastating public relations hit if Hurd stayed on as CEO and Ms. Fisher’s claims were publicized. For his part, Hurd insisted disclosure of the sexual harassment claims to HP’s shareholders was not necessary. Meanwhile, Hurd was reportedly in the midst of a multi-month negotiation of a new employment contract that would have paid Hurd $100 million over the following three-year period.”
     While HP publicly denounced Hurd’s actions on Aug. 6, the company already had negotiated a severance package for its fallen CEO, worth more than $40 million, instead of firing him “for cause” or allowing him to resign, the shareholders say.
     The plaintiffs add that in November 2009 – after stopping the payments to Fisher – and in May of this year, Hurd sold HP stock for a total of $11.4 million.
     On July 30, CFO Catherine Lesjak sold 5,785 of her shares of HP stock at $46 per share, for $266,110, according to the complaint.
     The complaint adds: “Following the disclosure of Hurd’s sudden departure – without a formal succession plan in place – HP’s shares fall nearly 10 percent in after-hours trading to $41.85 as investors reacted to the news released after the close of markets. HP continued its downward slide when trading recommenced on Monday, 8/9/10, reaching a 52-week low and erasing $9 billion in market capitalization. Analysts said the uncertainty makes the Company worth less in the near term.”
     The shareholder plaintiffs say the HP directors receive a “generous salary and incentive packages to insure their allegiance to HP,” and that “Hurd received over $146 million in executive compensation during his five-year tenure at the head of HP.”
     The shareholders say the directors’ interests are too entwined with HP to be independent enough to file claims against the company.
     “In order to bring this suit, all of the directors of HP would be forced to sue themselves and significantly expose themselves to personal liability in lawsuits by others, which they would not do.”
     Shareholders demand punitive damages for breach of fiduciary duties, gross management, waste of corporate assets and insider selling. They also want corporate reforms and an injunction to keep the board “from further entrenching themselves”.
     Plaintiffs are represented by Arthur Shingler with Scott+Scott of San Diego.

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