Board Members Failed to Safeguard Investors from Company’s Costly Missteps
City Comptroller John C. Liu today announced that the New York City Pension Funds will vote against two Hewlett-Packard (NYSE: HPQ) directors because of their failure to protect investors from costly, misguided acquisitions. The vote will take place at the company’s annual shareowner meeting on March 20, 2013.
The directors, John H. Hammergren and G. Kennedy Thompson, are members of the board’s Finance and Investment Committee, which bears primary responsibility for oversight failures that led to HP’s disastrous 2011 acquisition of Autonomy Plc. As the two longest-serving directors, they also bear responsibility for approving HP’s ill-advised acquisitions of EDS and Palm, and for the board’s hasty decision to hire Leo Apotheker, whose short-lived tenure as CEO ended shortly after the Autonomy acquisition that he engineered.
“The Autonomy debacle is the latest and most expensive in a series of ill-advised acquisitions and boardroom fiascos that have destroyed tens of billions of dollars in shareowner value,” Comptroller Liu said. “While the board now appears to be taking steps to improve oversight, it will be unable to restore investor confidence without swiftly replacing these two directors.”
HP, which paid $11 billion for Autonomy in 2011, wrote off $8.8 billion of its investment in 2012. HP has attributed $5 billion of the write-off to improper accounting at Autonomy that inflated its pre-acquisition revenues and earnings. HP took additional impairment charges of $9 billion in 2012 in connection with EDS and nearly $1 billion in 2011 that related to Palm.
In approving the Autonomy acquisition, the board and its Finance and Investment Committee ignored the opposition of the company’s own CFO, who believed it cost too much. The Committee also failed to challenge management’s decision to have those responsible for the acquisition’s due diligence report to the strategy group, rather than to the CFO, as is considered best practice. The board also reportedly assumed more revenue growth as a result of the combination than it normally assumes in acquisitions.