HP's 'Fraud' Charge Hardly First Boardroom Intrigue To Rattle Company

 @DavidZie
on November 20 2012 3:38 PM
Mike Lynch, founder of Autonomy
Mike Lynch, founder of Autonomy Marina Imperi

Hewlett-Packard's (NYSE: HPQ) surprising announcement that it had found “fraudulent misrepresentations” by former executives at Autonomy before it was acquired is hardly the first time a boardroom intrigue has surfaced at the No. 1 computer company.

 

Indeed, the Palo Alto, Calif., maker of all kinds of computer equipment has been plagued for years with dramas, which have led to CEO resignations, firings and proxy battles more out of “Dallas” than one of Silicon Valley's most respected technology companies.

 

On Tuesday, HP announced an “impairment charge” of $8.8 billion related to the $10 billion acquisition of Autonomy under prior CEO Leo Apotheker discovered only in May. After review by the general counsel, the fraud charges surrounding the apparent valuation of the company have been referred to the U.S. Securities and Exchange Commission as well as the UK Serious Fraud Office.

 

CEO Margaret Whitman, a former CEO of eBay (Nasdaq: EBAY) recruited last year after Apotheker was fired, said she'd had “little experience” with such irregularities earlier on Tuesday.

 

Apotheker, former president of Germany's SAP, had been HP CEO for only a year. He recommended the Autonomy deal but there's no evidence he was aware of any financial misrepresentations, the company said. Whitman said they came to light when Autonomy founder Mike Lynch quit in May.

 

Two years ago, a scandal surfaced at HP over payments to a female contractor who was close to then-CEO Mark Hurd. After an investigation into allegations of sexual harassment, he was dismissed over expense account irregularities. Hurd ended up as a co-president of Oracle Corp. (Nasdaq: ORCL), the No. I database software developer.

 

Earlier, in 2006, when Hurd was still an HP newcomer, there was another boardroom uproar that resulted in the resignations of several directors, including non-executive Chairman Patricia Dunn.

 

That time, then-director Tom Perkins, a partner of the venerable Kleiner Perkins Caufield & Byers venture capital firm, claimed his e-mail account had been hacked. Outsiders were able to learn about HP strategic planning, Dunn claimed, after CNET published some stories about them.

 

Investigation showed Hurd hired an outside law firm and detectives who used false pretenses to enter Perkins's e-mail accounts in an effort to finger him for leaking. After Dunn quit, she was indicted under California charges of identity theft and fraud, which were dismissed after five months.

 

But Hurd also stepped into the role of chairman as well as CEO, which he held until his own fall.

 

His predecessor, Carleton (Carly) Fiorina, HP's first CEO from outside the company, had her own problems even before she was fired in February 2005. She was ousted after an earnings shortfall but triggered opposition early in her tenure when she organized the $22.5 billion acquisition of Compaq Computer Corp. that was completed in 2002.

 

While the Compaq takeover added to HP's existing PC lines and made the enlarged HP the No. 1 PC maker worldwide until the third quarter of this year, the deal was opposed by board members including Walter Hewlett, a son of co-founder Bill Hewlett.

 

Fiorina labelled Hewlett “a musician and academic” who didn't understand her strategy, despite representing a family that together with the Packard family owned nearly 20 percent of the company's shares. She ensured Hewlett was denied renomination as director.

 

To be sure, Hewlett personally mounted a proxy battle against the Compaq deal and also sued the company, alleging “questionable tactics” in proxy solicitations.

 

The current HP board has no representation from either the Hewlett or Packard families.

 

Still, the intrigues, boardroom fights, lawsuits and firings have one thing in common: All involved a CEO brought in from outside the company.

 

Fiorina, a former No. 2 at what was then Lucent Technologies, now Alcatel Lucent (NYSE: ALU), succeeded insider Lew Platt, when he retired. His predecessors were John A. Young, David Packard and Bill Hewlett.

 

Shares of HP fell $1.58 to $11.72, down 12 percent, late Tuesday, after touching a five-year low of $11.34 in earlier trading.

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