Hurd, Dunn consolidate power at H-P [p. 18]

By JOHN SHINAL
Don't let the Hewlett-Packard Co. statement filled with compliments and other kind remarks fool you. What we've just seen at the technology giant is bare-knuckled warfare among its directors that will usher in a new era in the boardroom at H-P. While the fallout from the controversial probe into directors' phone records may continue, especially if state or federal prosecutors decide outgoing chairwoman Patricia Dunn or other board members broke the law in authorizing it, the smoke has begun to clear enough to identify the winners and losers. Whether H-P shareholders are among the victors in the long run will depend on whether chief executive Mark Hurd can do for them in the boardroom what he's done in the corner office. Hurd, who will replace Dunn as board chairman in January, is the biggest winner by far. He takes control of a board with a history of fierce factional disputes, but one whose nine remaining directors this week chose unity over loyalty or sentiment. In allowing Dunn to retain her board seat even after it was revealed that the probe may have used illegal methods to obtain the phone records, the directors clearly closed ranks. Among their reasons for doing so may have been self interest, according to one corporate-governance expert. "It's not a surprise that they didn't leave her twisting in the wind, since they authorized her to go ahead with the investigation," said Patrick McGurn, counsel to Institutional Shareholder Services, an investor-advisory firm. More than that, they expressed strong disapproval for the actions of long-time H-P board member George Keyworth II, whom the H-P investigation revealed had made unauthorized comments to the media. McGurn, who moderated a panel of corporate directors at an investment forum in Washington on Tuesday, said the board members at that conference "expressed a lot of anger at someone who was [apparently] talking out of school." Still, the naming of CEO Hurd as chairman is troubling for shareholder-rights advocates, "who believe in having an independent chair," McGurn said. In the latest twist to the story, Keyworth said Tuesday he would resign from the board, joining long-time Silicon Valley venture capitalist and [now] ex-board member Tom Perkins as a casualty of the controversy. Regardless of the motives, the result is the same: Hurd gets the board that Carly Fiorina, his predecessor as CEO, always wanted, one that is more unified and less beholden to H-P's past. At the same time, it is Dunn, not Hurd, who is most associated with a probe whose tactics have tarnished H-P's reputation and could lead to criminal or civil charges. Hurd, who joined the board early in 2005, when he took the CEO post, will have the chance to help name at least two new board members who, like him, come without the baggage that comes with a long history on H-P's board. The most obvious loser is Keyworth, who stepped down four months after the board asked for his resignation, and on the same day the board made it clear it supported Dunn's actions. In what can only be described as a bizarre twist, he was forced out even though Hurd admitted, in the statement announcing the resignation, that H-P officials had often asked Keyworth to speak to the press and that Keyworth's discussion with the reporter that prompted his ouster "was undertaken in an attempt to further H-P's interests." In other words, the fact that Keyworth was often asked to speak to the press didn't help him when he said something that Dunn and the other board members didn't like. It also didn't help him that H-P co-founder David Packard was his "friend and mentor," as he said in the statement, which is perhaps the most emotion-laden press release ever to come out of a public company. In it, Perkins said, "I believe in HP. I believe in Mark Hurd. I applaud Jay Keyworth... and thank Patricia Dunn." Hurd, meanwhile, apologized to Perkins "for the intrusion into his privacy" and thanked him for his contributions to H-P. Still, Perkins, who said he resigned in protest over the probe, is gone. Hurd stopped short of apologizing to Keyworth in the statement, but thanked him, wished him well and said he hopes that Keyworth will continue to provide him with advice in the future. Since Keyworth will no longer be attending H-P board meetings, it's unclear where that counsel will occur. It's important to note that nowhere in the release did Keyworth apologize for speaking to reporters. On the contrary, he vigorously defended his actions, saying he believed they were "in the best interests of the company" and "did not involve the disclosure of confidential or damaging information." Still, after 21 years on the H-P board, Keyworth is gone. Keyworth will likely be remembered as the sacrificial lamb needed for Dunn's zealous mission to bring order to the board. The board's endorsement of Dunn, not to mention the $100,000 raise it authorized for her in January of this year, is evidence that it wanted that order as badly as she did. After the chaos and divisiveness that followed H-P's acquisition of Compaq Computer in 2002, and that surrounding the ouster of Fiorina in early 2005, that order may be exactly what the board needs. But it remains to be seen whether the way Dunn went about achieving it will be in the long-term interest of H-P and its shareholders. (MarketWatch) The writer is the technology editor of MarketWatch in San Francisco.