- Summary: In a major shake-up at Palo Alto based Hewlett-Packard (HPQ) resulting from the scandal surrounding illegal investigation techniques authorized by the company into its own directors and nine journalists, Chairman Patricia Dunn announced she will step down in mid-January. Current CEO Mark Hurd will replace Dunn, adding the "Chairman" title to his current "CEO." Dunn will stay on as a board member, the result of a tense compromise worked out among some of H-P's disaffected board members, brokered by Mr. Hurd and H-P's outside attorney, Lawrence Sonsini, also implicated in the scandal. Additionally, H-P said George Keyworth, identified in Ms. Dunn's probe as the source of the leaks, resigned from the board. In another development, California Attorney General Bill Lockyer says he now has "sufficient evidence to bring criminal charges against individuals inside Hewlett-Packard as well as outside the company." The entire scandal has raised questions of what the best form of corporate governance is for a 21st century economy. While Ms. Dunn has become the scapegoat for H-P's problems - perhaps rightly so as it was she who authorized the investigation - she only called for that investigation after consulting with the members of her board. Not only did she not oversee the investigation herself - that was done by the company under the control of CEO Hurd and General Counsel Ann Baskins - but no one - not Ms. Dunn, Mr. Hurd, Ms. Baskins or any other director - seems to have raised serious questions about how investigators managed to obtain private phone records. They all shared a blind spot on that point. The downside of the decision to combine the CEO and non-executive Chairman positions is that it's a step backwards for the cause of corporate reform. Fewer and fewer companies have separate individuals running the company and the board, and though most CEOs are in favor of such concentrated power, the notion that one person can be both CEO of a large corporation and chairman of the board to which that executive reports strains credulity and logic.
- Comment on related stocks/ETFs: Criticism continues of the way H-P has handled the current scandal. The decision to "split the baby in half" and leave Patricia Dunn on the board of directors has raised the ire of Paul Kedrosky and Carl Howe. Neal Shanske gives stockholders fair warning, detailing all they need to know about the current scandal.
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