When Hewlett-Packard announced earlier this month that two directors were resigning and that Raymond Lane was giving up his title of chairman, the company portrayed the moves as selfless and purely voluntary.
Would that it were so easy.
“Each one of our directors considered the results of our recent shareholder meeting and made the personal decision to do what they felt was best for H.P.,” the company’s new interim chairman, Ralph Whitworth, said. “Today’s announcement is a testament to our chairman’s and departing board members’ statesmanship and sterling professional standards.”
But to the dismay of some directors and shareholders, when it came to Mr. Lane, it took the combined efforts of the company’s chief executive, Meg Whitman, other board members and Dodge Cox, the mutual fund company that is H.P.’s largest shareholder, to get Mr. Lane to give up the chairman’s title, people with knowledge of the board’s deliberations said. Even then, Mr. Lane refused to leave the board entirely, and other directors were unwilling to force the issue.
H.P. is hardly alone when it comes to the delicate issue of resignations by board members. Even in the rare instances when shareholders vote against proposed directors, it can be difficult to persuade one to resign. And if they don’t, the only way a board can remove them is by not nominating them at the next election. “It’s a huge issue,” said Anne Simpson, director of corporate governance for the California Public Employees’ Retirement System, the giant California state pension fund. Calpers voted against Mr. Lane and several other H.P. directors.
After a tumultuous few years in which H.P.’s board hired and then fired a new chief executive, acquired the software maker Autonomy for $11.1 billion and then wrote off most of the investment, and watched its stock price plunge more than 50 percent, some major shareholders and proxy advisory services recommended shareholders withhold their votes for several directors. Although all the directors were re-elected, Mr. Lane and two other directors, John Hammergren and G. Kennedy Thompson, received less than 60 percent of the vote, which by the standards of shareholder democracy is considered a repudiation.
When the board met to consider how to respond, Mr. Hammergren and Mr. Thompson readily agreed to step down, according to several people knowledgeable about the deliberations. They said Mr. Hammergren had wanted to resign even before the election, but was persuaded to run because of the difficulty at the time of finding a new candidate given the much-publicized turmoil at the company.
But Mr. Lane was another matter. Dodge Cox voted its shares against Mr. Lane, which is considered especially significant because the San Francisco-based company almost never votes against management recommendations. According to disclosure forms covering the period from January 2009 through June 2012, Dodge Cox supported management’s recommendations on directors 100 percent of the time. Dodge Cox executives met with Mr. Lane to explain the firm’s reasoning.
Asked for comment, Charles Pohl, co-president and chief investment officer at Dodge Cox, responded, “Dodge Cox addresses corporate governance in many ways, from discussions with management to at times withholding votes for directors.”
Mr. Lane also met privately with Ms. Whitman.
Mr. Lane told me this week that he listened to what Dodge Cox had to say, but that the only message he heard was that the board wanted him to stay, and that any notion he had to be pressured is “fiction.” He continued: “I didn’t feel any pressure at all other than the pressure of the vote. If you get less than an 80 percent vote, it’s something you have to think about. I told the board I’d leave any time they wanted and they said, ‘No, please don’t leave.’ I stepped down as chairman because I thought it was the right thing to do.”
Article source: http://www.nytimes.com/2013/04/20/business/hewlett-packard-and-its-obstinate-director.html?partner=rss&emc=rss