HP: great corporate governance ideas on display

Hey, this era of super-independent boards is really great isn't it? As described in today's WSJ, rather than this clubby atmosphere of trust, we have the independent board chair – a development devoutly pushed by all of the great corporate governance experts – ordering spying on a board member, then outing the spied-on board member at an open director's meeting, bypassing the board committee charged with the matter. The committee chair, Tom Perkins, then loudly resigned from the board, leaving the board in chaos and without one of its most experienced and knowledgeable members.

Anybody got any new great corporate governance ideas we can try out? 

Comments

[Stan Walsh]

You're clearly implying that this came about because the Chairman was an outsider. Since you're clearly not stupid, I assume you're just being disingeouous. I don't remember anyone ever claiming that outside board members are inherently immune from misbehavior.

Did I miss something?

[Larry E. Ribstein]

Yes you are missing something. The whole point of breaking up the chair and executive positions was to reduce the "clubbiness" of the board that contributed to agency costs. The argument against this move is that the clubbiness was conducive to trust and efficient board operation. Obviously neither approach is perfect. The reformers' mistake is in thinking that one approach, the independent chair, is some sort of panacea.

Frankly I'm sort of mystified that you found an assumption of disingenuousness more logical than these points, which were in both my post and the linked WSJ article.

[Robert Schwartz]

The next proposed solution will be that the SEC appoint directors, with due regard for race, sex and national origin.

[William Goodwin]

Well, let's see. HP's stock is up something like 33% in the past year, and I believe more than 50% in the past two years. Its profit growth has been exceptionally good in that period, and it may soon be the biggest computer company in the world, surpassing IBM. All while it's had, in your words, "a super-independent board."

So on the negative side of the ledger we have some intramural squabbling that left Tom Perkins miffed, and some questionable behavior by the chair. On the positive side, we have exceptional bottom-line performance and tremendous growth in shareholder value. You really think that record is going to convince people that independent boards are a bad idea?

[former student]

I agree with William that shareholder’s were not necessarily adversely affected, but one can easily point to the period between late 1998 through the middle of 2000 and reference the extraordinary shareholder value built before the era of “super-independent boards.”

The independence of the board is irrelevant to the HP saga. Fiorina was more upset about the leaks than anyone and allegedly “sought to make the leaks the No. 1 issue.” Being the No. 1 issue, Fiorina, the chair and chief executive, would have undoubtedly ordered some type of investigation.

So you’re left with the question of whether or not the firm or persons employed by Firorina would have done their job as good as the persons employed by Dunn. This has absolutely nothing to do with the independence of the board or any sort of change in corporate governance.

[Nicholas Branch]

This is a bit off subject I suppose, but while reading these articles I couldn’t shake questions about the exposure to liability this little expose subjects its various (demeaned) participants. The ultimate test, in a civil or criminal trial, is whether any of this undisclosed series of events -- some of which was disclosed surreptitiously -- been information a reasonable investor would considered important. What plaintiff’s lawyer or prosecutor couldn’t make hay out of that in this or indeed any context?

The ultimately question I have is how can a board ever justify the non-disclosure of anything without leaving them absolutely exposed to the prospect of expensive and maybe even liberty-threatening legal actions. Given that there seems to be less and less resistance by the two classes of lawyers mentioned to rolling the dice before a jury with such facts, especially given the slanted and seemingly further tilting view of the public towards corporations and capitalism, what is the future of the public corporation?

[Robert Schwartz]

Nicholas: the traditional and statutory answer is that a dissenter who votes no and records his dissent is not liable. The route of taking things to the press is that of the unelected government inside the beltway, as it continues to attempt to subdue the elected government.

[panasianbiz]

I'm sorry if I sound a bit naive here, but I just cringe when I read stories like this about spying on board members. Didn't we used to mistrust our competitors in the marketplace, not our colleagues in the boardroom?