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Why H-P is a Poster Child for Dysfunctional Governance and Silicon Valley Incestuousness

Ray Lane will step down as chairman of Hewlett-Packard after a rocky two-and-a-half-year tenure. The surprise move is in addition to the surprise resignations of two other board directors, John Hammergren, CEO of McKesson, and G. Kennedy Thompson, former CEO of Wachovia, who nearly lost their seats at the March annual meeting.

The chairmanship of Ray Lane , a former president of Oracle, has been marked by several scandals, a tumultuous change in leadership and a mostly plummeting stock price for the legendary technology company. His departure isn’t all that surprising. In a vote held during its annual meeting 41% of shareholders voted against his reelection as chairman.

“After reflecting on the stockholder vote last month, I’ve decided to step down as executive chairman to reduce any distraction from HP’s ongoing turnaround,” said Lane in a statement. “I’m proud of the board we’ve built and the progress we’ve made to date in restoring the company.”

Lane said he will remain on the company’s board. Directors John Hammergren and Kennedy Thompson, who received 45% and 46% of the votes against their reelection, will step down in May.

“Ray lane should get off the board completely,” observes Tom Sapporito, CEO of RHR International, an organizational leadership advisory firm. Now that Ralph Whitworth of Relational Investors is acting as non-executive chairman Lane’s continued presence can only be disruptive. And besides what other companies have both a lead director, and a non-executive chairman on its board; it makes no sense.” According to James W. Gauss, chairman of board services for Witt/Kieffer, strategy and governance must be tied tightly together. When out of sync, both executive leadership and the board are often severely impacted. Gauss advises, “In the case of H-P, with a strong personality in the CEO role, this problem is likely further exacerbated, meaning strategy, executive leadership and the board may not have had an aligned view of the future. This often causes turnover.”

Lane was brought in as chairman of HP after CEO Mark Hurd was unceremoniously ousted in a sex and expense report scandal. Brought in alongside then-new CEO Leo Apotheker, Lane shook up the company’s board, ousting the directors involved in Hurd’s hiring. One of the new directors was eBay CEO Meg Whitman, whom Lane hand-picked. A year later, Lane gave the thumbs-up to Apotheker’s plan to buy British software company Autonomy, kill off the just-released TouchPad tablet and possibly spin off HP’s PC division.

“The reason an activist investor like Whitworth is now the new chairman is that investors are crying out for transparency,” adds Sapporito. “Whitworth needs to stay there and ensure that the board demonstrates capability and independence. When Silicon Valley insiders start playing musical chairs, no wonder shareholders get upset. ”

The turnover follows the botched acquisition of U.K. software firm Autonomy Corp, that H-P bought for $11 billion in 2011 and which H-P then wrote down by $8.8 billion less than a year later. $5 billion of this was due to alleged accounting fraud. At the time H-P shares tumbled to their lowest point in a decade. Although the company’s stock has since recovered, the shares are only half as valuable as when Lane took over as chairman in November 2010.

After Lane took over as HP’s chairman, HP picked several fights with Oracle, the software giant, which Lane once served as president. The HP-Oracle feud is even juicier considering that Hurd is now the president of Oracle.

Read: http://articles.marketwatch.com/2013-04-04/industries/38271722_1_h-p-new-chairman-wall-street-journal

Read: http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/electronics/9972945/HP-chairman-Ray-Lane-steps-down-amid-investor-revolt.html

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