Hewlett-Packard Co. (HPQ:US) faces mounting pressure to remove Chairman Ray Lane and several other board members after proxy advisers Institutional Shareholder Services Inc. and Glass Lewis & Co. urged investors to block their re- election over failures to properly vet acquisitions.
Shareholders should vote against Lane, John Hammergren, and G. Kennedy Thompson, ISS said in a report released in advance of the company’s annual meeting, set for March 20. Glass Lewis urged the removal of Hammergren, Thompson, Marc Andreessen and Rajiv Gupta, the lead independent director.
Both proxy advisers faulted Lane’s board for an $8.8 billion writedown in November related to the purchase of Autonomy Corp. after Hewlett-Packard discovered “serious accounting improprieties.” The revelation followed an August announcement that the Palo Alto, California-based company would take a charge of $9.2 billion, largely tied to its purchase of Electronic Data Systems Corp.
“The company recorded $18 billion in write-downs during fiscal 2012, amounting to approximately 54 percent of the company’s market value,” ISS said. “These unusually high write-downs, in particular the Autonomy write-down, stem from ill-advised acquisitions, strategic failures, and poor deployment of shareholders’ capital.”
Lane and his colleagues on the board should have exercised stronger oversight before the $10.3 billion Autonomy purchase, ISS and Glass Lewis said. Rebukes by the proxy advisers follow a push last month by CtW Investment Group, part of the labor organization Change to Win, for Hewlett-Packard to remove Lane, Hammergren and Thompson from the board and to drop Ernst & Young LLP as its auditor, though the group later rescinded its call for Lane to step down.
Glass Lewis said “the mishaps of the past several years,” including executive changes and failed acquisitions, “have continued to weigh on the company’s progress.”
Meg Whitman, Hewlett-Packard’s fourth chief executive officer in three years, is attempting to revive growth and win back investor confidence after six quarters of declining sales (HPQ:US) and profit and management missteps. The last board shakeup was in 2011, when four directors were ousted to quell criticism over the way it handled the departure of former CEO Mark Hurd.
“HP’s challenges with multiple CEO turnovers over the last three years, the back-and-forth in the decision to spin-off or sell its PC business, and announcement of the goodwill impairment charges related to the EDS and Autonomy transactions likely exacerbated the decline in the company’s stock price,” ISS said.
Glass Lewis also urged shareholders to remove Ernst & Young as Hewlett-Packard’s independent auditor, while ISS supported retention of the accounting firm.
Lane, 66, joined as nonexecutive chairman in 2010 with the appointment of former CEO Leo Apotheker, and became executive chairman the following year when Whitman was hired as CEO following the ouster of her predecessor. ISS and Glass Lewis both urged shareholders to vote against executive compensation that they said didn’t hold top leaders accountable for poorly executed acquisitions.
Hammergren, chairman of the board’s finance committee, has been a director since 2005 and is also chief executive officer at McKesson Corp. (MCK:US) Thompson, a director since 2006, heads the audit committee. Andreessen, co-founder of venture-capital firm Andreessen Horowitz, joined the board in 2009. Gupta, on the board since 2009, became lead independent director in 2011.
“The board fully supports the election of each of the director nominees named in the proxy statement,” Howard Clabo, a spokesman for Hewlett-Packard, said in a statement.
Hewlett-Packard shares (HPQ:US) have declined 19 percent in the past year, compared with a 13 percent gain for the Standard & Poor’s 500 Index. The stock rose 2 percent to $20.37 at yesterday’s close in New York.
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