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Hewlett-Packard’s Board: Inept, spineless or both?


hp-mark-hurdJodi Fisher

I thought this article by Joe Nocera from Saturday’s New York Times on the Mark Hurd/Hewlett Packard fiasco was really interesting.    As you will recall, Hurd was the CEO of HP before he was fired for fudging his expense reports in order to hide his relationship with Jodie Fisher, a former soft-core porn actress turned reality-show contestant turned corporate greeter.   (Nocera has more background on this here.)  The day after cashing the $12.2 million severance package from HP, he joined his buddy Larry Ellison at Oracle, an HP competitor.  Naturally, HP was forced to sue to try to prevent Hurd from accepting the post.  After identifying several of the HP board members (including a former CFO of Medtronic), Nocera suggests:  “You’d think that these guys would know how to negotiate an airtight exit deal with a departing CEO.  Apparently not.”

Why, you might ask, didn’t HP make Hurd sign a noncompetition agreement before paying him all that money to punish him for his unethical conduct?  Unfortunately for HP, California prohibits the use of noncompetition agreements.   That means HP’s only basis for keeping Hurd from joining its competitor is the “inevitable disclosure” doctrine:  HP must show that Hurd will inevitably  disclose its trade secrets in his new role at Oracle.  That’s probably true, but a risky legal strategy.  (Of course, it allows Nocera this gem:  “The central contention in the HP lawsuit – that Mr. Hurd will inevitably use his inside knowledge of HP’s hardware business to help his new employer – strikes me as quite plausible.  How can he not?  He’s spent the last five years eating, drinking and sleeping HP  (Well, except when he was eating and drinking with Ms. Fisher.)”)

Nocera’s article questions why the HP board didn’t do a better job of preventing this from happening.  “Most boards in California know how to keep [a departing CEO from joining a competitor], despite their inability to lock up an executive with a noncompete agreement.  Maybe those boards don’t hand the departing executive $12.2 million 30 days after the executive leaves.  Maybe they don’t allow options to vest immediately. There are other ways as well to create a situation where an executive loses something of value if he goes to a competitor before a certain amount of time has passed.”

Nocera is, of course, correct.  The HP board clearly dropped the ball.  First, it should never have rewarded Hurd with such a generous severance package.  Second, it should never have permitted him to go to a competitor.  Even in California, the only state (besides North Dakota) that does not permit the use of noncompetition agreements, a creative board of directors could have found a way to prevent its top guy from taking his knowledge across the street to one of its competitors.  I wonder how many shareholder suits have already been filed against HP?

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