HP Board Said to Turn Against Hurd After Surprise Settlement

Hewlett-Packard Co.’s Mark Hurd surprised the board by settling a sexual-harassment claim before directors could learn more about the incident, a final breach of trust that contributed to his ouster as chief executive officer, two people familiar with the decision said.

Hurd, who stepped down on Aug. 6, was scheduled to join a mediation session the previous day to deal with the harassment claim, the people said. Instead, Hurd settled the complaint and the meeting never happened, they said. The board’s trust in Hurd also was undermined after a probe found he tried to conceal a relationship with his accuser, a former actress named Jodie Fisher who worked for HP as an event organizer, said the people, who asked not to be named because the information is private.

The handling of Hurd’s departure has drawn a shareholder lawsuit and a rebuke from Oracle Corp. CEO Larry Ellison, who compared the move to the firing of Apple Inc.’s Steve Jobs in the 1980s. The suit, filed Aug. 10 by a Massachusetts pension fund, says that mishandling the matter contributed to the plunge in HP’s stock last week, erasing $9 billion in value.

A person familiar with Hurd’s thinking said HP knew he was trying to settle with Fisher, and had encouraged him to do so. Also, the mediation session wouldn’t have presented new evidence or allegations, the person said. HP’s lawyers thanked Hurd for settling the complaint, according to the person.

Under Hurd, HP retook leadership in the personal-computer market from Dell Inc. and used acquisitions to expand into such areas as computer services, smartphones and networking gear.

‘Worst Personnel Decision’

HP also surpassed International Business Machines Corp. as the largest maker of technology products by revenue and its share price more than doubled since Hurd became CEO in April 2005.

“The HP board just made the worst personnel decision since the idiots on the Apple board fired Steve Jobs many years ago,” Ellison said in a letter to the New York Times last week.

On the day Hurd left, HP said he had violated its standards of business conduct by concealing a relationship with a contract employee and falsifying expense reports. The company disclosed the sexual-harassment complaint, saying it didn’t find that Hurd broke its harassment policy. Cathie Lesjak is acting as interim CEO while HP seeks a permanent replacement for Hurd.

HP rose 10 cents to $40.55 at 4 p.m. in New York Stock Exchange trading. The stock declined $5.85 to $40.45 last week following Hurd’s resignation and has tumbled 21 percent this year.

Unanimous Vote

HP’s board voted unanimously to ask for Hurd’s resignation, the third boardroom dispute in five years to erupt into public view. In 2005, HP directors pushed out CEO Carly Fiorina after a merger with Compaq Computer Corp. contributed to a stock slide. A year later, a corporate espionage scandal led to the resignation of directors Tom Perkins and George Keyworth and the replacement of Chairwoman Patricia Dunn.

The company investigated Hurd after receiving a letter from Fisher’s lawyer on June 29. Hurd turned the letter over to HP General Counsel Michael Holston within roughly a half-hour, according to a person familiar with the situation.

While the company determined that he didn’t harass Fisher, it found that she received numerous inappropriate payments from HP during her two years as a marketing contractor.

Before the investigation, the entire board had been pleased with Hurd’s performance and unanimous in wishing to keep him, two of the people familiar with the matter said. The planned Aug. 5 mediation would have let HP lawyers see evidence behind the sexual-harassment claim and allowed them to question Fisher, they said. Covington & Burling LLP, the law firm that handled HP’s investigation, hadn’t talked to her, the people said.

Dinners, Hotel Stays

The investigation found that Fisher would fly first-class to company events, stay in luxury hotels and had dinner with Hurd 15 to 20 times, the people said. Typically the dinners would cost around $400, they said. On those occasions, Hurd said he had dinner with his security guard, but the guard denied it, according to the people.

The person familiar with Hurd said he never knowingly falsified expense reports or instructed his staff to do so. No evidence of trying to conceal the relationship was shown to Hurd, the person said. The cost of the dinners was more like $48 to $156, according to the person.

As Fisher was being hired, Hurd interviewed her twice in 2007, in Los Angeles and Denver, two people familiar with the matter said. Amid the investigation, the board found it unusual for Hurd to have been involved in hiring an employee at that level, a person familiar with the matter said.

Fisher’s lawyer, Gloria Allred, and Hani Durzy, a spokesman for Palo Alto, California-based Hewlett-Packard, declined to comment.

HP’s Standards

On the day he resigned, Hurd said he stepped down after a number of discussions with directors. Members who joined the board since Hurd took the helm are Marc Andreessen, the Web browser pioneer and venture capitalist; Sari Baldauf, who worked at Nokia Oyj; Raj Gupta, former CEO of Rohm & Haas Co.; John Hammergren, CEO at McKesson Corp.; Joel Hyatt, co-founder of Current Media Inc. and a Stanford lecturer; John Joyce, former managing director at Silver Lake Partners; and Ken Thompson, who used to run Wachovia Corp.

Directors who predate Hurd’s tenure are Lawrence Babbio, a former Verizon Communications Inc. executive; Robert Ryan, former finance chief at Medtronic Inc.; and Lucille Salhany, an executive with experience in broadcast television.

‘Did Not Live Up’

“As the investigation progressed, I realized there were instances in which I did not live up to the standards and principles of trust, respect and integrity that I have espoused at HP and which have guided me throughout my career,” Hurd, 53, said in a statement.

Hurd, who is married with two daughters, never met Fisher in Northern California -- always in other cities -- the people said. Fisher was paid between $1,000 and $5,000 for each event she hosted, plus expenses, they said. She would spend 90 minutes standing around a cocktail party, directing the flow of people around Hurd, and then would go out to dinner, according to the people.

Investigators also found evidence on Hurd’s work computer that he had viewed Fisher’s adult-themed movies, the people said. Fisher has appeared in such films as “Intimate Obsession,” “Body of Influence 2” and “Sheer Passion,” according to her Internet Movie Database page, which lists her age as 50.

Google Search

The person familiar with Hurd’s thinking said the CEO did a brief Google search on Fisher that turned up a movie clip. The whole search lasted 10 minutes, the person said. Hurd wouldn’t have done the search from his office if he wanted to conceal it, according to the person. Also, Hurd never met with Fisher in Northern California because all of her events were held elsewhere, the person said. She spent hours preparing for each event, according to the person.

Fisher said through Allred that she and Hurd never had an affair or a sexual relationship and that she was “surprised and saddened” that he lost his job over the matter. Hurd also has promised to pay back the expenses, according to a person familiar with the matter.

The lawsuit filed by the Brockton Contributory Retirement System seeks punitive damages for breach of fiduciary duty, mismanagement and waste of corporate assets, including the severance payment to Hurd.

Hurd is due to receive a severance payment of $12.2 million, plus other benefits that include restricted HP shares. All told, Hurd may receive $40 million to $50 million, according to an estimate by Frank Glassner, CEO of Veritas Executive Compensation Consultants LLC in San Francisco.

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

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