CtW Investment Group, part of the labor group Change to Win, is pushing for Hewlett-Packard Co. (HPQ) to remove its two longest-standing board members and urging the computer maker to drop Ernst & Young LLP as its auditor.
After a two-hour meeting with Hewlett-Packard Chairman Ray Lane and other directors yesterday in Washington, CtW is recommending that investors vote against the election of John Hammergren and G. Kennedy Thompson, who have been on the board since 2005 and 2006, respectively, Michael Pryce-Jones, a senior analyst at CtW, said in an interview.
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 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.
“They’ve had too much change at the top,” said Pryce- Jones, who attended the meeting at the office of the Council of Institutional Investors. “It’s tough to justify two folks like Hammergren and Thompson, who’ve been on the board for so long and have overseen so many missteps.”
Lane “came off as very credible and sincere” and CtW won’t seek his ouster, Pryce-Jones said.
Howard Clabo, a spokesman for Palo Alto, California-based Hewlett-Packard, said yesterday’s meeting was “productive” and that the company appreciates “the opportunity to answer questions for our investors.”
“We feel we have the right board in place to turn HP around,” Clabo said in a statement.
CtW is advising shareholders to vote against the appointment of Ernst & Young, citing the auditor’s failure to unearth accounting irregularities at Autonomy Corp. that later resulted in Hewlett-Packard writing down most of the acquisition, Pryce-Jones said.
“We also think there’s a problem with the auditors,” he said.
Amy Call Well, a spokeswoman for Ernst & Young, declined to comment.
Hewlett-Packard’s board has established a special committee to review claims made against the company in shareholder lawsuits related to the Autonomy acquisition, Clabo said. The committee plans “to make a recommendation to the full board as to its response to these claims,” he said.
Lane and directors Ralph Whitworth, Patricia Russo and Rajiv Gupta met with William Patterson, executive director of CtW Investment Group. Some investors, including the California State Teachers’ Retirement System, Colorado Public Employees’ Retirement Association and New York City’s comptroller, took part in the meeting.
CtW Investment Group will recommend “no” votes on electing Hammergren and Thompson, and on ratifying Ernst & Young at Hewlett-Packard’s March 20 shareholder meeting. The group, which advises labor unions’ benefit funds that hold about 5 million Hewlett-Packard shares, is pushing for the changes after a steep decline in the company’s stock price and an $8.8 billion writedown related to Autonomy.
Whitman has said it will take five years to turn around Hewlett-Packard, which she took over after the ouster of Leo Apotheker as CEO in 2011. While Apotheker had pushed for the deal to buy Autonomy as part of a now-abandoned shift in strategy toward a greater focus on software, he had left by the time the acquisition was completed.
“They were replaying the message you’ve seen elsewhere in the news -- that this was Apotheker’s fault and they moved to get rid of Apotheker,” said Pryce-Jones. “He was a new CEO -- the board needed to be on top of things.”
The company said on Nov. 20 it was writing down most of the value of the Autonomy purchase after discovering “serious accounting improprieties” at the unit. In December, Apotheker said the board, led by Lane, shares responsibility for the deal.
Whitman’s efforts showed some progress last week, when the company gave a forecast for fiscal second-quarter profit that exceeded analysts’ estimates and reported higher-than-projected first-quarter sales and profit.
Shares of Hewlett-Packard were unchanged at $19.07 at 9:47 a.m. in New York. Through yesterday, the stock had risen 14 percent since Feb. 20, the day before the earnings report, compared with a 1.6 percent decline for the Standard & Poor’s 500 Index over the same period.
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