HP Shareholders Sue Hurd, Board Over Resignation
A Hewlett-Packard Co. investor sued former Chief Executive Officer Mark Hurd and the board of directors, claiming disclosures surrounding his resignation led to a drop in the shares.
“HP lost significant credibility and the market punished HP (and its shareholders)” following the Aug. 6 announcement of Hurd’s departure, according to the complaint filed Aug. 10 in state court in Santa Clara County, California, by a Massachusetts-based pension fund.
Hurd resigned as Chairman and CEO after an investigation found that he had a personal relationship with a contractor who received inappropriate payments from HP, the world’s biggest maker of personal computers and printers. HP shares slumped following Hurd’s departure, erasing $9 billion in market value, according to the lawsuit.
HP fell 63 cents, or 1.6 percent, to $40.14 today in New York Stock Exchange composite trading, bringing their decline since Hurd’s ouster to 13 percent.
Chief Financial Officer Cathie Lesjak, who succeeded Hurd as interim CEO, is also a defendant in the so-called derivative suit filed by the Brockton Contributory Retirement System on behalf of Palo Alto, California-based HP.
Gina Tyler, a spokeswoman for HP, declined to comment on the lawsuit or on insider-trading allegations lodged by the fund against Hurd and Lesjak.
HP ascribed Hurd’s resignation to results of a corporate investigation of a sexual harassment complaint lodged against him. He had led the company for five years.
HP initiated the investigation on June 29 after the contractor accused Hurd of sexual harassment. The woman, whom HP declined to identify, worked on marketing tasks for two years, the company said.
“The board took immediate action in this matter and their decision was right and necessary to uphold HP’s values of trust, respect and uncompromising integrity,” HP General Counsel Michael Holston said on the day of the resignation.
Hurd will get a severance payment of $12.2 million, plus other benefits that include a prorated vesting settlement of 330,177 restricted HP shares. He received $30.3 million in compensation in 2009 and $42.4 million the year before.
Hurd addressed the issue in an Aug. 6 Hewlett-Packard statement announcing his ouster.
“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,” he said. “After a number of discussions with members of the board, I will move aside and the board will search for new leadership.”
The internal probe found violations of HP’s standards of business conduct, though it didn’t find violations of the harassment policy.
In the pension plan complaint, Hurd and Lesjak are each accused of engaging in insider trading while at HP. Hurd netted more than $11 million as he sold off blocks of shares in November and May, according to the complaint.
Lesjak sold 5,785 HP shares last month for $46 a share, the pension fund said. Lesjak’s sale was reported to the U.S. Securities and Exchange Commission in an Aug. 3 filing stating that the transaction was made under a trading plan she adopted in August 2009.
Similar forms were filed by Hurd on May 21, documenting his sale of 140,000 shares as part of a plan adopted in February, and on Nov. 30, attributing share sales to a plan adopted in May 2009.
Mary Blasy, a lawyer for the pension fund with San Diego’s Scott+Scott LLP, declined to comment on the case or upon the insider-trading allegations.
The pension fund seeks punitive damages for breach of fiduciary duty, mismanagement and waste of corporate assets, including the severance payment to Hurd. Any cash recovered through the suit would go to HP.
The plan also wants a court order barring HP from allowing the same person to serve as chairman and CEO, as Hurd did, and permission for shareholders to question the company’s “executive directors” at its annual shareholder meeting.
The case is Brockton Contributory Retirement System v. Andreessen, 110cv179356, Superior Court of California, County of Santa Clara.