Today's Good Governance Award Goes To...by
...the board of Hewlett-Packard. That's not a sentence I would have forseen myself writing, given some of the nonsense that's gone on in Palo Alto in recent years. But yesterday, HP announced that board members from now on would need to win a majority of shareholder votes to be re-elected to the board. If they don't, they're required to submit their resignation.
OK, we're not talking about a perfect democracy here; the board retains the right to refuse that resignation, and thereby keep Mr. or Mrs. Unpopular on board. But either way, this is a bold step towards making directors more accountable. If more companies followed suit (indeed, HP followed the lead of companies such as Pfizer), it could help corporations finally get out of the doghouse of public opinion they built for themselves thanks to the scandals of the late 1990s.
Sure, most executives say that corporate America is unfairly besmirched by a few bad apples--and that's true. But there's still far too many governance practices that corrode investor confidence, like companies routinely ignoring non-binding shareholder votes they don't care for. One recent example: the landslide vote by Sun Microsystems' onwers to have their company drop its poison pill anti-takeover provision.
And for HP to be doing this is particularly heartening. After all, this was the same board that okayed a Compaq merger back in 2001 that investors clearly despised. Rather than take their cues from the stocks' swoon, they instead spent millions in a Washington-style political campaign that beat down a challenge by boardmember-cum-dissident Walter Hewlett by a whisker. The board sat pat as handlers did their best to discredit Hewlett, for example. HP didn't break any laws, but it sure put itself on the radar of corporate governance experts.
Also, HP is on the right track in terms of the make-up of its board, which has long been considered underpowered. For starters, the company decided to split the jobs of CEO and chairperson after Carly Fiorina's ouster earlier this year. Now, former Barclays Global Investor chief Patricia Dunn is chairperson, while newcomer Mark Hurd is CEO. That's good governance. Also, former Covad Communications CEO Bob Knowling quietly left the board after Fiorina's departure. Many insiders at HP felt he was more loyal to her, than to HP--something he told me days after he was hired. Instead, HP brought in highly-respected McKesson CEO John Hammergren, and it is now searching to bring in another high-level executive, from overseas.