An activist investor group has called for HP's two longest-standing directors to be removed from a boardroom set-up "hobbled by years' worth of poor judgment".
The CtW Investment Group works with more than $200bn (£132bn) in pension funds sponsored by affiliates of the Change to Win conglomerate of unions. These funds are "substantial HP shareholders", according to an open letter to other shareholders from CtW Investment Group research director Richard Clayton.
In the missive he urges investors to vote against the re-election of board members Ken Thompson and John Hammergreen. The duo serve as chairman of the vendor's Audit Committee and Finance and Investment Committee respectively, and have been on the board for more than six years apiece. Clayton also calls on shareholders not to ratify the appointment of Ernst & Young as the vendor giant's independent auditor.
CtW is angered by the ongoing porosity of HP's quarterly finances, following a year in which a total of $17bn has been written down on two acquisitions. The group is also concerned about the unusually high non-audit fees being paid to Ernst & Young in what it sees as a "conflicted relationship".
"Despite membership changes, we believe the board is hobbled by years' worth of poor judgment, lack of accountability and weak oversight of critical functions," writes Clayton.
He goes on to slam Hammergreen for being "unduly deferential" to the CEOs he has worked with. HP is encouraged to rid itself of this "culture of deference" and establish "genuine director independence".
"Hammergreen... bears particular responsibility for HP's string of unsuccessful acquisitions as well as for the flawed process leading to the Autonomy merger," says Clayton. "During his tenure HP has pursued acquisitions including EDS, Palm and Autonomy that have resulted in approximately $19bn in write-downs, strongly suggesting that HP was overpaying for these companies."
The CtW man points out that, of the total fees paid to Ernst & Young by HP, non-audit fees account for 40 per cent. This is "twice the average for public companies", it is claimed.
"We are concerned that by allowing such high non-audit payments to Ernst & Young, the HP board may have compromised the effectiveness of the outside audit function," Clayton writes.
The blame for this is laid largely at the feet of Audit Committee leader Ken Thompson, with CtW pointing out that some of the tax advisory services provided by the auditor have "landed HP before the Senate Permanent Investigations Subcommittee" in the past year.
"[This] creates what we view as an especially clear conflict of interests, as Ernst & Young is in a position to approve of accounting judgments with respect to deferred tax liabilities that it itself recommended to HP," adds the letter. "We have grave concerns over HP's unusually extensive use of its outside auditor to provide non-audit consulting services, which in our view threatens both the appearance and actuality of auditor independence."
Clayton concludes by once again imploring shareholders to vote against the re-election of the boardroom pair and the ratification of the Ernst & Young in the name of "restoring accountability to Hewlett-Packard's board".
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