HP CEO Apotheker, Board Faulted Over Director Appointments

by Carol Hymowitz and Douglas Mac Millan for Business Week, March 10th, 2011.

(Updates with comments from Lane in sixth paragraph.)

March 10 (Bloomberg) — Hewlett-Packard Co. directors, including Chief Executive Officer Leo Apotheker, went against company rules in their appointment of new board members, according to a shareholder-advisory group.

Apotheker played a direct role in picking new board members, a move that contravenes the board’s own rules governing director selection, according to Institutional Shareholder Services Inc., an adviser to investors on corporate governance matters.

“The direct participation of Apotheker in the appointment of five new directors raises red flags,” ISS said in a report prepared for clients and obtained by Bloomberg News. “The board is responsible for representing shareholders and overseeing management, in particular the CEO.”

Hewlett-Packard reshaped its board with executives who have ties to Apotheker, whose tenure as CEO began Nov. 1. One director sits on a board in Europe with Apotheker, and at least three others have been customers of German software maker SAP AG, where Apotheker was CEO and worked for two decades. The ties could inhibit directors from acting objectively, ISS said.

ISS recommended that shareholders vote against three sitting directors who are up for re-election at the annual meeting, scheduled for March 23, because they shouldn’t have permitted Apotheker to play a role in the nomination, ISS said. (continue reading… )

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