TheCorporateCounsel.net

I love a good thriller, perhaps that’s why I was drawn to all the lurid details in yesterday’s WSJ article (and today’s NY Times article) about the revelation that Hewlett-Packard hired a private investigator to monitor a long-time director’s communications for leaks. And now, California’s Attorney General has requested information concerning the processes employed in the investigations into the leaks.

I’m not aware of anything quite like this situation happening before, but there surely have been other examples of contentious infighting on boards – so that it wouldn’t shock me if it has happened before, particularly the private investigator stuff. Rather than repeat the details laid out so well in the WSJ article, let me suggest which actors might play some of the key players for the movie based on this situation (given that I don’t have any personal knowledge of these people, they may very well be miscast):

– George Keyworth (Ben Vereen), a long-time director and former science adviser to President Reagan and purported source of many of the leaks about board deliberations; he has not been re-nominated to serve on the H-P board

– Tom Perkins (Warren Beatty), a storied figure in Silicon Valley, having helped start one of the first venture-capital firms there, Kleiner Perkins Caufield & Byers and who worked for H-P in the 1960s, and joined the company’s board in 2002 and who rejoined the board in February 2005; he resigned from the board on May 18th when it appeared that the board might try to remove his friend Mr. Keyworth from the board (he was once married to romance novelist Danielle Steel and recently wrote a racy novel of his own titled “Sex and the Single Zillionaire”)

– Patricia Dunn (Meryl Streep), non-executive chair of H-P’s board and vice chairman of Barclays Global Investors; she stepped up surveillance of Mr. Keyworth after Ms. Fiorina was fired and she grew up in Las Vegas, where her father (James Caan) was entertainment director at various casinos and her mother (Sharon Stone) had been a showgirl

– Carly Fiorina (Glenn Close), former Chair and CEO of H-P, who was fired in February 2005, partially due to her focus on board leaks; she has a “tell all” book coming out soon

– Robert Ryan (Robert Duvall, this guy – not the real one), Chair of H-P’s audit committee and former chief financial officer of Medtronic; he oversaw the surveillance after Ms. Dunn and Ms. Baskins concluded the leak was a violation of the company’s Standards of Business Conduct, which are overseen by that committee (in doing so they bypassed the Nominating and Governance Committee, then headed by Mr. Perkins, which normally handled matters concerning board operations)

– Private investigator (James Garner – Jimmy!), who was hired by the outside contractor (Harvey Keitel) who was hired by H-P to investigate the board leaks and who appears to have engaged in a controversial practice known as “pretexting” (ie. investigators call the phone company, and use personal information to falsely represent themselves as another person, in order to obtain that person’s records)

With this melodrama spilling into the papers, I guess we shouldn’t be surprised that this is a board that paid over $21 million to a fired CEO…

The Duty to Disclose: Director Resignations over Disagreements

Should what happens in a boardroom stay in the boardroom? Well, we know that answer is “no” if a director resigns due to a disagreement with management, as disclosure is required under Item 5.02(a) of Form 8-K. Item 5.02 requires that a Form 8-K be filed if “if a director has resigned or refuses to stand for re-election to the board of directors since the date of the last annual meeting of shareholders because of a disagreement with the company, known to an executive officer of the company, on any matter relating to the company’s operations, policies or practices, or if a director has been removed for cause from the board of directors.” The Form 8-K is required to include “a brief description of the circumstances representing the disagreement that management believes caused, in whole or in part, the director’s resignation, refusal to stand for re-election or removal.”

After Mr. Perkins resigned from the H-P board, a Form 8-K was filed on May 22nd that simply noted that Mr. Perkins had resigned and left it at that. Yesterday, Hewlett-Packard filed this Form 8-K describing the situation as it stands now. We have added it to our list of Form 8-Ks filed over disagreements in our “Director Resignations” Practice Area.

In the Form 8-K, the company discloses that it has “received a comment letter from the staff of the Securities and Exchange Commission’s Division of Corporation Finance with respect to its May 22 Form 8-K regarding Mr. Perkins’ resignation. HP intends to respond to the SEC staff that it believes its disclosures in the May 22 Form 8-K with respect to Mr. Perkins’ resignation were accurate and complete at the time of filing and were based upon Mr. Perkins’ actions and representations prior to such time concerning the reasons for his resignation.”

I imagine Corp Fin is questioning the brevity and matter-of-factness of the May 22nd Form 8-K in light of Item 5.02. The WSJ article provides some background regarding why the company decided to go the route of minimalist disclosure in the May 22nd Form 8-K (ie. board concluded Mr. Perkins had no disagreement with the “company,” only with the non-executive chair). It will be interesting to see if this moves on to the SEC’s Enforcement Division…

Briefs Supporting the Existence of the PCAOB

Last Friday, SEC Chairman Christopher Cox announced that the SEC (as supported by seven former SEC Chairs, going back to 1973 and appointed by Presidents of both political parties) filed a brief on behalf of the United States setting forth the government’s arguments in support of the PCAOB’s constitutionality in the US District Court for the District of Columbia in Free Enterprise Fund v. The Public Company Accounting Oversight Board. In addition, another brief supporting the PCAOB was filed jointly by the Council of Institutional Investors, TIAA-CREF, CalPERS, AFL-CIO and more. We have posted these briefs – along with other courts filings – in our “Sarbanes-Oxley” Practice Area.