HP fight comes amid changes in boards

The HP investigation scandal comes amid recent changes in corporate boards.

Hewlett-Packard's board of directors has leapt out of the mainstream with the recently disclosed scandal that's set members against each other, but changes over the past several years have made conflict on boards more likely.

Boards have evolved from clubby groups of company executives and tight partners to more independent bodies, management experts said Friday. HP's messy fight, in which investigators hired by the board used possibly illegal techniques to uncover apparent leaks of confidential information by some directors, is a spectacle unto itself, they said. But directors are now more likely to call companies to account.

"Boards have changed very dramatically in the last 20 years, and especially in the last 4 years," said Nell Minow, editor at The Corporate Library, a research company in Portland, Maine, that specializes in corporate governance. "There isn't a board in America that isn't much more active, much more vital, much more independent."

Many boards used to be heavily laden with investment bankers and lawyers who worked for the company, and often had four or five company executives, said Harvard Business School professor Joseph Bower. That hasn't been true since at least the 1980s, as the percentage of independent members grew, he said.

"I think boards are much more diligent ... than they were 15 to 20 years ago," said David Larcker, a professor at Stanford University's Graduate School of Business. "In the process, there are controversies that didn't crop up back then."

The probe of HP's board, though embarrassing, was probably necessary, The Corporate Library's Minow said.

"They have not been a functional board," Minow said, criticizing the handling of former Chairman, President and Chief Executive Officer Carly Fiorina's hiring and dismissal. Some of the leaks from the HP board involved discussions about Fiorina.

It's hard for boards to work if there are leaks and directors don't trust each other, Minow said. Yet to find out who was leaking information, they unfortunately had to give the investigators a lot of independence. "I think they made the best of a very bad situation."

The trend toward truly independent boards has accelerated with recent scandals and stepped-up regulation, Minow said. A key factor was out-of-court settlements of suits against Enron and WorldCom in recent years, in which directors who weren't involved in wrongdoing accepted some liability.

"Those settlements shivered the timbers of every director in America," Minow said. Also in the past few years, companies that sell "director and officer" liability insurance have raised premiums on companies they thought didn't have enough oversight to prevent Enron-style legal meltdowns.

In addition, the Sarbanes-Oxley regulations made boards more diligent by forcing companies to ensure proper oversight of accounting, cybersecurity and other issues, she said.

However read, a drama like HP's is not unprecedented, according to Harvard's Bower. About 20 years ago, there was a succession battle at American Express that included leaks to the media, he said. He sees the latest board fight as another aberrant event rather than an outcome of boards becoming more independent.

"Every once in a while, there are battles and people disagree strongly. And when people disagree strongly, sometimes they do silly things," Bower said.

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