One week after Mark Hurd stepped down as Hewlett-Packard's chief executive amidst a sexual harassment inquiry, a group of shareholders have filed suit against the company's board, alleging, among other things, gross mismanagement and waste of corporate assets.
The HP board put shareholders' finances at risk by not telling them about the sexual harassment inquiry, and then later rewarded Hurd with an estimated $40 million severance package, the suit said.
The board also failed to adequately police insider trading by HP executives, allowing Hurd and chief financial officer Cathie Lesjak to sell off HP stock in the midst of the inquiry, according to the suit, which was filed in California Superior Court.
Hurd, Lesjak, and the board's directors are named in the suit, which was filed by the Brockton Contributory Retirement System, HP shareholders since 2006.
Hurd stepped down last week after five years as CEO. Officially, he resigned over improper expense reports, but those reports were related to a sexual harassment complaint filed by a former HP contractor. HP cleared Hurd of the sexual harassment charges, but found he was in violation of the company's code of conduct.
The contractor later revealed herself to be actress and reality TV contestant Jodie Fisher. She worked for HP from 2007 to 2009, accompanying Hurd on company meetings and retreats. According to Thursday's lawsuit, Hurd dined with Fisher on many occasions, but failed to disclose on his expense reports that she was his companion.
Fisher has denied any sexual relationship and said that she was surprised and saddened that Hurd lost his job.
The shareholders in Thursday's suit said Hurd and other top executives blatantly violated HP's code of conduct but were still rewarded financially, whereas loyal shareholders lost money thanks to the poor decisions of Hurd, Lesjak, and the board.
One of the main complaints is that the board did not inform shareholders about the suit, opening them up to financial loss. Once the news was made public last week, "the market punished HP and its shareholders," and the company lost over $9 billion in market capitalization, according to the lawsuit.
Hurd and Lesjak, meanwhile, sold off some of their HP stock in the last year. Lesjak, who is now serving as interim CEO, sold 5,785 shares of HP stock on July 30, just days before the news about Hurd went public.
Hurd sold over $11 million of HP stock in two transactions, one in November and one in May. The suit says this is related because at the time of those transactions, Hurd knew that Fisher's financial arrangements with HP had been terminated and he was aware that his relationship with her might be made public.
"Once the board affirmatively decided to [disclose the sexual harassment inquiry] – over Hurd's staunch objections – the board's relationship with Hurd became acrimonious and he resigned," the suit said.
The shareholders also took issue with Hurd's severance package, rumored to be worth about $40 million, including $12.2 million in cash.
After the 2006 spying scandal involving former chairwoman Patricia Dunn, HP instituted a stricter code of conduct. But, the suit said, Hurd was not held to this code.
"HP's rank and file employees had been fired for far lesser offenses," according to the suit. "Typically, employees terminated for offenses under the code of conduct were not given any severance."
"The HP board could have dramatically limited Hurd's exit package by firing him for cause," the suit said.
As a result, HP has wasted corporate assets and rewarded Hurd for "reckless and dishonest conduct," according to the shareholders.
The suit demands that those named in the suit repay HP for the money lost due to the scandal, and restrict the money Hurd made from his severance package and the money Hurd and Lesjak made from selling their HP stock, among other damages.
It also proposes several shareholder resolutions, including a requirements that the HP chairman not be an HP executive, and that the number of HP executives on the board be limited.