What the HP board should do nextApril 5, 2013: 10:31 AM ET
Ray Lane has stepped down as HP's chairman, but he needs to leave the board entirely. And interim chairman Ralph Whitworth needs to rework the board's composition.
FORTUNE -- Ray Lane's reign at Hewlett Packard ended Thursday, and employees should be pleased. While the former HP chair and, more recently executive chair, will remain a director, he will no longer run the HP board. Ralph Whitworth, a shareholder activist and HP board member, will take his spot on an interim basis, HP announced. The company is eliminating the lead director position that board member Rajiv Gupta had held.
Two other directors, John Hammergren and Ken Thompson, who Lane did not handpick, will be stepping down from the board. With their departure, Marc Andreessen and Rajiv Gupta are the only two independent directors that preceded Lane and have survived the mass exodus of directors that has taken place on Lane's watch.
The immediate impetus for yet another upheaval on the beleaguered tech company's board was high shareholder votes against Lane (41% voted against him) and the two other board directors at the company's March 20 annual shareholder meeting. (46% and 45% of shareholders voted against Hammergren and Thompson, respectively.)
The interim time -- with Whitworth at the helm of the board -- may bode well for turning around HP's board governance. But the $64,000 question is who is fit to become chair longer term? Whitworth has pledged that the board will recruit a chair presumably outside the ranks of existing members. This is a good thing given the role of the board in so many fiascos, most recently the Autonomy debacle.
Because of Lane's hands-on approach to picking board members and the CEO -- and his recent role as executive chair, his own independence as a board member is questionable. "This was my job. I have to take full responsibility for leading this," Lane said of the board changes he'd made in an interview in February 2011 with the San Jose Mercury News. Less than a week after one of the newly nominated directors, now CEO Meg Whitman, was confirmed as a board member at the annual meeting, HP, with no forewarning to investors, announced that she would be joining Lane's firm, Kleiner Perkins. It has been all too cozy.
While the current board member shuffle may indeed help to revive oversight at the firm (and that is not certain), the company has certainly taken a twisted path to get here. In part, this is because shareholders and their proxy advisory services so badly read the situation early on. Both investors and their advisors were slow to recognize Lane's role. In 2011, proxy advisor ISS recommended voting against the old-time members of the board's nominating committee when Lane took over their role (contrary to board guidelines) while it supported Lane's nomination in full. And even this year, the Wall Street Journal reported that Lane was able to sweet-talk some shareholders into not going after him while the investors urged votes against Hammergren and Thompson.
Where to from here? It is time now for Whitworth to show he is a real activist and the prickly devil's advocate he says every board should have. To restore trust, we need to see a candid and complete report on the Autonomy debacle that outlines the culpability of HP's board and management in the matter. No whitewash.
We also need to see a pay overhaul. Rewarding a CEO who has announced 30,000 layoffs with $15 million does not represent responsible board oversight. And with the aid of the nominations committee, Whitworth needs to rework the composition of the board. Lane must go. New board members who understand their independent roles must be hired. One of them must be capable of being the constructive chair HP (HPQ) needs. Existing board members must shape up or ship out.
Will this happen? I'm not sure. The problem is that most people observing board members would view them as doing a passable job if they held large company middle-management positions, showing up and asking intelligent questions from time to time. But in board work, head bobbing (a la Automony) can be disastrous.
Whitworth has written of Whitman and the board of HP in glowing terms. Let's hope this is to help the medicine go down -- and that despite the rhetoric, he will remain objective and guide the board toward wise decisions. Certainly, the employees of HP deserve no less than that.
Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance, a board advisory firm.