Strategic management

How HP can prevent another misfire

September 16, 2011: 9:00 AM ET

It's time for HP to examine its board's involvement (or lack thereof) in the development of the company's strategy.

By Eleanor Bloxham, contributor

FORTUNE -- HP has become the new go-to example in discussions among board members on how a company's board should -- and shouldn't -- behave.

Lately, the struggling tech giant has had to continue to publicly address what it prefers to call "some confusion" related to its recently announced plans to fundamentally change its business.

The company has suffered hits both to its reputation and its stock price due to its inability to clearly articulate its overall shift in strategy and its failure to demonstrate that its plan to buy software company Autonomy for approximately $10.3 billion makes business sense.

The confusion surrounding HP's future led to precipitous drops in the company's stock price last month, with shares plummeting on August 19, the day after it made its strategy announcement. As of yesterday, HP (HPQ) stock was down 40% over the last 12 months and 44% year-to-date.

While short-term stock price movements should normally not be a concern for boards, nearly halving the value of the stock in less than nine months warrants some attention -- and a look at the board's practices.

HP's market value has been cut in half during the tenure of new board members who were appointed at the beginning of the year. Those appointments came under fire earlier this year as it became clear that HP's newly appointed chair, Ray Lane, circumvented the board's independent nominations process by involving the CEO in identifying board candidates and deciding to oversee the process himself (although he had a long-standing relationship with the CEO and was not a member of the nominations committee). This process raised concerns about the appointments from ISS, a shareholder proxy advisor, and others. More

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