(The news featured
below is a selection from the news covered in Federal Securities Law Reporter,
which is distributed to subscribers of Federal
Securities Law Reporter.)
SEC Charges Hewlett-Packard Concerning Director Resignations
The SEC filed settled administrative charges against
Hewlett-Packard Co. for failing to disclose the reasons for a director's abrupt
resignation in the midst of HP's controversial investigation into boardroom
leaks. The Commission found that several months before the public revelation of
the company's leak investigation, an HP director objected to the company's
handling of the matter and resigned from the board, yet HP failed to disclose
the reasons for his resignation as required by federal securities laws.
As alleged, in early 2006 HP initiated an investigation
into leaks of confidential information about HP board meetings to the press. By
April 2006, HP investigators had concluded one of HP's directors was
responsible, and the company's chairman and several senior executives decided to
present the findings to the board. During a board meeting on May 18, 2006, the
board voted to ask the director to resign. According to the Commission, fellow
board member Thomas Perkins voiced strong objections to the manner in which the
leak investigation findings were presented to the board and to the decision to
ask the director to resign. For these reasons, Mr. Perkins resigned from the
board and left the meeting.
Federal securities laws require a public company to
disclose the circumstances of the disagreement if a director resigns because of
a disagreement with the company on any matter relating to its operations,
policies or practices. Notwithstanding this requirement, HP did not make the
mandated disclosures, instead reporting only the fact that Mr. Perkins had
stepped down. The Commission found Mr. Perkins' disagreement related to HP's
corporate governance and HP's policies regarding the handling of sensitive
information, and therefore was a disagreement related to HP's operations,
policies or practices which was required to be disclosed.
Linda Chatman Thomsen, director of the Commission's
Division of Enforcement, said that this action highlights the importance of the
required disclosures regarding corporate governance issues. She added that the
federal securities laws exist to ensure transparency, and investors have a right
to know when a dispute among board members over operations, policies or
practices causes a director to resign, as such a dispute may have far-reaching
ramifications for the company.
The SEC charged HP with violating the public reporting
requirements of the Exchange Act. Without admitting or denying the Commission's
findings, HP consented to an order that it cease and desist from committing or
causing violations of these provisions.
|