The New York Times Saturday quotes Patrick McGurn, special counsel for Institutional Shareholder Services (ISS), who states that “shareholder efforts to remove directors in uncontested elections rarely succeed or come close, even in egregious circumstances.” In 2012, there were elections for 17,081 director nominees at U.S. corporations. According to ISS, just 61 of those nominees — or 0.36 percent — failed to win majority support. Furthermore, over 86 percent of directors received 90 percent or more of the votes. “Of the 61 directors who failed to get majority approval,” the Times adds, “only six actually stepped down or were asked to resign. Fifty-one are still in place, as of the most recent proxy filings. McGurn concludes, “People are calling them zombie directors.”
The HP board has this kind of legacy:
After ousting Mark Hurd as chief executive in 2010 amid messy accusations of sexual harassment, the board hired Léo Apotheker to replace him, even though Mr. Apotheker had been fired as chief of the European software giant SAP after just seven rocky months. Most of the board didn’t bother to meet Mr. Apotheker, let alone ask him any probing questions about his tenure at SAP, before rubber-stamping the choice of the board’s four-member search committee.
In 2011, H.P.’s directors unanimously approved the acquisition of the British software maker Autonomy for $11.1 billion, a deal that was considered wildly overpriced even at the time. Less than a year later, H.P. wrote off $8.8 billion of that and then claimed it had been defrauded. (Autonomy officials have denied the allegations, which are being investigated by authorities in both the United States and Britain.) Some consider Autonomy to be the worst corporate acquisition in business history. In the 2012 fiscal year, H.P. wrote off a total of $18 billion related to failed acquisitions and other missteps.
With Mr. Apotheker at the helm and the board backing his strategic initiatives, H.P. announced that it was considering abandoning its giant personal computer business, then changed its mind. After Mr. Apotheker had been on the job a disastrous 11 months, the board demanded his resignation, and then paid him more than $13 million in termination benefits.
Yet all 11 H.P. directors were re-elected on March 20. Some by the hair of their chiny-chin-chin but still reelected. The entire piece can be found here, or in long form: http://www.nytimes.com/2013/03/30/business/why-bad-directors-arent-thrown-out.html
Governance is not easy. No one is saying it is. But what we’re seeing is the combination of hubris, and a lack of accountability.
(By the way, for those of you that didn’t see it the first time, a post I did on how innovation isn’t tied to Size but operating rules, as demonstrated by HP and IBM. Original piece here: http://blogs.hbr.org/cs/2012/10/innovation_isnt_tied_to_size_b.html)