HP CEO quits over false expense reports that hid office affair

By Steve Johnson and Chris O’Brien/San Jose Mercury News

SAN JOSE, Calif. — Hewlett-Packard CEO and President Mark Hurd resigned Friday after an internal investigation into a claim of sexual harassment against him and HP by a former contractor determined he had filed false expense reports, the company announced.

“The investigation determined there was no violation of HP’s sexual harassment policy, but did find violations of HP’s standards of business conduct,” the company said in a statement.

In a conference call, Michael Holston, HP’s general counsel, said Hurd submitted “numerous” false expense reports to hide his relationship with the female contractor, who had worked for HP on a marketing project from fall 2007 to fall 2009.

Holston was vague about the relationship and the expense reports, and declined to identify the woman at her request. Although she was paid for work she did on behalf of HP, Holston said, her lawyer sent HP a letter on June 29 with details about Hurd that triggered the company’s investigation of the CEO.

Hurd acknowledged in the statement the company issued that he had acted improperly.

“As the investigation progressed, I realized there were instances in which I did not live up to the standards and principles of trust, respect and integrity that I have espoused at HP and which have guided me throughout my career,” Hurd said. “After a number of discussions with members of the board, I will move aside, and the board will search for new leadership.”

Hurd added that “this is a painful decision for me to make after five years at HP, but I believe it would be difficult for me to continue as an effective leader at HP, and I believe this is the only decision the board and I could make at this time. I want to stress that this in no way reflects on the operating performance or financial integrity of HP.”

In a filing with the U.S. Securities and Exchange Commission, HP said Hurd would be given a severance payment totaling about $12.2 million and will have until Sept. 7 to exercise an option to buy up to 775,000 HP shares. He also can continue to receive HP’s group medical and dental coverage for up to 18 months.

HP’s board has appointed Chief Financial Officer Cathie Lesjak, 51, as CEO to replace Hurd on an interim basis. A search committee consisting of board members Marc Andreessen, Lawrence Babbio Jr., John Hammergren and Joel Hyatt has been created to find a permanent CEO.

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“The board deliberated extensively on this matter,” Robert Ryan, the board’s lead independent director, said in the statement. “It recognizes the considerable value that Mark has contributed to HP over the past five years in establishing us as a leader in the industry. He has worked tirelessly to improve the value of HP, and we greatly appreciate his efforts. He is leaving this company in the hands of a very talented team of executives.”

Ryan added that Hurd’s departure “was not related in any way to the company’s operational performance or financial condition, both of which remain strong. The board recognizes that this change in leadership is unexpected news for everyone associated with HP, but we have strong leaders driving our businesses, and strong teams of employees driving performance.”

Lesjak also expressed confidence in the company’s ability to weather the stunning development and vowed to keep the company on a stable course.

“I accept the position of interim CEO with the clear goal to move the company forward in executing HP’s strategy for profitable growth,” she said. “We have strong market momentum.”

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Lesjak has taken herself out of consideration to be appointed permanently as CEO, but will serve in that position until the search committee selects Hurd’s replacement, the statement said.

Martin Reynolds, managing vice president and lead HP analyst for the research firm Gartner, said Hurd’s resignation gives the Palo Alto, Calif., technology giant an important opportunity to recast itself.

“HP has been through an amazing transformation with Mark Hurd,” Reynolds said. “He brought an operational discipline that turned it into the machine that it is today. It grows and operates effectively and at really low cost.”

But compared to Apple, Reynolds added, HP “is not a company that you really think of as an innovator in the market” or one that projects much pizzazz. “I’m really sorry; there is just nothing cool about printers,” he noted.

Consequently, Reynolds added, “this is a chance for HP to bring someone in to maybe start bringing a little flair to the company and its products.”

HP’s stock price fell $4.50, or nearly 10 percent, to close at $41.85. It dropped another 6 cents in after-hours trading.