HP on Three Fronts

First, through several meetings, I heard HP was a likely target for a proxy access proposal. Then in November they appointed Ralph Whitworth to the board. See statement from CalSTRS. So, maybe that issue is off the table for now.

Looking at the SEC’s no-action letters, I see this from November 18th allowing HP to ignore a proposal from the Carpenters on audit rotation.

Proposals concerning the selection of independent auditors or, more generally, management of the independent auditor’s engagement, are generally excludable under rule 14a-8(i)(7). Accordingly, we wil not recommend enforcement action to the Commission ifHP omits the proposal from its proxy materials in reliance on rule 14a-8(i)(7).

Ever since the implosion of Enron and the complicity of Arthur Andersen that has seemed to me to be absurd reasoning. This seems an especially topical subject worthy of being put to shareowners since PCAOB issued a concept release on auditor rotation and independence. Generally, the SEC has allowed that issues of broad social policy and economic impact or that concern widespread public debate should not be excluded. With the current debate around the PCAOB concept release, how does this fail that test? See also, Views of Former SEC Chairs on Auditor Rotation Relevant as PCAOB and European Commission Consider the Concept, Jim Hamilton’s World of Securities Regulation, 10/19/2011.

Wouldn’t a little experience through private ordering, rather than enacting a universal standard, provide some experience based information that could be helpful in rulemaking? HP could have taken a leadership position on this one. Instead of opposing the proposal, they could have instituted a system first proposed by Mark Latham whereby auditors are chosen by shareowners from a qualified pool. Instead, they weaseled out of the whole question of auditor accountability.

Another possible proposal at HP was also taken off the table. In a December 1 letter we learn that New York City Employees’ Retirement System, the New York City Teachers’ Retirement System, the New York City Fire Department Pension Fund, the New York City Police Pension Fund and the New York City Board of Education Retirement System filed a proposal to encourage suppliers to file annual sustainability reports. HP says they’ve substantially implemented the proposal, so it was withdrawn.

Eleanor Bloxham, CEO of The Value Alliance and Corporate Governance Alliance, thinks there’s a hint of hope at HP. Let’s hope she’s right. Shareowners need to carefully monitor progress… as well as back-peddling.

Update: Two hours after posting the above, I understand the Carpenters are appealing the no-action letter, arguing the issue of audit firm independence and audit firm rotation have become topics of widespread public debate and are now significant policy issues and no longer ‘ordinary business.’ Good for them. Ed Durkin again shows leadership. If HP is smart, they won’t fight the proposal any further.

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