A grumpy old man has done his best to warn us
By Al Lewis
Denver Post Business Editor
Sunday, April 28, 2002 - Patsy, crony, good old boy - these words sometimes come to mind when one thinks of the directors of publicly traded companies.
Too often, board members rubber-stamp management, whether it's an obscene compensation package, a ridiculous merger, or a set of books that might as well be titled "Gone With the Wind."
Too often, board members are henpecked by the CEO they are supposed to watch over. Or they represent only one large shareholder at expense of smaller shareholders. Or they are sitting on so many boards that they don't know what's happening on any of them.
They go along with the others, collect meaty directors' fees and sometimes cut inside deals to enrich themselves further.
They are part of the reason why the Internet and Telecom bubbles got so big before they popped. They are part of the reason why corporate executives earn millions running companies into the dirt. They are part of the reason why financial disasters loom all around us.
Every so often, though, there comes a hero, a true champion of the common shareholder, to challenge this system. And then this person is swiftly marginalized.
Shareholder-rights advocates are chided as gadflies, attorneys filing class-action lawsuits are regarded as extortionists, and anyone who complains at an annual meeting is dismissed as a grumpy old man.
The tag line on Walter Hewlett these days is "dissident shareholder," but he's fast on his way to grumpy-old-man status for attempting to debunk one of the largest tech mergers in history, the $19 billion marriage of Hewlett Packard Corp. and Compaq.
Despite some interesting arguments, Hewlett appears to have lost his lawsuit to quash the deal in Delaware Chancery Court, although a judge is still deliberating after final arguments on Thursday.
For his four-month crusade against the deal, Hewlett won't be renominated to the board of the company his father co-founded. For the first time in H-P's 63-year history, there will be no Hewletts and no Packards on its board.
H-P will go forward with a risky merger as early as May 7 - one bloated, underperforming computer company swallowing another, generating massive fees for bankers, lawyers, accountants and corporate executives, if nothing else.
H-P chief Carly Fiorina and Compaq chief Michael Capellas will earn as much as $115 million in additional cash and options over the next two years. I suppose we should admire them for scoring this deal against bleak economic conditions and a tide of naysayers.
Hewlett presented evidence suggesting that Fiorina and other H-P managers knowingly overstated projections and used stiff-arm coercion tactics to win votes from large institutional shareholders.
Fiorina reportedly had some embarrassing moments on the witness stand, but she masterfully defended herself, saying that what Hewlett called projections are just snapshots in a moving process. Also, H-P's chief financial officer Robert Wayman was convincing in his testimony that money managers were simply asked to support the deal on its merits.
It looks like there's not enough evidence for a judge to kill the deal.
So Carly wins. Walter gets the boot. And it will be fun to watch the integration process from here.
The bloody process has given Wall Street a lot to be skeptical about, and the world of computer makers is already littered with once-well-known corpses. Recall that Compaq, itself, is the product of a lackluster acquisition of Digital Equipment Corp.
Call him a grumpy old man if you like, but at least Hewlett can enjoy the satisfaction that he did everything he could to warn us.
He lost an important battle against shrewd combatants, but in a world devoid of stand-up guys, his actions are remarkable.
Denver Post business editor Al Lewis' column appears Sundays. He can be reached at 303-820-1306 or alewis@denverpost.com
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