Surprise payoff worked against HP boss

Hewlett-Packard's Mark Hurd surprised the board by settling a sexual harassment claim before directors could learn more about the incident, a final breach of trust that contributed to his dumping as chief executive officer, two sources say.

Hurd, who stepped down on August 6, was scheduled to join a mediation session the previous day to deal with the harassment claim.

Instead, he settled the complaint and the meeting never happened.

The board also lost trust in Hurd after a probe found he had secret dinners with his accuser, a former actress named Jodie Fisher who worked for HP as an event organiser.

The handling of Hurd's departure has drawn a shareholder lawsuit and a rebuke from Oracle chief executive Larry Ellison, who compared the move to the firing of Apple's Steve Jobs in the 1980s.

The suit, filed last week by a Massachusetts pension fund, says that mishandling the matter contributed to the plunge in HP's stock last week, erasing US$9 billion ($12.7 billion) in value.

The fund is seeking punitive damages for breach of fiduciary duty, mismanagement and waste of corporate assets, including the severance payment to Hurd.

Under Hurd, HP retook leadership in the personal-computer market from Dell and used acquisitions to expand into such areas as computer services, smartphones and networking equipment.

The company's stock-market value increased by more than half since Hurd took the helm in April 2005.

"The HP board just made the worst personnel decision since the idiots on the Apple board fired Steve Jobs many years ago," Ellison said in a letter to the New York Times last week.

A source close to Hurd said HP knew he was trying to settle with Fisher, and had encouraged him to do so.

Also, the mediation session wouldn't have presented new evidence or allegations, the source said.

HP's lawyers thanked Hurd for settling the complaint.

On the day Hurd left, HP said he had violated its standards of business conduct by concealing a relationship with a contract employee and falsifying expense reports.

The company disclosed the sexual-harassment complaint, saying it didn't find that Hurd broke its harassment policy.

HP dropped US$5.85 to US$40.45 last week in New York Stock Exchange trading, following Hurd's resignation.

The stock has tumbled 21 per cent this year.

HP's board voted unanimously to ask for Hurd's resignation, the third boardroom dispute in five years to erupt into public view.

In 2005, HP directors pushed out chief executive Carly Fiorina after a merger with Compaq Computer contributed to a stock slide.

A year later, a corporate espionage scandal led to the resignation of directors Tom Perkins and George Keyworth and the replacement of chairwoman Patricia Dunn.

Before the investigation, the entire board had been pleased with Hurd's performance and unanimous in wishing to keep him, the sources familiar with the matter said.

The planned mediation on August 5 would have let HP lawyers see evidence behind the sexual-harassment claim and give them an opportunity to question Fisher.

Law firm Covington & Burling, which handled HP's investigation, hadn't talked to her. The investigation found that Fisher would fly first-class to company events, stay in luxury hotels and had dinner - typically costing around US$400 - with Hurd 15 to 20 times, the sources said.

On those occasions, Hurd said he had dinner with his security guard, but the guard denied it.

The source familiar with Hurd said he never knowingly falsified expense reports or instructed his staff to do so. No evidence of trying to conceal the relationship was shown to Hurd, the source said. The cost of the dinners was more like US$48 to US$156.

Fisher's lawyer, Gloria Allred, and Hani Durzy, a spokesman for Hewlett-Packard, based in Palo Alto, California, declined to comment.

On the day he resigned, Hurd said he stepped down after a number of discussions with directors.

"As the investigation progressed, I realised 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, 53, said.

Hurd, who is married with two daughters, never met the woman in Northern California - always in other cities - the sources said.

Fisher was paid between US$1000 and US$5000 for each event she hosted, plus expenses, they said. She would spend 90 minutes standing around a cocktail party, directing the flow of people around Hurd, and then would go out to dinner.

Investigators also found evidence on Hurd's work computer that he had viewed Fisher's adult-themed movies, the sources said.

Fisher has appeared in such films as Intimate Obsession, Body of Influence 2 and Sheer Passion, according to her internet Movie Database page, which lists her age as 50.

The source who knew Hurd said the chief executive did a brief Google search on Fisher that turned up a movie clip.

The whole search lasted 10 minutes, the source said.

Hurd wouldn't have done the search from his office if he wanted to conceal it, according to the source. Fisher said through Allred that she and Hurd never had an affair or a sexual relationship and that she was "surprised and saddened" that he lost his job over the matter.

Hurd also has promised to pay back the expenses.

- BLOOMBERG