Control freaks won at HP, ex-board member says

Former director Tom Perkins airs his side of the story in spying scandal that led to board members' resignations.
Written by Michael Kanellos, Contributor
SAN FRANCISCO--Former Hewlett-Packard Chairman Patricia Dunn won the battle over control of Hewlett-Packard's board, said former director Tom Perkins, and so did mediocrity.

In a lunchtime speech at the VentureOne Outlook Conference here on Tuesday, Perkins aired his side of the story in the HP spying scandal that led to the resignation of board members Dunn, Perkins and Jay Keyworth, as well as a lot of bad publicity for HP.

In Perkins' view, HP's board was split between two types of directors: "guidance" directors like himself who wanted to spend board meetings concentrating on ways to beat Dell and IBM, and "compliance" directors who were obsessed with the Sarbanes-Oxley Act, social responsibility campaigns and regulatory issues that were less germane to the company's survival.

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The scandal was the final act in a plan by the compliance directors to oust the guidance directors, he said. The fact that HP hired investigators to get the phone records of reporters and board members is a red herring in the whole drama, he said. Dunn was mostly after control, he added.

"In spite of being indicted on four counts by the California attorney general, it is clear that former Chairman Patti Dunn won the battle," Perkins said. "I see this embarrassing public mess as a culmination of a war over the control over the board of the company."

Although he said he personally likes Dunn, Perkins did not paint a glowing portrait of his former antagonist on the board. Dunn lobbied to eliminate the board's Technology Committee, which Perkins sat on, he said. Board members complained that the Technology Committee looked into issues that were too complex for other board members to understand, he said.

Perkins, though, credits the committee for engineering the ouster of former CEO Carly Fiorina and paving the way for HP's recovery.

Dunn also had the board's various committees meet in a serial fashion, rather than hold simultaneous meetings. This was done so that she could sit in on all the committee meetings, he said.

He advised other chairmen not to do this sort of thing. "It might cause a person to get labeled a control freak," Perkins said.

Dunn and Perkins, however, were allies for a time. "It had to do with replacing Carly Fiorina," he said.

The tension between guidance directors and compliance directors is spreading throughout corporate America, he added. The seeming victory of the compliance side is a bad thing, he said, because it is leading to boards that don't understand the underlying business. That could lead to more, rather than fewer, scandals because directors won't be able to recognize warning signs such as increases in accounts receivable or channel inventories.

"The virgin director is to be preferred to the experienced director," he said, noting that at one time he served as the chairman of 12 companies at once. "If I was on the board of Macy's I would be absolutely useless."

But what happens when experienced guidance directors miss these cues? Perkins seemed to excuse those oversights. The Enron scandal was too complex for the company's directors to understand, he said. One of the company's directors was a finance professor from Stanford University. Former Enron Chairman Ken Lay was also probably in the dark, Perkins alleged.

"I don't think he knew what was going on in the boiler room," he said.

Perkins more than once also seemed to take a dim view of boardroom diversity policies. During the Dunn era, he described HP's board as consisting of "three women, two minority members and three technology geeks." The geeks were Keyworth, Perkins and Richard Hackborn.

On other notes, Perkins said his latest book, Valley Boy, should be out in October. It is an autobiography of sorts that provides the inner workings on how decisions get done at Kleiner Perkins Caufield & Byers, he said. The principal partners at the firm have signed off on it.

The book includes a chapter on the HP scandal.

Perkins also noted that Dunn misconstrued a joke about his previous book, Sex and the Single Zillionaire. He once told her that every HP employee should buy a copy "and buy one for every member of their family. She took me seriously," he recalled, laughing.

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