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Battered by Criticism of Its Board, HP Sticks Its Head in a Cloud

Hewlett-Packard (HPQ) CEO Leo Apotheker unveiled HP's new cloud strategy yesterday: information management, analytics, and cloud computing. If it sounds familiar, it should. First, HP has been announcing its cloud strategy repeatedly for years. Second, this version is awfully similar to IBM's strategy.

But you can understand why HP's top brass might be rattled. The two biggest proxy advisory firms, Institutional Shareholder Services (ISS) and Glass, Lewis & Co. have both recommended that shareholders vote against management recommendations on directors. This is the corporate governance equivalent of being slapped in the face with a two-by-four. And until HP can solve some fundamental cultural and management issues, all the strategic talk will be nothing but distraction.

The idea that HP again announced its interest in cloud computing and the approach companies should take is amusing. Here's a little challenge: Read the following three statements about HP and cloud computing and provide the date within a month (no fair peeking at the links until you've guessed):

From top to bottom, the dates are April 2008, February 2009, June 2009, and September 2010. No wonder that IBM, which has a well-defined and intelligent approach to cloud services, scoffed at HP in an interview with the FT:
By tying its software and services businesses more closely together, IBM has been able to boost its profit margins ahead of HP and is on track to maintain its lead with further expansion over the next five years, he added.

"I think it would take a long time for anybody to accumulate the kind of capability that we have," the IBM executive said.

According to the FT, IBM shares are up 27 percent over the last year, while HP's have fallen 20 percent.

Why is HP still trying to introduce its strategy that supposedly has been around for years? One reason is that IBM has blasted ahead with a coherent approach and HP wants to compete. Just as important at the moment, though, is the criticism that the top proxy advisory firms have lobbed at company's board. HP governance repeatedly has been mired in scandals for years.

Those who thought that the ouster of former CEO Mark Hurd might finally bring HP some stability were wrong. The latest problem was HP's latest board shuffle. Not only did the company pretend that dismissing a few directors solved its problems, but it added five additional members, bringing the board from 12 members to 17.

According to ISS, HP said that an ad hoc committee identified candidates. The groups consisted of Apotheker, chairman Ray Lane, and two long-time board members, Larry Babbio and John Hammergren. That's a problem for the proxy advisory group, given HP's previous problems with Hurd's severance package and Apotheker's strong influence on the choice of members.

ISS has advised shareholders to vote against the reelection of Babbio as well as Sari Baldauf and G. Kennedy Thompson. Glass Lewis has advised against reelection only of Babbio because compensation for HP management is above the median for similar sized companies, and yet the company didn't perform all that well.

Not surprisingly, HP claims that its practices are fine. Disputed or not, the issue won't go away. It'll only get larger and will continue to distract management and the board. It's time for HP to get some professional help, identify what has gone wrong, and fix it.

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Image: morgueFile user slideshowmom, site standard license.
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