Hewlett-Packard Still Can't Handle the Truth

That lesson is simple: Disclose all relevant facts, get ahead of the media, and don't turn a one-day story into a media frenzy.

In U.S. public companies, the directors are supposed to serve the owners—the shareholders—and not management or themselves. Shareholders deserve, and are entitled by law, to material information about the company. Boards should err on the side of transparency. Concealing facts only breeds suspicion, not to mention intense media coverage. That someone might be embarrassed by full disclosure is irrelevant and shouldn't factor in any disclosure decisions.

It was just four years ago that H-P, caught up in a boardroom scandal over director's leaks and spying on reporters, claimed it had learned that lesson the hard way. Then-chairman Patricia Dunn resigned along with two other directors; criminal charges were filed (though those against Ms. Dunn were subsequently dismissed) and Congress launched an inquiry, all due, in part, to H-P's clumsy and belated disclosure of the facts. Chief Executive Mark Hurd, who escaped any blame in the affair (which began under his predecessor, Carly Fiorina) pledged to restore ethical standards and do better. And it seemed he did, driving up H-P's profits, revenue and share price.

Mr. Hurd was forced to resign last week, ostensibly for filing false expense reports amounting to about $20,000. H-P deemed this sum "not material," which is beside the point. Anything related to Mr. Hurd's departure is plainly material, since on Monday the news shaved $8.7 billion off H-P's market value.

So why did the board ask Mr. Hurd to resign? The reason, obviously, is an actress, realty-TV contestant and corporate consultant to H-P named Jodie Fisher who accused Mr. Hurd of sexual harassment. Ms. Fisher has certainly emerged as the star of a reality TV soap opera far more gripping than any part she was offered in Hollywood. You don't hire celebrity lawyer Gloria Allred unless you're courting the glare of publicity and fame, however short-lived. Surely Ms. Fisher's declaration that she was "surprised and saddened" by Mr. Hurd's resignation ranks as one of the most disingenuous remarks to have emerged from the affair. So what was her intention? A made-for-TV movie deal and a line of designer jeans?

H-P hired a law firm to do its own investigation and has exonerated Mr. Hurd of sexual harassment, saying he didn't violate H-P's guidelines, even while refusing to disclose Ms. Fisher's allegations or H-P's findings. As a result, H-P shareholders have no way of evaluating the validity of H-P's claim. Mr. Hurd did reach a settlement with Ms. Fisher, the terms of which have also not been disclosed. Both Mr. Hurd and Ms. Fisher have said no sex was involved. So what was the basis for Ms. Fisher's claim? (A spokesman for Mr. Hurd declined to comment. Ms. Allred said Ms. Fisher declined to comment, as well.)

Apart from the expense-report issues, exactly what services was Ms. Fisher performing for H-P? The company said she was an outside marketing consultant, and its general counsel indicated she may not have provided all the services she contracted for. But what were those services, and what were Ms. Fisher's qualifications? Her resume doesn't include an M.B.A., to put it mildly, although it appears she did work in real estate and in sales for Xerox in addition to her movie work and appearance on NBC's "Age of Love." Supposedly she was a glorified hostess at H-P sales events, making sure big clients got face time with Mr. Hurd. Who hired her and why, based on what qualifications?

Mr. Hurd's alleged expense account abuse can't be evaluated without knowing the context of Ms. Fisher's relationship to H-P and Mr. Hurd. Like most CEOs, Mr. Hurd apparently didn't even prepare his own expense reports. It could have been a simple mistake or misunderstanding, for which he surely wouldn't have been discharged. If he had a motive to conceal Ms. Fisher's role, that's another story. But if so, what was the motive?

The Wall Street Journal reported that a big factor in the board's deliberations over Mr. Hurd's fate was fear that the details of Ms. Fisher's allegations would prove embarrassing. As I said before, that should be irrelevant. And embarrassing to whom? Mr. Hurd, perhaps, but who else? What is the board trying to conceal?

By withholding information, the H-P board is only prolonging the agony and feeding the press a juicy mystery. I suspect the truth, however tawdry, would be a one- or two-day story, assuming H-P is correct that it doesn't amount to sexual harassment. However painful for Mr. Hurd and his family, it would soon be forgotten. Delay is only playing into Ms. Fisher's and Ms. Allred's hands, as a bidding war for Ms. Fisher's story will no doubt ensue (even though Ms. Fisher signed a confidentiality agreement). By remaining silent, H-P isn't doing Ms. Hurd—or the shareholders—any favors.

When I contacted H-P, a spokesman declined to answer any of my questions and said the company had nothing to add to what it said Friday when it announced Mr. Hurd's resignation. He wouldn't say whether, as part of Mr. Hurd's agreement to resign, H-P promised not to disclose Ms. Fisher's letter or any details of what its own investigation uncovered. In my view, that is not good enough.

H-P still has plenty of questions to answer, including its justification for paying Mr. Hurd an exit package worth more than $35 million even while forcing him to resign. Until it does, it is hard to have any confidence in the judgment of H-P's board—and as an investor, I'd avoid the stock.

—James B. Stewart, a columnist for SmartMoney magazine and SmartMoney.com, writes weekly about his personal-investing strategy. Unlike Dow Jones reporters, he may have positions in the stocks he writes about. For his past columns, see: www.smartmoney.com/commonsense.