HP hit with lawsuit over Hurd's departure

The company's directors are accused of mishandling a sexual harassment claim against HP's former CEO

Hewlett-Packard's board of directors has been hit with a shareholder lawsuit alleging mismanagement and breach of fiduciary duties following last week's abrupt departure of Chairman and CEO Mark Hurd.

The suit, known as a shareholder derivative lawsuit, was filed by a Connecticut-based law firm on behalf of the Brockton Contributory Retirement System, an organization in Massachusetts that is said to hold shares in HP. It names as defendants all 10 members of the HP board; Chief Financial Officer Cathie Lesjak, who also became interim CEO after Hurd's departure; and Hurd himself.

The suit accuses the board of failing to live up to its guidelines for corporate governance and allowing Hurd to run HP as "his own private fiefdom." It criticizes Hurd for hiring "a former reality TV contestant" with "no background in the high-tech industry" to help woo customers at marketing events.

"As a result of Hurd's, Lesjak's and the HP board's shortcomings, HP lost significant credibility and the market punished HP (and its shareholders) ... [by] slashing its stock ratings and erasing over $9 billion in market capitalization," according to the complaint, filed in California Superior Court by the law firm Scott+Scott LLP.

HP had no immediate comment on the lawsuit.

The complaint follows Hurd's sudden departure from HP last Friday. The board asked him to resign after he was accused of sexual harassment by an outside marketing contractor, who later identified herself as the actress Jodie Fisher.

The board decided there was no violation of its sexual harassment policy, but its investigation found that Hurd made payments to Fisher for events that never took place, and recouped the money for those payments with false expense claims. HP said that violated its standards of business conduct and asked Hurd to resign.

The events sparked a debate about whether HP's board acted bravely and ethically, or whether it overreacted to avoid a public relations backlash and harmed HP's business in the process.

Shareholder derivative lawsuits have become fairly common in the U.S. They are often filed on behalf of outside shareholders and allege mismanagement by company executives. The HP suit was filed on Tuesday on behalf of the Brockton Contributory Retirement System and HP. Along with breach of fiduciary duties and gross mismanagement, it charges the defendants with waste of corporate assets, violations of the California Corporations Code, misappropriation of information and unjust enrichment.

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