Friday, May 25, 2007

Mad Man

A year ago this month Thomas Perkins, Hewlett Packard (HPQ) director and fifth ex-husband of pulp novelist Danielle Steel, got mad and resigned because he didn’t like how HP was handling an investigation into press leaks. The leak scandal ended up keeping everyone at HP quite busy for a while, as you may recall.

If a director resigns because of a spat with his company about "operations, policies or practices,” the firm is supposed to disclose the “circumstances,” as the SEC rules politely put it. Yep, within 4 business days; it says so right there in Form 8-K. HP, however, announced that Mr. Perkins had left but didn’t explain why until months later.

On Wednesday the SEC settled charges it had brought against HP for this lapse. HP promised, without admitting or denying having broken the rule, to cease and desist from breaking the rule any more. (Thank goodness we read Through the Looking Glass as a child.) No fines were paid, no knuckles broken.

If we ran the joint we wouldn't have been so nice to HP, which clearly should have disclosed the incident. While this kind of violation isn’t as much fun as when people steal money, it's a serious matter. Disclosure is supposed to be the key to the securities laws. If we have to hear one more SEC staffer remark that “sunlight is the best disinfectant,” we will lose our lunch and have to reach for the disinfectant. Even the most avid regulation-haters grudgingly admit that if there’s anything the agency is allowed to do, it’s to ensure that information is revealed so the market, in all its glory, can function.

If a director feels strongly enough about something to resign, shareholders should indeed be told. More and more, modern corporate governance hinges on the hope that directors will think for themselves and know what they’re doing. So we need to know what they’re doing too. And not just because a pissed-off director storming out of a boardroom is to this blog what steamy sex is to Danielle's novels.