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What's Wrong With HP Today?

By Anders Bylund - Apr 5, 2013 at 2:03PM

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HP shares are falling, but the catalyst is perhaps the best news the company has reported in ages. What's going on here?

Hewlett-Packard (HPQ 2.60%) just took a much-needed step toward a healthier business: Chairman Ray Lane and two other directors stepped down from the board of directors. Lane will remain a director but without the chairman's leadership duties. Banking veteran G. Kennedy Thompson will leave the board entirely in May, alongside John Hammergren, who is also CEO of health care information company McKesson. Activist investor Ralph Whitworth serves as chairman until further notice. No replacements have been named for the two outright departures.

Investors have been calling for something like this to happen. Each of these three directors earned less than 60% approval ratings in HP's recent annual shareholder meeting, while every other director won more than 90% "yea" votes. This is the kind of "vote of no confidence" that drove Michael Eisner out of Walt Disney nearly 10 years ago. When you're running for office unopposed, you really should expect far higher approval ratings. Lane and company are simply following the will of their shareholders.

Moreover, HP's board has long been seen as a liability. Corporate-ethics expert Nell Minow quipped that these people might as well carry a banner saying, "We have no idea what we're doing." That was two years and two CEOs ago -- not to mention the whole Autonomy debacle. A wholesale housecleaning is very much in order.

And yet HP shares are down 1.6% on the news. It's the third-worst performer on an already weak Dow Jones Industrial Average (^DJI 0.60%) today. Financial giant American Express (AXP -1.06%) plunged 2.3% on weak payroll data, which will put direct pressure on the company's top line. Cisco Systems (CSCO -0.52%) fell 2.2% due to terrible earnings at rival F5 Networks; the entire networking sector is suffering today, and not even mighty Cisco is immune to sectorwide swings.

There are plenty of other losers on the Dow today, but only these two fared worse than HP.

Why, then, is HP plunging on what looks like good news for the long-term health of the company? Well, change is always scary. The action may have underscored HP's shaky situation to some investors. Maybe the changes didn't go far enough; Lane is still on board, and his companions will stay around for another month.

The real reason is probably "all of the above." That disgraceful shareholder vote set the stage for today's action, but it still comes as a shock to the system.

Will CEO Meg Whitman pair up with interim chairman Whitworth and really shake HP up? I hope so. This is their chance to catch up with a rapidly changing market. The current strategy sure isn't working.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$32,390.59 (0.60%) $193.93
HP Inc. Stock Quote
HP Inc.
$37.73 (2.60%) $0.95
Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
$49.30 (-0.52%) $0.26
American Express Company Stock Quote
American Express Company
$157.06 (-1.06%) $-1.69

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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