CalPERS Withholds HP Board Votes

March 10, 2004 ( - California Public Employees Retirement System (CalPERS), the largest US public pension fund, has withheld votes for five Hewlett-Packard Co. directors, citing the company's noncompliance with CalPERS' corporate governance guidelines.

CalPERS has 17.85 million HP shares but withheld its votes because the five directors sit on the board’s audit committee, which authorized HP’s auditor, Ernst & Young, to perform non-audit, consulting services, according to CalPERS’ Web site, Reuters reported.   “We have a bright line test that we believe the auditor’s role should be auditing and nothing else,” Brad Pacheco a CalPERS spokesman, told Reuters. “We’ve learned our lesson from other corporate scandals that it’s a conflict of interest.”

CalPERS withheld its votes for the reelection of directors Lawrence Babbio, Patricia Dunn, George Keyworth, Robert Knowling and Sanford Litvack, ahead of HP’s annual meeting on March 17 in Houston. The Palo Alto, California-based HP, a giant computer and printer maker, has 11 members of its board of directors, including Chairman and Chief Executive Carly Fiorina.

CalPERS, which has $161 billion in assets, has long been active in corporate governance affairs, weighing in on the controversy surrounding Walt Disney Co.’s embattled chief executive, Michael Eisner (See  Beleaguered Disney Head Tries to Shore Up Support  ).

CalPERS voted its shares against retaining Ernst & Young as HP’s auditors, also because of the consulting issue, and said director Litvack “has a poor attendance record and a business relationship with the company that CalPERS believes could impair his objectivity.” From March 2001 to December 2002, Litvack worked for law firm Dewey Ballantine LLP, which provided legal services to HP, Pacheco said.

CalPERS voted its shares in favor of HP’s 2004 stock incentive plan, which has performance incentives, and abstained on a shareholder proposal to expense stock options.