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Did HP Bilk Its Shareholders?
jfruhlinger writes "About a month ago, HP announced that it was getting out of the PC, tablet, and mobile phone business to focus on software services, at which point, rather predictably, HP's stock plunged. Obviously, HP's leadership had been working on this plan for some time before it was announced, which leads to the question: did they deliberately mislead their stockholders by not being more transparent? That's what a shareholder lawsuit against the company alleges. How the courts treat the suit could have interesting implications for how transparent public corporations need to be about future strategy."
I thought getting information about such things from an insider and then acting upon it was considered insider trading? Has something changed in the last decade and we now operate under the assumption that such knowledge is okay and even required?
And the alternative to what they did would be "We're exiting the PC, Tablet and Mobile Phone business but we have no plan to make this happen yet, check back later".
Which do you think is worse for the stock price?
Lol!Yes, they should have made the announcement before they made the announcement.
Shorter answer: No. Should corporations (really management/boards) have to disclose when they're going to release a new product that's going to be the next iPhone (on the good extreme) or the next Matrix Revolutions (at the other extreme). And what time-horizon are people to use for this crystal-ball gazing? Wouldn't IBM's management have been equally culpable for their decision to leave the PC market? Or how about bet-the-company gambles? I think we probably already have enough "you should have....." lawsuits already.
HP doesn't care about its investors for the same reason CEOs get pay that is too high and HFT continues. Of-course other reasons for not caring about investors is limited liability that the top management of corporations enjoy because government created this moral hazard in the first place. There shouldn't be such a thing as government provided limited liability to corporations.
But the reality is that in the market that is promoted with all this inflation and destruction of investment and savings, there are no investors, the market is turned into a casino, everybody is gambling on price of stock, not investing into a business for long term.
There should not be any government protections to people, who are investors except that contract law needs to be upheld by courts, that's all there is to it, but with all the government destruction of economy, there is so little competition and so little choice of where to invest, that people are stuck with the current casino, seagull management and gambling.
Can investors sue the Federal reserve for DESTROYING their US dollar denominated savings and investments? After all, the US federal reserve is causing money destruction that is causing the federal reserve notes to lose over 10% of value per year.
You can't handle the truth.
The company is changing strategy. This happens. Companies don't survive when they can't do this. They also don't survive when they have to broadcast to their competition in advance that they MIGHT do something before a decision has been made.
This is nothing short of lunacy. It shows not only how insanely lawsuit happy the US is, but also how paralyzing a public corporate structure has become. It's much better to be a private company these days. You've got far less onerous reporting requirements, far less overbearing regulation, and the freedom to actually do things as a company without facing constant lawsuits.
-- "So they told me that using the download page to download something was not something they anticipated." - Bill Gates
Both "short answers" are wrong. It's not that clear cut.
If HP's execs decided that they'd bail out of the hardware markets in January, but told their shareholders otherwise during the quarterly meetings in an attempt to keep up their stock price while they sold their own shares, then the shareholders have a case against them. If, however, leaving the hardware markets was merely one of many strategies being considered, and they didn't reach their final decision until recently (perhaps after the bombing of their tablet) then I'd say they acted in good faith.
That's what we have trials for. The lawyers will pour through HP's emails and memos and figure out whether or not important info was intentionally withheld. While it may be a bit of a pain in the ass for HP, and expensive to boot, it's a necessary evil if we want to find the truth of the matter.
Is actually what is being discussed here. Executive should be able to act in the best interest of the company without having to reveal items that could negatively effect said plans.
Being forced to reveal everything you have *planned* to what is effectually the competition would pretty much destroy businesses that compete with each other.
---- Booth was a patriot ----
He spoke very publicly, and he appeared to be disclosing plans known inside HP. The implication of what he said is, "Don't buy anything from HP", and the stock market read it that way.
In my opinion, HP's steady downward slide began before CEO Lew Platt. It continued with the amazingly inept Carly Fiorina.
In our business we've had problems with HP laptops and printers, due to what appeared to us to be sloppy practices. We have a laptop owned by a friend that failed because of the bad nVidia video chip; it was arranged that few people got compensated. HP has sometimes made drivers for old HP hardware not available.
List of HP CEOs (Taken from Wikipedia): Patricia C. Dunn, Robert Wayman, Michael Capellas, Lewis E. Platt, John A. Young, Carly Fiorina, Mark Hurd, Rahul Sood, Leo Apotheker. See the article, How HP CEO Leo Apotheker Is Running HP Into the Ground, in foolish slide-show format.
Apparently Mr. Apotheker is abandoning the PC hardware business because he is uncomfortable with it. He was previously CEO of SAP, a software compnay.
A public company exists for one reason -- to protect and increase the value of the company for its shareholders.
That is utterly wrong.
A public company exists for whatever reason it chooses to exist for. Shareholders can decide if the reason chosen is one the think will make the company grow or shrink, and invest accordingly. In some cases an investor may well put money into a company knowing it will not make a return, because they believe in what the company is doing and simply wish to continue funding that work.
A company should be able to change anything and everything about itself at the drop of a hat, and shareholders cannot say boo about it. You might be annoyed when the company changes direction to someplace you do not want to follow - that's when you sell, as many have in the case of HP. Should investors get bailed out every time any company makes a dumb choice? I don't think so.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
FTFY. I guess the silver lining is "everyone else gets a jolly good laugh."
I shouldn't feed the trolls but...
- you believe my comment is a troll, what should I think about yours?
Really? There were approximately 2 billion shares traded on the New York Stock exchange today. No investors? Really?
- really. You have just described the very nature of current "investment" strategy, which is arbitrage, making the difference between buying and selling, and HFT is just a way to take that concept to its natural maximum efficiency. There is no investment there because the companies' stocks are not bought as a business, not to get dividends, not to participate in their operations.
100% of the point of corporations is to protect investors from liability due to the actions of the corporation in order to encourage them to utilize their capital in productive ways. That is THE fundamental feature of a corporation.
- and this should not be done by government protection.
If a company wants to limit its liabilities, it must do so with private mechanisms - buying enough insurance coverage to minimize the damage to the company that its actions can bring upon itself.
As to actions that bring about criminal liability - companies should not be protected by government from criminal actions any more, than an individual is protected against criminal liability, otherwise the moral hazard basically makes the company into a potential criminal.
Basically you are saying that we should do away with the entire modern economy and go back to something vaguely akin to feudalism.
- no, I am saying we should not be forced to pay for socializing of the costs of doing business.
The companies need to buy enough insurance to limit their liability and they should have practices that limit that liability as well. So BP shouldn't have 70Million USD cap for deep water drilling for example, and banks shouldn't have FDIC.
This would make BP buy more private insurance and price that into the cost of business, and it would cause BP to approach the safety standards in a much more careful way without any government involvement, which is preferable from point of view of the entire market and the planet.
The banks would be forced to buy enough private insurance that would help them get and keep their customers, while not taking insane risks with 97% of deposits (unless there is an explicit agreement with the depositors that this is what will be done in exchange for lucrative returns on that investment, so depositors would be aware of the risk.)
In all cases the failures of businesses would be limited to their shareholders and investors/lenders and would not damage the entire economy.
No. That is a stupid question with an unsubstantiated premise and no evidentiary support.
- except that there is clear support for this fact in the numbers I gave as a link in the original comment. Don't forget that the moment Nixon defaulted on the promise to pay gold for federal reserve notes, the price of gold shot up from $42 and went up all the way to $800, and was only interrupted and pushed back to under $300 by Volcker's actions, who allowed interest rates to go above 20% in 1981.
Compared to what? Currency only has value in relation to something else so what is the something else you are comparing to?
- and if you clicked on the links I gave in the original comment, you would have known.
You may want to patronize this video to get some general understanding of the problem.
You can't handle the truth.