Did you know that HP has been under investigation by the SEC and DOJ since September, 2010, for allegedly bribing officials for a €35 million ($46.3 million ) deal with the Russian Chief Public Prosecutor’s Office?
Out of the 1,500 public companies that investment analyst firm Disclosure Insight monitors, HP is one of 106 to be stamped with a "highest risk" rating. This investigation is only one reason. Shockingly high turnover in the corner office, executive ranks and board plus questionable acquisitions also make it so, according to a report released Wednesday.
Disclosure Insight monitors public companies to assess the risk involved in their stock and is a popular tool for institutional investors and money managers. Although it uses 100 factors to evaluate risk, one of its claims to fame is ferreting out if a company is being investigated by the SEC and hasn't gotten around to publicly disclosing this information.
While DI's report on HP did not indicate undisclosed investigations, it didn't need to. The company is experiencing enough publicly visible turmoil to have earned the brightest of red flags.
As for the investigation, in April, 2010 Russian officials raided HP’s Moscow office on the request of the German Public Prosecutor’s Office. They were looking into allegations that HP employees had paid as much as $11 million in bribes to secure a five-year deal to install a new network in the Chief Public Prosecutor’s Office of the Russian Federation. The SEC and DOJ launched their own investigations into possible violations of the Foreign Corrupt Practices Act -- expanding it to include other transactions in Russia, Serbia, the CIS, Austria, Germany and the Netherlands and dating back to 2000.
While HP disclosed this information about a year ago, DI says it looks like these investigations have not concluded, and the impact on the company is still unknown.
"We look at companies over a five year period. HP is on its fourth CEO in five years. Is Meg Whitman the one to turn HP around? If the pattern holds, good luck to her," Chad Simmer, director of research told me. Some companies have a corporate culture that's been going on so long, that "it would be a wonder if a new CEO could alter that trajectory," he added.
The IT world is very familiar with the revolving door in HP's corner office: Mark Hurd took the helm in April 2005 and was released under allegations of sexual misconduct. CFO Cathie Lesjak was the interim boss until Léo Apotheker was hired in November 2010, only to be shown the door not even a year later and replaced by director Meg Whitman. However, the exodus at the board level is also disturbing. In the past five years, eight directors have left, including five in calendar year 2011.
HP's buying spree has also been baffling. The DI report summarizes: "Since FY07, HP has reported 34 acquisitions for approximately $31.9 billion, $22.6 billion of which was allocated to goodwill."
If this weren't enough, HP also lowered its upcoming guidance.
Can Meg save HP?