Despite the fact that the market attributes virtually no value to its $19 billion acquisition of Houston-based Compaq Computer Corp two and a half years ago, Hewlett-Packard Co. announced today that it is combining its printing unit with its personal-computer division, effectively ending speculation for the time being that the company might sell various units of the company and refocus primarily on its profitable printing unit.
HP shares rose 1 cent to $19.96 in morning trading on the New York Stock Exchange. In comparison, HP’s closing stock price was $18.22 on May 6, 2002, the day on which the Compaq merger was consummated. This has led one sage analyst to remark that “HP paid $19 billion for the privilege of hardly making any money” in the personal computer business.
As noted in this earlier post, HP chairman Carly Fiorina publicly stated last month that the company’s board had considered breaking up the technology giant on three different occasions. However, Ms. Fiorina, who was the leading advocate of the Compaq acquistion, stated that the board each time decided the company’s diversified portfolio of technology products helped the company to moderate business fluctuations in the cyclical technology sector.
H’mm. I doubt any of those fluctuations in the technology sector to date would have cost HP the $19 billion it spent on Compaq.

The NY Times’ Kurt Eichenwald, who has been covering the Enron scandal and other post-Dotcom business busts over the past several years, reviews in this NY times article the current status of the lagging government reform movement in regard to corporate governance.
Although the article accurately summarizes the fits and starts of such governmental reforms, it does not get to the real heart of the matter until almost the end:

The problem, . . . is that shareholders – the true owners of a corporation – are virtually powerless to effect change in a board unless they begin expensive and hard-to-win proxy battles. Shareholders are not given the right to vote for an alternative candidate for director, or to vote against one advanced by the company. They can either vote yes, or not vote at all.
Responding to such concerns, the S.E.C. proposed rules essentially allowing shareholders to propose their own candidates for director in companies with proven weaknesses in their procedures for electing directors. At the time it was introduced, William H. Donaldson, the S.E.C. chairman, heralded the proposal as a “significant step.”
Quickly, the proposal brought widespread opposition from the business community, which argued that the effort was intended to allow unions with huge stakes in corporations through their pension funds to force social policy issues to the forefront on corporate boards.
“We think introducing a special-interest agenda into the boardroom isn’t good governance or good for shareholders,” said Mr. Hirschmann of the Chamber of Commerce.

Here, Mr. Eichenwald misses the point. He sees a political battle in what is really a problem of investors and their counsel lazily relying on an obsolescent business model. As Professor Ribstein, one of the blawgoshere’s foremost experts on this issue, commented in this recent post:

I believe an important lesson from all this is that our current model of corporate governance just isn?t working, and that we delude ourselves if we think that Sarbanes-Oxley is going to fix it. . .
Among other problems, Sarbox banks on an absence of conflicts, not the presence of expertise and incentives to actually do a good job. . .
As for expertise, corporate boards will continue to be the playgrounds of do-gooder social responsibility activists who have other things on their minds than actually understanding and doing the nitty gritty of business and finance. In what alternative reality is it that a busy law dean and expert on ethics can be expected to spot accounting fraud? . . . all the other layers of responsibility our laws impose just increase the opportunities for shirking and finger pointing.
So what?s the answer? First, we need high-powered market-based incentives that would be provided by the return of an active market for corporate control. Second, as I?ve been saying (e.g., here) we need to encourage alternative business structures that take near-absolute power over corporate earnings away from corporate executives and give it to the firm?s owners.

Professor Ribstein’s thoughts are spot on. The reform that truly needs to occur is in the marketplace as investors and deal lawyers reevaluate the the way to implement the controls necessary to protect the investor’s investment. That reform is going to take time due to the practical difficulties of changing existing businesses to a better structure. But over time, this reform will have much more far reaching and effective results in the marketplace than anything that government can come up with.
A good way to start this reform movement is for investors to begin demanding of their counsel that they require more responsive business structures as a condition of their investment. The desire of a entreprenuer to raise capital for his business often overwhelms the entreprenuer’s desire for an inefficient and value-limiting business structure. But investors need to take the lead in demanding the more efficient structures. Otherwise, the current status quo of reliance on the inefficient corporate model will continue.
On a related issue, don’t miss Professor Bainbridge’s comments here on how the traditional business judgment rule is being gradually peeled away to foist increased liability on outside directors.
By the way, it was a rather large oversight that Mr. Eichenwald did not approach Professor Ribstein or Professor Bainbride for their comments on these issues. A little Googling while researching the issues would have helped. ;^)