IP: Election rigging, the H-P Way

[Dave Farber <dave () farber net>]

------ Forwarded Message
From: John Wharton <wharton () shasta Stanford EDU>
Date: Wed, 1 May 2002 15:47:08 -0700
To: dave () farber net
Subject: Election rigging, the H-P Way

Dave--

By now I suppose this is moot, but yesterday's posting on redistricting
scams prompts me to comment on one facet of the H-P/Compaq merger that
seemed not to have received much press.  Post to I-P if you wish.

===

I'm an H-P shareholder who opposed the Compaq merger and who attended
the special shareholders meeting in Cupertino on March 19.  It was known
the vote would be close -- within a percent or two -- and it appeared to
me at the time the meeting organizers had rigged the voting process to
make sure there was little chance they could lose.

The meeting was scheduled to begin at 8:00am, which (according to a
press photographer I spoke to) meant Walter Hewlett's people were
required to deliver the proxy ballots they had collected to H-P
representatives by about 6:30am.  Which gave H-P staffers an hour and
a half to review the ballots and get a preliminary reading on where
the vote stood.  

H-P presumably knew, going into the meeting, how many votes their own
side had collected, so the only unknown was whether Hewlett's count
was higher or lower than their own.  That, and to determine which of
the larger institutions (e.g. Deutsche Bank) had indeed voted with --
or belatedly shifted their votes to -- the Hewlett side.

So shortly after 8:00am, when the meeting was supposed to have
started, an H-P spokesman came on stage to tell the audience the
meeting would be postponed for an indeterminate period.  Things
actually got underway about 40 minutes later.

Press coverage of the H-P trial indicates that it was during those 40
minutes that Carly Fiorina made her last-minute phone calls to
Deutsche Bank, during which she apparently raised the specter of
concern that H-P might elect not to exercise a multi-billion-dollar
line of credit she had recently arranged via Deutsche Bank.

In other words, during the time when Fiorina's official duty should
have been to preside over the shareholders meeting, she was instead
continuing to lobby for the votes she felt would be needed to assure
an H-P victory.  

Once the shareholders meeting did begin, the formal part was quite
brief, mainly just to introduce the H-P directors and allow Hewlett to
read a statement of his position.  Fiorina then threw the meeting open
to Q&A -- which she made clear would be answered only by herself.

(At least two questions were addressed to Walter Hewlett anyway.  She
declined to let him respond.)

After more than an hour of Q&A, a signal was relayed to an assistant
on stage, and Fiorina interrupted one of the questioners -- even while
his question was still being asked! -- to announce that the polls
would be closing shortly, and anyone who had not yet voted must do so
immediately if they wished for their vote to be counted.  She then
took the rest of the questioner's question, gave a cursory answer, and
declared the polls closed and the meeting adjourned.

The San Jose Mercury News has reported that the long Q&A period was
required to give Deutsche Bank time to perform the formalities of
getting their votes changed, notarized, faxed, delivered, whatever.
Apparently Fiorina was given the signal to end the meeting the instant
it became official that all 17 million Deutsche Bank votes could be
added to the H-P total, before any H-P supporters had an opportunity
to switch their votes back.

So the news reports indicating that Deutsche Bank had "shifted their
vote at the last minute" are quite literally true, by definition: Had
the shift become official 30 minutes sooner, I'm sure that would have
been the minute at which voting would have been declared closed.

Likewise, had the transfer process gotten hung up for an extra hour --
or six -- I suspect H-P would have been prepared to filibuster as long
as it took.  The meeting had been scheduled for 8:00am, after all, so
the company had allowed itself nine hours before the close of business.

To me, this would be like an Indianapolis 500 car race where the
Speedway owner also owned one of the cars competing, and was able to
decide on the fly when the race would start and how many laps it would
run.  At the official start time, if his car was not quite ready, he
could simply delay the start of the race, leaving the other cars to
idle and waste gasoline until his car had been tuned for peak
efficiency.  And toward the end of the race, the team owner could
simply wait until his rivals were refueling in the pits, and his own
car had surged briefly into the lead, before declaring the race
officially over and awarding his own team the prize money.

Such actions might be totally legal, under the hypothetically-revised
Indy 500 rules, but I suspect it would quickly cause fans to lose
interest in the sport of car racing.

===

In H-P's case, I'm not a lawyer, and am not familiar with the company
bylaws, but when the rules of shareholder voting were established, I
can't believe it was the founders' intentions that the voting process
itself should be subject to such deft manipulation.  A vote can't
possibly be considered 'fair' if both the starting time and the ending
time are rigged so as to benefit the position of the party in control,
and are influenced by the intermediate totals as the votes are being
counted.  

Such a process might not guarantee that H-P would win, so much as it
seems to assure they couldn't lose.  One has to wonder: Had Deutsche
Bank's 17 million votes not been sufficient to give Fiorina the margin
she wanted, would she have delayed the starting time even longer, so as
to pull in more corporate favors?  Or might she have simply extended
the Q&A filibuster as long as it took for other directors to twist yet
more institutional arms?

The whole sordid affair reminds me of a stanza from "Evita", uttered by
Generals in the military junta which supported Juan Peron:

      "We have ways of making you vote for us, or at least,
       of making you abstain."   )

  --John Wharton

PS: The SJMN also reported that the Deutsche Bank line of credit had
not been arranged until just the previous week, i.e., *after* H-P had
determined that Deutsche Bank was not in the H-P camp.

With all the other things H-P had to worry about during that week,
with time running out, it seems curious they'd have taken the time or
trouble to negotiate such a huge financing deal.  Nor does it seem
they'd have chosen a financier who had sided with their opposition.

I can't help but wonder if the whole line-of-credit deal was designed
expressly to give H-P a club to use an case any last-minute arm-
twisting became necessary.




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