This is a setback for the corporate governance movement. Business representatives so fear their own shareholders that they are suing to overturn the new proxy access rules put in place by the SEC. In response, unfortunately, the SEC has stayed implementation of the rules.

More on this soon.

Back in 2008 I found myself in a somewhat heated exchange with Yale’s Jeffrey Sonnenfeld at a conference at the Yale School of Management. He heartily defended the HP board of directors for ousting veteran technology oriented directors Tom Perkins, founder of companies like Genentech and a 20 year veteran of HP under its founders Bill Hewlett and Dave Packard, and George Keyworth. Of course, it turned out the “spying” methods used to go after Keyworth were anything but moral and touched on being illegal.

Sonnenfeld has once again come to the HP board’s defense in its latest ouster, this time of its wildly successful CEO, Mark Hurd. Hurd’s “sins,” at worst, remind one of the silliness that led right wing Republicans to impeach President Clinton. Both men landed on their feet, to say the least. Clinton is now one of the most respected political leaders on the planet and Hurd is now helping HP’s frenemy, Oracle, integrate newly acquired Sun into a rapidly evolving tech services market for Larry Ellison.

So what is that people like Sonnenfeld, not to say the current HP board itself, don’t understand?

The problem is that the mantra for board independence has in fact led to a culture of “politically correct” conservatism in American capitalism as a whole that threatens American leadership in innovation, creativity and productivity. HP’s board is independent, alright, so independent that only two of the ten board members (prior to the elevation of Ray Lane as chair and Leo Apotheker as CEO) had any serious technology experience. None has a real science background. The only stock the board members own appears to have been given to them by the Company for their “service” to shareholders.

Compare this to people like Ellison, who still has the bulk of his wealth tied up in Oracle, a company he founded several decades ago. Steve Jobs at Apple would have most of his wealth still in the company if their board hadn’t stupidly fired him some years back only to have to finally admit the silliness of their move and bring him back. Apple is now one of the most successful companies in modern business history.

Suffice to say when a board looks like that of HP, filled with bean counting finance people and other non-entities, it tends to look for leaders who have the same look and feel. So they have come up with a Leo Apotheker who was ousted from SAP after only 8 months as its sole CEO last year in the wake of a short but disastrous run in which he alienated, in turn, employees, shareholders, customers and fellow executives.

Despite the opportunity to hire from among the world’s best and brightest and to take on their board, no doubt, some of the world’s leading business and political leaders, the HP board circled the wagons and coughed up someone who in his first phone conference with Wall Street analysts did not even know the correct name of the company he was hired to lead. The market proceeded to wipe billions off HP’s share price.

To make matters worse, the board recruited Ray Lane, a venture capitalist, as board chair. Lane was pushed out of Oracle when he was no longer seen as a potential replacement for CEO Larry Ellison. But Lane no doubt remains hungry to become a CEO and will be waiting to pounce if, or when, Apotheker screws up.  This is an unstable and unworkable governance structure.

No wonder the HP board has been blasted publicly by, among others, Jack Welch and Larry Ellison. No wonder the stock lost billions in value after the ousting of Hurd and lost billions more after the elevation of Apotheker to the CEO spot.

Of course, life under Hurd was not great. He, too, was largely a number cruncher who relied heavily on buying R&D instead of nurturing it as had been HP’s “Way” under its founders, Bill Hewlett and Dave Packard, two of the founding giants of Silicon Valley.  Employee morale has sunk to historic lows as many talented engineers and scientists leave for greener pastures as their stock options vest.

No doubt, Hurd, and his predecessor Carly Fiorina, were largely responsible for picking the current feckless board, using their control of the proxy system.

Recently, the SEC made it easier for investors to nominate candidates for corporate boards, the so-called “proxy access” rules. These allow investors who, together, hold 3% or more the stock of a corporation to put nominees on the same proxy consent request used by corporate management to solicit consent, or the votes, of shareholders. The rule changes turn the consent request into an actual ballot with competing slates appearing on the same piece of paper received by shareholders.

HP would make a perfect test case for the new rules. Let’s hope Cal/PERS and other large institutional investors step forward to change the leadership culture at our country’s most important technology company.