UPDATE 7-HP CEO resigns after sex harassment investigation

Thomson Reuters






* Mark Hurd falsified expenses to conceal relationship -HP

* Hurd says he didn't live up to standards of trust

* Hurd didn't have sex with ex-contractor, her lawyer says

* Shares down 10 pct; Hurd was well-respected on Wall St

* Succession hunt begins; CFO appointed interim CEO

* HP raises full-year outlook
(Adds analysts' comments, details on Hurd)

By Gabriel Madway and Alexei Oreskovic

SAN FRANCISCO, Aug 6 (Reuters) - Hewlett-Packard Co
CEO Mark Hurd resigned on Friday after an investigation found
that he had falsified expense reports to conceal a "close
personal relationship" with a female contractor.

The shocking announcement from the world's top personal
computer maker sent its shares plunging 10 percent, as Hurd is
one of the most admired executives in Silicon Valley, credited
with reviving HP after the tumultuous reign of Carly Fiorina.

The unnamed contractor, who did marketing for HP from late
2007 to fall 2009, contacted the firm's board in June this year
and alleged that Hurd had sexually harassed her, HP said.

The board ordered an investigation and found that the
married 53-year-old Hurd did not violate HP's sexual harassment
policy. But he had a "close personal relationship" with the
woman that was never disclosed to the board, HP said.

"The board investigation found that Mark demonstrated a
profound lack of judgment that seriously undermined his
credibility and damaged his effectiveness in leading HP and
Mark agreed," HP General Counsel Mike Holston said, adding that
the board's decision to replace Hurd was unanimous.

Gloria Allred, a Los Angeles-based attorney who has
represented numerous high-profile clients including Tiger
Woods' alleged mistresses, said late Friday she is representing
the woman who made the sexual harassment claim.

She said her client did not have sex with Hurd, but
declined to identify the woman or comment further.

According to HP, Hurd filed "numerous inaccurate expense
reports" that concealed his relationship with the contractor,
who also received compensation and expense reimbursements
without legitimate business reasons.

Hurd, who was also chairman of HP and had a reputation for
rigid cost discipline, said the decision to step aside was a
"painful" one.

"I realized there were instances in which I did not live up
to the standards and principles of trust, respect and integrity
that I have espoused at HP," Hurd said in a statement.

A source familiar with Hurd's account of the situation
described his relationship with the contractor as "business
acquaintances" who had dined together about a dozen times. The
source said the expense issues stretched over two years, were
related to travel, meals and lodging, and totaled up to
$20,000.

Another source familiar with the situation described the
woman as a "low-level contractor" who would assist at marketing
events. This person said Hurd submitted falsified expense
reports that said he dined alone or with a bodyguard when he
had dined with her.

HP SEARCHES FOR NEW CEO

The revelation immediately triggered speculation on who
would succeed Hurd, who during his five years at the helm
engineered transformative acquisitions, from smartphone pioneer
Palm to technology services giant EDS.

Chief Financial Officer Cathie Lesjak will take over on an
interim basis, though she has taken herself out of
consideration as the permanent CEO, HP said.

Analysts said there was no shortage of tech veterans who
would be eager to lead HP, which also has a deep bench of
internal candidates like PC chief Todd Bradley or corporate
strategy head Shane Robison. [ID:nN06229834]

"They probably have their pick. HP is one of the showcase
companies that people would be interested in running," said
Mark Kelleher, an analyst at Brigantine Advisers.

Analysts said Hurd's departure should alter neither its
strategic direction nor its performance record.

In a bid to reassure investors, HP raised its outlook for
full-year profit forecast to $4.49 to $4.51 per share excluding
items, from $4.45 to $4.50. The average EPS forecast from
analysts was $4.49, according to Thomson Reuters I/B/E/S.

HP's forecast of revenue of $125.3 billion to $125.5
billion also surpassed the average estimate of $124.5 billion.
(For additional stories, please see [ID:nN06228849])

THE HP WAY

News of Hurd's departure stunned the technology world. HP
is the world's largest technology company by revenue, and it is
a major player in personal computers, servers, services and
printers.

"Shock and puzzlement, that's how it's going to go down,"
said Russell Hancock, president and chief executive of Joint
Venture Silicon Valley, an area business group. "There wasn't
anybody who criticized his handling of the company."

HP, a Silicon Valley icon founded in a Palo Alto garage in
1939, has experienced a fair amount of turmoil in recent years.
That has hurt a firm that has prided itself on building trust
with employees, a mantra often referred to as "the HP way."

In 2006, former HP Chair Patricia Dunn resigned after
reports surfaced that HP had hired private investigators to spy
on board members and journalists to plug media leaks.

The buttoned-down Hurd, who took over as CEO after Fiorina
resigned in February 2005 in the wake of a controversial deal
to acquire PC maker Compaq, brought stability to HP.

HP shares have more than doubled since Hurd, former CEO of
NCR Corp, took the helm five years ago. He cut costs and
expanded HP's footprint in the services market.

Hurd was known as a serial acquirer, unafraid of making
bold moves to take on competitors like IBM , Apple Inc
and Research in Motion .

"Mark Hurd was extremely instrumental in turning this
company around," said Susquehanna Financial Group analyst
Jeffrey Fidacaro. "There's going to be a serious gap in
leadership at the top of this company."

Hurd will be well compensated as he departs HP, receiving a
severance payment of $12.2 million. His 2009 total compensation
was $30.3 million, according to a filing. His total
compensation in the last three years was about $97.8 million.

HP said its board of directors has formed a search
committee to find a new chief executive and board chair.

"It's a negative because the positive leadership that HP
has had under Hurd is identified with his name," Nehal Chokshi,
an analyst with Technology Insights Research-Southridge
Research Group, said of Friday's news.

HP, which was scheduled to report quarterly earnings later
this month, also pre-reported its results. [ID:nASA00MN2]

Shares of Palo Alto, California-based HP closed at $46.30
on the New York Stock Exchange and fell to $41.50 in extended
trading.
(Additional reporting by Edwin Chan, Sinead Carew, Alex
Dobuzinskis, Jim Christie, and Ritsuko Ando; Editing by Gary
Hill, Tiffany Wu and Richard Chang)