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Computerworld - An investment adviser has accused Hewlett-Packard Co. of misleading shareholders by failing to disclose its business relationship with a major financial backer of Institutional Shareholder Services Inc. ISS is an influential institutional investor advisory firm that supported HP's merger with Compaq Computer Corp.

In a major boost for the merger prospects, ISS, based in Rockville, Md., recommended early last month that its members vote in favor of the HP/Compaq deal (see story). Results of the March 19 vote on the merger have not yet been tabulated, although HP has already claimed victory.

New York-based venture capital firm Warburg Pincus LLC, which has been involved in business deals with HP, put up $26.1 million to underwrite the purchase of ISS by New York-based proxy voting services firm Proxy Monitor. According to SocialFunds.com, Proxy Monitor paid $45 million for ISS, buying it from Thomson Financial in New York.
SocialFunds.com is the Web site of SRI World Group Inc. in Brattleboro, Vt. It offers coverage of social mutual funds, community investing, shareowner action and daily social investment news.

Proxy didn't reveal the exact amount it paid for ISS. The $45 million price tag was based on rumors reported by SocialFunds.com.

In an SEC filing, Warburg is listed as being a general partner in ISS. And three of Warburg Pincus' partners, Mark Colodny, Pat Hackett and Sidney Lapidus, sit on the eight-member ISS board of directors, according to SEC filings.

Warburg and HP are both investors in several ventures, including:

• Santa Clara, Calif.-based software company WebGain Inc. Last year, in the second round of funding, HP invested $10 million in WebGain. In a previous round of funding, Warburg Pincus invested $62.5 million, according to IPO.com, which tracks the financing activity of emerging growth companies across the public and private equity markets.



• San Jose-based application server software maker BEA Systems Inc. Warburg Pincus is an investor in the company and over the past three years, HP has invested $100 million in BEA to jointly develop a range of application integration and component software aimed at helping users quickly build and deploy electronic-commerce applications (see story).



• Dublin-based Eontec, a developer of Java-based banking software. Last year, Warburg Pincus invested $25 million in Eontec. HP and BEA are Eontec's partners.

The relationship troubled analysts and business ethicists who said any connections between HP and a major financial backer of ISS should have been disclosed to shareholders.

Bill Parish, a registered investment adviser with Parish & Co. in Portland, Ore., said HP and ISS should have made investors aware of the