UPDATE 1-HP shareholders reject investor ballot access plan

(Adds background on board spying, court hearing, byline)

By Duncan Martell

SANTA CLARA, Calif., March 14 (Reuters) - Hewlett-Packard Co. (HPQ.N) shareholders on Wednesday rejected a proposal that would have given investors the right to nominate directors to the computer maker's board.

About 39 percent of HP shares entitled to vote at the company's annual shareholder meeting favored the measure, which was supported by funds including Calpers, the largest U.S. pension fund, and the California State Teachers' Retirement System, the No. 3 fund.

The vote at HP's annual shareholder meeting in Santa Clara, California, was short of the 66.7 percent required for ratification.

It came on the same day that a California judge dismissed a criminal charge against former HP Chairman Patricia Dunn involving her role in a boardroom spying scandal.

The judge also plans to dismiss charges against three others if they complete court-ordered community service.

Some investors including Calpers had called for improved corporate governance at HP following the scandal. Among other measures, they pushed for the ballot-access proposal to give shareholders a greater say in director elections.

The board opposed the proposal, however, saying it could lead to "tremendously disruptive" elections and jockeying by special interest groups, Chairman and Chief Executive Mark Hurd told about 250 shareholders at Wednesday's meeting.

Calpers and the California teachers' retirement fund had urged about 7,500 HP shareholders to support the ballot proposal at the investor meeting on on Wednesday.

'PRETEXTING'

The spying scandal involved a wide-reaching effort to acquire private phone records of directors, former employees and reporters to learn the source of boardroom leaks dating back to at least 2005, using a tactic known as pretexting.

"The board's greatest accomplishment in 2006 was introducing the word 'pretexting' into the American lexicon," said Scott Adams, who represented proponents of the ballot-access proposal at the meeting. "The proxy access levels the field."

Hurd began the shareholder meeting by saying the board would not take questions about the court hearing earlier in the day. But later, responding to an investor's comment, Hurd said, "No one is proud of what happened last year. No one."

Santa Clara County Superior Court Judge Ray Cunningham earlier on Wednesday threw out criminal charges against Dunn for her role in a boardroom spying scandal.

The judge said he would do the same for three other defendants, a former HP executive and two private investors, if they completed 96 hours of community service and paid restitution by Sept. 12.