Saturday, August 07, 2010

The rise and fall and fall of HP

Yesterday, HP's Board of Directors dismissed CEO Mark Hurd and appointed CFO Cathie Lesjak to replace him on an interim basis. The Board awarded Hurd a $12.2 million dollar severance payment, along with extending his rights to exercise stock options worth approximately another $38 million, for a total award of $50 million.

Here's a brief summary of the "facts" (you'll see why I said "facts" in a moment): Last June, an unnamed marketing consultant represented by Los Angeles attorney Gloria Allred filed a sexual harassment complaint against Hurd. According to HP, its Board of Directors instructed the company's internal and outside counsel to conduct their own investigation, and determined that Hurd had not violated HP's sexual harassment policy. However, according to the Washington Post, "The board...found that Hurd had a personal relationship with the contractor that he had not disclosed. Hurd also filed several inaccurate expense reports meant to conceal his relationship, the board found." HP's own statement says that Hurd also misused company assets. The Post quotes HP general counsel Mike Holston as saying that Hurd "demonstrated a profound lack of judgment."

Gloria Allred made her own brief statement of behalf of the marketing consultant, saying "...there was no affair and no intimate sexual relationship between our client and Mr. Hurd." Now we get to the reason for the quotes around the word "facts." I haven't read HP's sexual harassment policy, but it's likely that if the relationship between the consultant and Hurd was consensual, it wouldn't be considered sexual harassment under the policy, whether or not sexual activity actually happened. The consultant's status as a contractor rather than an employee may have also factored into the determination that no sexual harassment took place. HP says that there was a "relationship" and implies that it was sexual but consensual; Allred says that there was no consensual relationship, and if she's correct, any sexual advances that Hurd made would constitute sexual harassment.

This is the third time in five years that HP has fired or forced the resignation of a top executive. In 2005, the board fired CEO Carly Fiorina for putting her ego ahead of sound company management. Mark Hurd was hired from NCR to replace her. The following year, board Chairman Patricia Dunn was forced to resign in the wake of a "pretexting scandal", where the board hired private investigators who engaged in illegal activity in order to identify the source of leaks from board meetings, including obtaining the phone records of journalists. Hurd was appointed as Chairman of the Board to replace Dunn. Now, Hurd has been dismissed from both his CEO and Chairman positions.

There was a time, when founders Bill Hewlett and Dave Packard were active in management, that HP was a great company, even though it was much smaller. "The HP Way", a set of rules for how the company was run that put its employees and integrity above everything else, set the model for how companies should be run. In my opinion, The HP Way was at least as important as the universities and venture capitalists in making Silicon Valley the success that it has become. Companies write Policy & Procedure manuals covering hundreds of pages and every possible contingency; the five paragraphs of The HP Way were far more effective in guiding how a company and its employees should act.

Fiorina threw out The HP Way, and Hurd denied that it ever existed. HP is now one of the world's biggest technology companies and is bigger than IBM on the basis of revenues, but it's no longer a great company. The only thing that people can learn today from HP is how not to do things. It no longer stands as a model of corporate ethics or employee respect. Its research is second-rate and focused toward getting products out the door quickly, not toward major game-changing innovations. HP is a revenue machine. That's very much in favor on Wall Street. We know, from the last few years, what else has been in favor on Wall Street, and ethics are nowhere on that list.

Update, August 8, 2010: As I suspected, Mark Hurd's behavior was symptomatic of a general culture of excessive compensation, personal entitlement and a blurring, if not complete erasure, of the line between personal and company expenses on the part of Hurd and HP's other top executives. HP's board can't deny responsibility for this--they approved the compensation and policies that allowed HP's top executives to use the company as their own private bank and airline. The best thing that they could do (which of course they won't) is to change the policies and bring in an outsider as CEO and Chairman. The entire executive team at HP is tainted and should all be ruled out of contention for the CEO position.

Update 2, August 8: The Wall Street Journal is reporting that last Thursday, the day before his dismissal, Mark Hurd reached a settlement with and paid an unspecified amount of money to the unnamed marketing consultant who filed sexual harassment charges against him. The terms of the settlement weren't released, but an unnamed source told the newspaper that HP didn't pay any money to the consultant. As with many things in this case, that's technically true but effectively false. HP agreed to pay Hurd a $12.2 million dollar cash settlement, and a large portion of that settlement undoubtedly went to the consultant. Hurd almost certainly got the consultant to agree to a non-disclosure agreement, prohibiting her and her attorney from discussing either the case or the settlement. However, Gloria Allred, her attorney, made a statement after Hurd was dismissed. If an NDA was in place, the only way that the statement could have been made is if Hurd asked (or required) Allred to make it. I believe that far more details will leak out, and they'll be damaging both to Hurd and to HP.

Update 3, August 8: Well, that was fast. The unnamed marketing consultant has named herself. According to IMDB, Jodie Fisher, 50 years old, was an actress in minor television shows and "B" movies from 1992 to 1999, then she dropped out of sight. She returned to television as a contestant on a short-lived NBC reality series called "Age of Love" in 2007, where she was one of seven 40+ aged "cougars" who were attempting to be chosen by a 31-year-old Australian professional tennis player. She was voted out of the show in the very first episode. Here's a description from the Reality TV World website:

...Mark (Mark Philippoussis, the Australian tennis pro) was forced to eliminate one of the older women and decided upon Jodie Fisher, a 46-year-old vice president for a commercial real estate company from Dallas, TX who has been married once before and has an 8-year-old son.

"I have to go home tonight, but that's okay... That's okay.  I have my sweet little boy to see." said Jodie upon learning she was the first bachelorette sent packing.  "I hope I've helped show that a woman in her 40s is sexy and interesting and powerful.  Whoever the right person for me is, he's out there."
Following her appearance on "Age of Love", she appeared in another movie, "Easy Rider: The Ride Back" in 2009. I'm confused. She was a "B" actress for a decade, went into real estate in Dallas, competed in a cougar-off on NBC in 2007 and went back to acting in 2009. How exactly does any of this qualify her to be a senior marketing consultant working with the CEO of one of the world's largest technology companies?
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