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The Real Reason for Ousting HP's Chief

Joe Nocera|The New York Times
Saturday, 14 Aug 2010 | 11:46 AM ET

The resignation of Mark V. Hurd last week from his seemingly secure post as chief executive of Hewlett-Packard has got to be one of the great head-scratchers in recent times.

Here’s a guy who walked into a very troubled situation, replacing Carleton S. “It’s All About Me” Fiorina, and oversaw what appears to be a magnificent turnaround. In his five years at H.P., every metric Wall Street uses to judge companies had gone in only one direction: up.

Mark Hurd
Getty Images
Mark Hurd

Its 2009 revenue was $115 billion, up from $80 billion when he took over. Four years ago, H.P. even leapt past mighty I.B.M. in revenue, making it the country’s biggest technology company. Its average annual 18 percent profit increases were remarkable given the company’s mammoth size. And the stock price more than doubled on Mr. Hurd’s watch.

Stories about Mr. Hurd lavished praise on his no-nonsense style. H.P. under Mr. Hurd has “become the benchmark for efficiency in an industry known more for its whiz-bang appeal than its operational excellence,” wrote Adam Lashinsky of Fortune in 2009.

Four months ago, Forbes put Mr. Hurd on its cover, attributing H.P.’s success to “dramatic cost-cutting” and “a brutalizing culture of accountability.” Even Mr. Hurd’s temporary replacement, the chief financial officer, Cathie Lesjak, who seemed to go out of her way to diss him, said in the press release announcing his resignation that “our ability to execute is irrefutable.” That could never be said during the reign of Queen Carly.

And then, on Aug. 6 — poof! — he was gone, brought low by a sexual harassment scandal.

Or was he? In the press release, H.P. noted that while a claim of sexual harassment had been made, an investigation had cleared him of the charges. Instead, the company alluded vaguely to “violations of H.P.’s standards of business conduct.”

When pressed, H.P. said that Mr. Hurd had fudged some expense reports. (It also said that his relationship with the woman, a small-time H.P. contractor, was a conflict, even if no sex was involved.) On his way out the door, the board handed Mr. Hurd a severance package said to be worth between $40 million and $50 million, which would seem to undercut the notion that he had done something bad.

H.P. says its board should be applauded for not letting Mr. Hurd off the hook. But this is just after-the-fact spin. In fact, the directors should be called out for acting like the cowards they are. Mr. Hurd’s supposed peccadilloes were a smoke screen for the real reason they got rid of an executive they didn’t trust and employees didn’t like.

The stand-up thing would have been to fire Mr. Hurd on the altogether legitimate grounds that the directors didn’t have faith in his leadership. But of course Wall Street would have had a conniption if the board had taken such a step. So instead, it ginned up a tabloid-ready scandal that only serves to bring shame, once again, on the H.P. board.

Mr. Hurd’s sudden departure from H.P. can be traced, in truth, to the last time the H.P. board did something shameful. That was the infamous “pretexting” scandal, which burst into public view about a year and a half into Mr. Hurd’s tenure. The essential allegation was that the company, led by its board chairwoman, Patricia C. Dunn, had gone way over the line in investigating a series of damaging leaks, including hiring investigators who used false pretenses to obtain phone records of people suspected of being the leakers.

According to “The Big Lie: Spying, Scandal and Ethical Collapse at Hewlett-Packard,” an authoritative account by the former BusinessWeek writer Anthony Bianco, Mr. Hurd was very involved in H.P.’s efforts to hunt down the leakers. After the scandal broke, he hijacked H.P.’s internal investigation, hiring an outside law firm and ordering it to report directly to him, instead of the board, which is the normal practice.

“There is plenty of evidence from H.P.’s own documents that he had a much bigger role in starting the investigations and carrying them out than he ever let on,” Mr. Bianco said. “H.P. security had a SWAT team to root out the leakers. They were clearly trying to please him.”

Ms. Dunn, according to “The Big Lie,” knew about the effort to finger the leakers, getting regular updates from H.P. managers. But she wasn’t the driving force. She wound up taking the fall because the board member who revealed the pretexting, Thomas J. Perkins, the former venture capitalist, had it in for her. So the allegations were skewed to make her look bad.

Ms. Dunn stepped down as chairwoman, replaced by Mr. Hurd. Then, Mr. Hurd forced her off the board entirely, threatening to resign if she stayed. In October 2006, Ms. Dunn, who was also being treated for cancer, was indicted by the California attorney general on identity theft and fraud charges, only to have them tossed out of court five months later.

“There was a residue of mistrust because of the pretexting scandal,” said Mr. Bianco, who added, “I conclude in the book that he lacks the moral character to be C.E.O.”

Then there were the company’s employees. The consensus in Silicon Valley is that Mr. Hurd was despised at H.P., not just by the rank and file, but even by H.P.’s top executives. (Perhaps this explains why Ms. Lesjak was so quick to denigrate him once she took over.) “He was a cost-cutter who indulged himself,” was one description I heard. His combined compensation for just his last two years was more than $72 million — a number that absolutely outraged employees since their jobs were the ones being cut.

Rob Enderle, a well-known technology consultant, noted that in recent internal surveys, nearly two-thirds of H.P. employees said they would leave if they got an offer from another company — a staggering number. “He didn’t have the support of his people,” Mr. Enderle said. Although he was good at “holding executives’ feet to the fire, he seemed to be the only one benefiting from H.P.’s success,” Mr. Enderle continued. “He alienated himself from the people who might have protected him.”

After Mr. Hurd’s resignation, an anonymous H.P. employee wrote on the Internet: “Mr. Hurd cares about one thing, how much money is in it for him. As an H.P. employee I see it every day. We don’t have the tools to do our job, but he isn’t doing without anything, and doesn’t care.”

Charles House, a former longtime H.P. engineer who now runs a research program at Stanford University, openly rejoiced when he heard that Mr. Hurd was leaving. “I think the sexual harassment charge was a total red herring,” Mr. House told me. He didn’t care. “I was delighted,” he said.

Mr. House’s brief against Mr. Hurd went well beyond his outsize compensation and penchant for cost-cutting. As Mr. House saw it — indeed, as many H.P. old-timers saw it — Mr. Hurd was systematically destroying what had always made H.P. great. The way H.P. made its numbers, Mr. House said, was not just cutting any old costs, but by “chopping R.&D.,” which had always been sacred at H.P. The research and development budget used to be 9 percent of revenue, Mr. House told me; now it was closer to 2 percent. “In the personal computer group, it is seven-tenths of 1 percent,” he added. “That’s why H.P. had no response to the iPad.”

Mr. House was also offended by Mr. Hurd’s dictum that H.P. executives had to resign from all civic boards, as well as his decision to cut off many of H.P.’s philanthropic activities. “H.P. has always been a model corporate citizen,” Mr. House said.

Plus, he said, Mr. Hurd was “incredibly rude and demeaning, and relied on the fear factor.” Mr. House summed up the Hurd era this way, “He was wrecking our image, personally demeaning us, and chopping our future.”

Are any of these firing offenses? They probably should be, but they’re not, not in the culture we live in. That is especially true when the leader who is busy chopping the future is also posting fabulous short-term profits. And, to give Mr. Hurd his due, H.P. after Ms. Fiorina was a place where the executives’ feet needed to be held to the fire.

Ah, but if you just whip up a personal scandal — make sure it has a little sex in it! — then you can get rid of your failed leader on the grounds that he “violated the company’s standards.” The world is full of imperfect people; if everyone who ever fudged an expense report or flirted with an outside contractor were fired, there wouldn’t be many people left in the American work force.

This is not to say that Mr. Hurd should be let off the hook for, in his words, failing “to live up to the standards and principles of trust, respect and integrity that I have espoused at H.P.” (Note, by the way, that he doesn’t concede that he violated H.P.’s standards of business conduct.) But a firing offense? Really?

On the other hand, putting up dazzling short-term numbers that have the effect of enriching himself while robbing H.P.’s future — isn’t that what a C.E.O. should be fired for? Firing Mr. Hurd for that reason, however, would have taken courage, something that has always been in short supply on the H.P. board.

One thing I found surprising this week was learning that to many H.P. observers Ms. Fiorina no longer seemed quite so bad. It was actually her strategic vision that Mr. Hurd had executed, I heard again and again. Her problem was that while she talked a good game, she lacked the skill to get that big, hulking, aircraft carrier of a company moving in the direction she pointed. Mr. Hurd was a brilliant operational executive, but had the strategic sense of a gnat, and knew only how to cut costs.

What H.P. needs in its next leader, Mr. House told me, is “someone with Carly’s strategic sense, Mark’s operational skills, and Lew’s emotional intelligence.” (Lewis E. Platt preceded Ms. Fiorina as C.E.O.)

That is a tall order, but not an impossible one. It is certainly plausible that the H.P. board can find such a person. Given its recent track record, though, don’t hold your breath.

  • Slideshow: Sex Scandals of the Powerful and Famous
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