GO
Loading...

Voting to Hire a Chief Without Meeting Him

Leo Apotheker
Source: HP
Leo Apotheker

The mystery isn’t why Hewlett-Packard is likely to part ways with its chief executive, Léo Apotheker, after just a year in the job. It’s why he was hired in the first place.

The answer, say many involved in the process, lies squarely with the troubled Hewlett board. “It has got to be the worst board in the history of business,” Tom Perkins, a former H.P. director and a Silicon Valley legend, told me.

Interviews with several current and former directors and people close to them involved in the search that resulted in the hiring of Mr. Apotheker reveal a board that, while composed of many accomplished individuals, as a group was rife with animosities, suspicion, distrust, personal ambitions and jockeying for power that rendered it nearly dysfunctional.

Among their revelations: when the search committee of four directors narrowed the candidates to three finalists, no one else on the board was willing to interview them. And when the committee finally chose Mr. Apotheker and again suggested that other directors meet him, no one did. Remarkably, when the 12-member board voted to name Mr. Apotheker as the successor to the recently ousted chief executive, Mark Hurd, most board members had never met Mr. Apotheker.

“I admit it was highly unusual,” one board member who hadn’t met Mr. Apotheker told me. “But we were just too exhausted from all the infighting.” During Mr. Apotheker’s brief tenure, once-proud H.P. has become a laughingstock in Silicon Valley. Its results have weakened, its stock has plummeted and his strategy shifts have puzzled people inside and outside the company. Hewlett did not respond to an email seeking comment.

The immediate cause of dissension was the board’s decision in August 2010 to demand the resignation of Mr. Hurd, who had himself assumed the top position in the midst of board leaks and a phone pretexting scandal surrounding efforts to determine the source of the leaks that had laid bare irreconcilable differences among directors. He had replaced Carly Fiorina, who was also summarily ousted by the board.

Though not without detractors, Mr. Hurd pulled off one of the great rescue missions in American corporate history, refocusing the strife-ridden company and leading it to five years of revenue gains and a stock that soared 130 percent. Then came an incendiary letter from the activist lawyer Gloria Allred, charging that Mr. Hurd had sexually harassed a former soft-core pornography actress named Jodie Fisher, whom he had hired as a consultant for H.P. The accusations set off another fierce board battle.

The board named a committee headed by Robert L. Ryan, a former Medtronic executive and H.P.’s lead director, and Lucille Salhany, another director who was a former chairwoman of Fox Broadcasting, to investigate the accusations. An outside law firm did not find that that Mr. Hurd was guilty of the harassment charges but had submitted false expense reports in what seemed an effort to conceal the relationship. Mr. Hurd denied having an affair with Ms. Fisher (as he has since done publicly) and said his assistant had first contacted her after seeing her on a reality television program.

As one director told me, “We said, ‘Mark, just tell us the truth.’ He stuck to this story. He interviewed the woman twice, there was no search firm, no job posting, no discussion with anyone else. He met with her alone on more than one occasion. To be the hostess at a party? Give me a break.” Complicating matters was evidence H.P. obtained from Mr. Hurd’s office computer showing that he had viewed videos of Ms. Fisher.

Once some board members became convinced that Mr. Hurd had not been totally truthful, they insisted he had to be fired. Mr. Ryan convened a meeting to decide Mr. Hurd’s fate by saying that he wanted to give every director an opportunity to speak, but that he would begin.

“I don’t believe him,” he said bluntly, and noted that under H.P.’s employee guidelines, any other employee who lied to the board would be fired. He was strongly backed by Ms. Salhany.

Two other members, Joel Z. Hyatt, a media executive and founder of Hyatt Legal Plans, and John Joyce, a former private equity partner, were adamant that Mr. Hurd should stay, at least long enough to groom a successor and arrange for an orderly transition.

“They were very vocal about it,” said one director. “It’s healthy to have differing opinions, but this went too far. It became fractious. There were so many hard feelings. It became difficult to conduct business in a civil manner.”

Still grappling with Mr. Hurd’s messy departure (H.P. sued him after he joined the rival Oracle as its president, later dropping the case), the company began a search for his successor. Four directors — Lawrence Babbio, John Hammergren, Marc Andreessen and Mr. Hyatt — volunteered to form the search committee.

A house divided...

Some other directors were immediately distrustful. They suspected that some colleagues hoped to advance their own ambitions, including in at least one case to be the next chairman. Others were so angry over Mr. Hyatt’s support for Mr. Hurd that they declined to participate in any committee he was on.

Running H.P. might seem to be one of the best jobs in corporate America. But the committee quickly discovered that a company whose board had summarily fired its last two chief executives was a hard sell to top candidates, said people involved in the search.

Among those who rebuffed H.P., they said, was Virginia Rometty, a senior vice president at I.B.M. Ray Lane, a managing partner at Kleiner Perkins and a former president of Oracle, also rebuffed their approach but indicated he might be interested in being chairman.

According to directors, the committee narrowed the field to three candidates. Mr. Babbio favored an internal candidate. But before Mr. Hurd’s ouster, he had told the board that he did not feel anyone at H.P. was ready to assume the top job. Mr. Andreessen favored Scott McNealy, a co-founder and chief executive of Sun Microsystems.

Mr. McNealy was a candidate who worried other directors, given his outspoken personality and his track record at Sun Microsystems, whose stock had dropped precipitously with him at the helm. That left Mr. Apotheker, who had lasted just seven months as chief executive of the German software giant SAP. While reasonably well known in Europe and in software circles, he was relatively unknown in Silicon Valley.

As one executive said, “We had a joke: the code name for the search was Léo Apotheker. Because no one had heard of him.”

“Léo had a lot in his favor, and a lot of deficiencies,” said one board member. Everyone thought he was extremely smart and knew the global software business. Among the deficiencies may have been the circumstances under which he left SAP, but when I pressed various directors, no one seemed able to recall just what those were.

“I know there was a satisfactory explanation, and we did look into it,” one person told me. Others did not want to comment. (It has subsequently been reported that while Mr. Apotheker was at SAP, the German company was sued and admitted that it had infringed on Oracle software copyrights after stealing them. SAP has said he was not responsible for the part of the company where the theft occurred.)

Before a final vote on Mr. Apotheker, H.P. search committee members again urged other directors to meet him. No one took them up. At least one director, Ms. Salhany, tried to slow the process, worrying aloud that “no one has ever met him. Are we sure?” But her concerns were brushed aside. “Among the finalists, he was the best of a very unattractive group,” one director said.

However hasty the process, board members felt they had little choice. “I believe the search committee did a good job. They worked hard. There were very few choices,” one participant said. “ So many people they called said they weren’t interested. People didn’t want to follow in Mark’s footsteps. But Mr. Apotheker was a mistake. We all made it. Sometimes you make a mistake.”

Mr. Apotheker was named H.P.’s chief executive, with Ray Lane as chairman, almost exactly one year ago. Almost from the day Mr. Apotheker arrived, H.P.’s operating results declined with dizzying speed, climaxing a few weeks ago when H.P. announced that it might — or might not — sell or spin off its PC business, with its $30 billion in revenue and strong market share.

H.P. also said it was abandoning it its once-vaunted operating system and its much promoted new tablet computer. The unexpected announcements highlighted what critics say are Mr. Apotheker’s weaknesses: little experience in H.P.’s dominant hardware businesses, including printers and PCs; an inability to communicate effectively; and a tendency to make major decisions only in consultation with Mr. Lane, and not with H.P.’s managers.

“The company is coming apart at the seams,” said one person familiar with H.P.’s operations. “Because they may or may not be selling the PC business, the enterprise side is completely frozen. The business customers who buy tens of thousands of these machines along with support contracts are shutting them out. Dell and Lenovo are all over these accounts. They’re having a field day. H.P. is self-destructing.” A full-page ad in major newspapers trying to reassure PC customers did little to assuage doubts.

Whatever the board does now, ultimately it is going to need to examine itself.

How did it let things get to this? That, at the very least, should be the subject for inquiry by yet another committee.

Symbol
Price
 
Change
%Change
HPQ
---
MDT
---

Featured

Contact Technology

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More

Squawk Alley