Q 23Q 23
On August 6, 2010, Hewlett-Packard (HP) announced that Mark Hurd was stepping down as chairman and CEO in response to allegations of sexual harassment and improper expense violations. The announcement sparked a fierce debate between self-proclaimed business pragmatists such as Larry Ellison, CEO of Oracle, who called it, "the worst personnel decision since the idiots on the Apple board fired Steve Jobs many years ago," and corporate governance specialists such as Jeffrey A. Sonnenfeld, senior associate dean at the Yale School of Management, who called it "a courageous call."
Ironically, the decision came at a time when HP seemed to have finally found its way again after more than a decade of "flakiness" that began in the late 1990s. CEO Carly Fiorina appeared to emerge victorious from a leadership power struggle over the merger with Compaq Computer, only to see HP stock lose half its value. She was paid more than $21 million to leave in February 2005. As we saw in Chapter 5, HP then limped along to another scandal as chairwoman Patricia Dunn (who had been appointed by Fiorina when HP made a public commitment to better corporate governance by splitting the CEO and chairperson roles) authorized the use of a private security firm to spy on board members and journalists in what became known as the "pretexting" scandal. In a reversal of the separation of roles, Mark Hurd, who had been hired from National Cash Register (NCR) to replace Fiorina as CEO, then became chairman as well.
The hiring of "numbers-guy" Hurd seemed to indicate a return to sanity for HP, and the performance delivered under his tenure seemed to endorse that choice. A few critics argued that Hurd got credit for implementing Fiorina's strategy, but under his leadership HP's stock doubled, and savvy multibillion dollar purchases of Electronic Data Systems (EDS), 3Com, and Palm propelled HP to sales of more than $100 billion, passing IBM as the world's largest IT company by revenues.
So how did things fall apart so quickly? Allegations of sexual harassment were brought by Jodie Fisher, an independent contractor working with the CEO's office as a "VIP host" at executive conferences. The exact nature of the allegations has remained confidential based on a financial settlement between Hurd and Fisher and a clarification by both parties that the relationship was not a physical one. The investigation by an outside law firm ordered by the HP board determined that the allegations were groundless. Nevertheless, the implication that Hurd falsified expense reports to conceal private dinners with Fisher was considered enough of a transgression for the board to demand Hurd's resignation. From the board's perspective, Hurd was being held to the same ethical standard as any HP employee.
Several questions remain unanswered. If the expense report transgression was serious enough to demand an immediate resignation, why was Hurd given a severance package estimated to be up to $40 million in cash and stock options? If the investigation into the sexual harassment allegations found no evidence, and Hurd stated that he didn't even fill out his own expense reports, why would the board see his departure as the only appropriate resolution? To take the conspiracy theories further, why did the board hire a public relations firm (APCO) to consult on the situation? Critics argue that the board was more concerned about revealing a third fiasco in the executive offices and therefore opted for Hurd's resignation under the guise of doing "the right thing" and enforcing HP's code of ethics. Others refer to Hurd's reputed unpopularity in the company as a cost-cutting CEO who took home over $70 million in compensation in two years while trimming the research and development budget for HP from 9 percent to only 2 percent of revenue. What better way to oust an unpopular leader than to create a scandal?
If the board really was hoping to avoid a third fiasco, it was spectacularly unsuccessful. In September 2010, Larry Ellison took his vocal support of Hurd one step further by hiring him to run Oracle as its "co-president." HP sued immediately, allegedly to protect the intellectual property it believed that Hurd would be taking to Oracle. The lawsuit was settled quickly, in the interests of convincing investors that everyone was getting back to business. However, there were some specific agreements in that settlement that only served to drag out the fiasco even further.
Oracle agreed to a "standstill" proviso in which it would not make an attempt to launch a takeover bid for HP (based, presumably on Hurd's insider information) for a specific time period. In addition, Oracle agreed to continue to offer its products on HP's server platform, based on Intel's Itanium chip.
With the agreement in place, the relationship between HP and Oracle took yet another strange turn when HP hired ex-Oracle executive Ray Lane as its new chairman. Lane, in turn, convince the HP board to hire Léo Apotheker, the ex-CEO of SAP, one of Oracle's biggest rivals, as the new CEO of HP. Oracle support for HP's Itanium platform suddenly stopped, and HP sued Oracle for breach of contract. Oracle alleged that HP was planning to hire Lane and Apotheker all along, but hid the fact during negotiations in full knowledge of the fact that both men were "toxic" to any ongoing relationship between HP and Oracle. The lawsuit was settled in January 2012, with the judge siding with HP.
How could the HP board have handled this situation differently?
Sources: Ashlee Vance and Matt Richtel, "Hewlett Took a P.R. Firm's Advice in the Hurd Case," The New York Times, August 9, 2010; Michael Hiltzik, "Ouster of HP Chief Hurd Has Look of Panic," LA Times, August 11, 2010; Joe Nocera, "Real Reason for Ousting H.P.'s Chief," The New York Times, August 13, 2010; Schumpeter, "The Curse of HP," The Economist, August 14, 2010; Ashlee Vance, "Despite H.P.'s Efforts, Spectacle of a Chief Goes On," The New York Times, August 16, 2010; Stephen Lawson, "HP Worried about an Oracle Takeover after Hurd Switched Sides," PC Advisor, June 19, 2012; and Julie Bort, "Mark Hurd Legal Scandal Won't Screw HP Customers After All," Business Insider, January 31, 2012.