Hurd Departure Could be Good for HP and Karmic Revenge for Patty Dunn

Rob Enderle
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As more details emerge from inside HP about Mark Hurd's conduct in recent years, another story is emerging. One of an executive who had lost touch with reality and was increasingly focused on his own compensation and the conviction that he was irreplaceable. With a board firmly under his control, he was partially right because it would have been difficult, if not impossible, to replace him while he was still chairman.

 

But the process involving a sexual harassment claim may have created the opportunity the board needed to fix a growing problem. It might simply have been the trigger and not the true cause of Hurd's departure. One of the HP insiders, 29-year HP veteran and Stanford scholar Chuck House (it is worth reading his blog) has gone public with his belief that the HP board put a "hit" on Hurd, and House is credible. Rather than my initial thought that a reality TV star, Jodie Fisher, set Hurd up, he may have done this all on his own.

 

If this is true, then HP is actually far better off without Hurd, but it also implies that some unfortunate decisions that Hurd made about employee compensation and morale may be reversed, actually benefitting the company. Let's explore this.



Fiorina vs. Hurd: Repeating Problem-Over-Compensation

 

HP has had to fire its past two CEOs for what may now appear to be similar problems created by the huge disparity between the massive compensation packages common in many corporations and the rest of the executive population. We already have study results that suggest that this disparity results in cruelty by the CEOs toward their employees, and both Fiorina and Hurd were known to be excessively hard on their subordinates.

 

At the foundation of HP's successful model was a company of folks sharing in its success and working together to ensure that success. Both Fiorina and Hurd transitioned this model into one that seemed to only compensate the top executives, particularly the CEO, for the success and to spread any failures across the employee population. The founders of HP likely would be appalled at these changes. While these changes would tend to have short-term financial benefits, you would think they would undermine employee loyalty, morale and those most in demand would leave.

 

Excessive compensation creates four known problems: It focuses executives on managing that compensation and not on the job; it causes them to mistreat subordinates, creating a hostile work environment; it causes them to believe they are above rules, resulting it really stupid mistakes; and it separates them from the reality that their customers live in, increasing their likelihood of making embarrassing errors that could have been easily avoided by others.

 

It is interesting that Larry Ellison, another executive known for sexual harassment problems, came to Mark Hurd's defense citing Steve Jobs. I wonder if it didn't put both of them on the soon-to-be ex-CEO watch list for their own mistakes and cover-ups (some rather active at the moment).


New Sequence of Events

 

If accurate, this new information from House suggests a different sequence of events and how the board may have actually used Hurd's protections against him. It suggests that this started not at the alleged accusation of sexual harassment, but at a set of behaviors from Hurd that the board could not move to correct. Their hands were tied and they were frustrated because Hurd was chairman of the company and had handpicked board members who would move with him to eliminate any board member who attempted a coup. They first needed to get Hurd out of the way.

 

The sexual harassment claim allowed the board to legitimately meet without Hurd because conflict-of-interest rules surrounding this issue would have prevented Hurd's participation. He likely believed he would easily survive an affair because there was an active lawsuit and the company would work to protect him to protect itself from a large settlement or judgment. And, in fact, the internal investigation concluded there was no sexual harassment.

 

However, as is often the case, he likely felt the board feared him enough to not move against him and that he was invulnerable. So he likely didn't anticipate the board members would use this opportunity to form a quorum and, according to Larry Ellison, get a 6 to 4 majority to remove him (now there is a breach of board confidentiality). It appears that Netscape founder Mark Andreessen, given his post-decision visibility, has been the board member driving the decisions in Hurd's absence, suggesting he is the new power player on the HP board.


Patty Dunn's Karmic Revenge

 

I had always felt that former board chairwoman Patty Dunn got a raw deal from HP, and House apparently shares this view. He implies that Hurd set her up for the fall in the pretexting scandal. During Carly Fiorina's tenure, there was a leak on the board that was creating significant SEC exposure (violation of disclosure rules) that the board chair needed to address. Initially the board members were cautioned, but after a short pause, the leak resumed. Dunn went to HP legal, sought external legal advice and hired a contractor to address the issue.

 

This private security firm fished the information out of a series of reporters and identified the board member who leaked information. This board member was fired. Another powerful board member, Thom Perkins, resigned because he felt that the transgression should only have resulted in another reprimand. Then, Perkins, in what appeared to be a vengeful response, aggressively used his influence to expand the visibility of the operation in an election year, which resulted in a number of resignations. This was after Mark Hurd was hired, and Hurd basically threw Dunn to the wolves. In hindsight, this appeared to be a move to remove her and her board, and replace both with one that was both loyal and subordinate to Hurd.

 

In world when boards often seem to do little more than collect paychecks and give CEOs rubber stamps to misuse corporate resources, Dunn stood out as something different and was one of the few women allowed to perform in a male-dominated area. Her trials, along with others, is documented in the book, "Bright Triumphs from Dark Hours," which tells that she was also fighting cancer at the time and paints Hurd badly for his lack of support. She is currently devoted to charity work, but my personal wish is that HP will offer her a board seat again.

 

This may be karmic payback for her, as she clearly believed strongly in a strong board. It was likely Hurd's lack of oversight from such a board that set the stage for his termination. I expect we'll see a return to a stronger board now that Hurd's relationship to HP has been terminated.

 

Wrapping Up: A Better HP

 

Hurd's removal sets the stage for a better HP with the hiring of a leader that isn't out of touch with its employees and customers. The company was once much better than it is. Since it isn't in financial distress and actually is running rather well, thanks to the division heads, it could rise to heights that Hurd was incapable of taking it. My hope is that HP's board, whether looking internally or externally, find someone that has a touch of the old HP magic and an eye for the future so that the new HP can be a blend of the execution it has recently shown and the heart it was initially famous for.



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