Jack Welch vs. HP's Board: Why He's Wrong and Why Apple Should Listen

Rob Enderle

In a sharply worded statement covered nicely in The Wall Street Journal, former General Electric CEO Jack Welch said:

The Hewlett-Packard board has committed sins over the last 10 years. They have not done one of the primary jobs of a board, which is to prepare the next generation for leadership."

He continued saying that leadership was evidently a low priority at the company. While it is hard to argue with the result, given recent events, the tendency to point blame without analysis seems to touch both the high and the low. When people fire from the hip, they sometimes hit the wrong target.

 

I think these statements point to two problems, one that Welch points out: the lack of mentoring at the executive levels. The other is the excessive focus on blame rather than causal analysis. I think the former problem is bigger at Apple than at HP, and I think the latter problem is the more critical at HP because if you don't understand the cause of a problem, you'll probably never really fix it. Chronic mistakes, like fires, aren't fought by putting effort into extinguishing the flames, but by removing the fuel. I think Welch forgot this before he spoke.

 

Where Welch Went Wrong

 

Welch's comments suggest that HP has had the same board members throughout the period he is talking about. This hasn't been the case. It also suggests that they didn't see this problem, and that hasn't been the case either. (Much of background behind this section is pulled from "The Big Lie: Spying, Scandal, and Ethical Collapse at Hewlett Packard" by Anthony Bianco).

 


HP's board has gone through a rather massive change over the past 10 years. Coming into the hiring of Carly Fiorina, it was still somewhat dominated by the founders' families, though a proxy fight drove the family members out of the company. Then the drama surrounding the board leaks and pretexting scandal once again forced a dramatic change a few years later. That gave the company three distinct and vastly different boards in a decade. With that kind of board trauma, it would be nearly impossible to assure a succession plan.

 

The cycle began with the board-driven need to bring in an outsider because they didn't like the internal candidates. That outsider's resistance to creating a strong No. 2 executive, a true heir, played into her downfall. That board wanted a successor to Fiorina, but her resistance plus her increasing belief that she was going to be going into politics forced her removal.

 

After Fiorina, Mark Hurd had lined up Todd Bradley to be his successor. However given the problems the board was having with Hurd, part of which was an inability to see market opportunities outside of his background, and Todd's similar issues, the board didn't like that choice. HP simply didn't have the necessary skills internally because Hurd had nearly killed off HP's software unit. So, once again, the board decided to go outside. But this wasn't because there was no succession plan, it was because the market was going in a different direction.

 

This suggests that the HP boards lacked the necessary power to focus the CEOs properly. This real problem, coupled with massive board changes, resulted in the CEO-transition issues that Welch is complaining about. In any case, much of this happened before the existing board members' tenure.

 

So if Welch had spent time looking at the cause of the problems, he likely would have focused more on the process that selected and compensated the CEOs, chairmen and board members. At least in HP's case, this process was more likely at fault.


Why Welch is Right and Apple Should Also Listen

 

Despite intractable CEOs and volatile boards, it really is in the company's best interest to have a strong succession plan. HP is an umbrella company, which means it has divisions that each have the equivalent of a CEO running them. These divisions have generally hired from within; HP has struggled with succession only at the top. However, Apple is tied tightly to Steve Jobs, and there is really no one who has been well-positioned to take his place.

 

The CEO job at Apple includes responsibility for successfully pitching the products and the company has clearly suffered when Jobs has been unable to do it. While Tim Cook is performing the operational role, he has never stepped up - nor has anyone else at Apple - to Jobs' level in building consumer excitement for the company's products. This is largely unique to Apple as well, suggesting that it doesn't have the option of going outside. It must build a replacement for Jobs or take a massive hit when Jobs eventually leaves.

 

Carmine Gallo actually has two books out on how to be Steve Jobs. "The Presentation Secrets of Steve Jobs" and "The Innovation Secrets of Steve Jobs," but part of replacing someone in this role is to build up their image up so they can step in and the consumer audience will accept the replacement.

 

Wrapping Up:

 

Welch is right that HP's rapid replacement of CEOs from outside reflects problems in the company. However, his focus first on applying blame and then suggesting replacing the board doesn't take the cause of the problem into account. Given that this problem partially resulted from prior catastrophic board replacements, it could make the succession problem more pronounced because it would make the board even less stable.

 

Succession planning is very important, but it's even more important to analyze a problem before offering a solution. In the end, a measured approach to problems will eliminate them permanently.



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