Lessons from the Mark Hurd 'Burning Eyeballs' Letter - Page 2

Rob Enderle
Manage Subordinate Relations


Office affairs are common but they can also be incredibly damaging to both the company and the families of those involved in them. This damage, as it did in this case, can become material to even large companies like HP and can cast a shadow over everyone involved. The worst are those between a manager and a subordinate because it cannot be easily determined if the relationship is coerced or if bonuses, promotions and raises were on merit or in exchange for sexual favors. As a result, the company is automatically liable. To make this even clearer, when a manager has an affair and the employee takes action, the company always loses.


When a top executive does this and gets away with it, it opens up a precedent that a subordinate can also use. For instance, in a technology company a few years ago, a third line manager began dating a woman two levels below him and actually asked that she be transferred to another group so he wouldn't be in violation of this policy. Both he and the woman were terminated for cause given the firm had a zero tolerance policy in this regard. Unfortunately, it was well known that the CEO had also had a similar affair, and retained his job, and a significant financial settlement resulted. While the payment was likely as much about keeping that CEO affair out of the news as it was about the uneven enforcement of the policy, the end cost to the company was the loss of two competent and, given they disclosed, ethical employees and the financial penalty.


Hurd's Mistake


If Hurd were going to settle the complaint personally, which he eventually did, the time to do it was before the Allred letter went to HP's board. Once that letter was received, the board had to investigate the complaint and the subsequent settlement, which shut down the investigation prematurely and then made it look like a cover-up. The board, which was split, concluded it had to terminate Hurd to protect itself from what appeared to be a credible violation of a number of HP policies. Hurd, by waiting until the board got the letter to settle, put the HP board in a no-win situation and it comes as no surprise that the board lost.


The long-term problem for Hurd is forcing a board into a no-win situation, which eventually cost most to lose their board positions and isn't high on the list of CEO attributes boards look for. Unless Hurd takes over as CEO of Oracle, which seems unlikely given Oracle's software core and Hurd's hardware focus, his chances of being a CEO again of a company like HP are very slim.


Had Hurd and his attorney recognized the very real risk and settled early, the Allred letter likely wouldn't have been written and both he and his board would have survived the event intact. Allred's approach was also flawed and appears to be more motivated to gain publicity than to assure a positive outcome for her own and future clients. Granted, without the publicity, she is less likely to get them, but had she made her case more compelling early on, the result that Hurd was paying for - the retention of his job - would have been achievable and Fisher wouldn't have the reputation she now has. Publicity is a powerful tool but it is a use-once weapon and it is certainly possible that once the letter was written, Hurd could have left everything up to HP and the monetary payment to Fisher, if any, might have been much smaller and HP could have painted Fisher in a much darker light in the process.


In this instance, Fisher won and Hurd lost badly largely because he settled late.


The HP Board


The HP board clearly struggled with both Hurd's firing and replacement largely because it didn't appear to have the core competence to manage the process properly. In a way, Hurd contributed to this as there had been a revolving door of marketing and PR executives at the company, making it difficult, if not impossible, to deal with any major PR event. However, there are crisis management firms that can be retained and a company of HP's size is certain to have problems with products, people or governments that will require these unique skills.


The board clearly didn't have anyone involved in this process who was significantly skilled in it, which is why many of the board members lost their jobs. They made poor choices in both how Hurd was terminated and who they picked to replace him, and events like the Palm collapse and the potential spin-out of the PC division cost HP around 40 percent of its value.


The HP board of this period failed to have adequate resources either from inside HP or reporting to the board and this has been an endemic problem going back to the hiring of Carly Fiorina a decade ago and largely why the company has had so much recurring and avoidable drama. In the end, if only to protect itself, a board has to assure it has available experienced resources to deal with likely events and, unfortunately, a misbehaving CEO is a likely event.


Wrapping Up


At the core of this problem appears to be a CEO with too much time on his hands and a board that either wasn't providing enough oversight, not an uncommon problem, or wasn't equipped to handle a CEO scandal. This last is the more troubling because Carly Fiorina's firing, Hurd's firing and the pretexting scandal that tarnished the HP brand should have resulted in a board better able to prevent or at least be more capable of reacting to executive problems, yet the new board appeared to start without learning a thing from the old board's mistakes.


This points to a final problem and that is the seeming inability to pass knowledge that is hard earned from board to board, or from employee to employee, which tends to result in repetitive and avoidable mistakes. Given HP is in the information business, this might point the way to a process that could eventually become a lucrative product that could both generate revenue and better protect HP next time. It could also point other technology companies to the same opportunity and core benefit because scandals, like lightning, seldom hit the same company in the same way twice.

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