Mon, Aug 16, 2010 page10

• Real reason for ousting HP’s Mark Hurd was not sex

  ‘RED HERRING’ The sex scandal was the pretext for Hurd’s resignation, but in reality, as CEO he had made many enemies, especially in gutting the company’s R&D budget

  • NY TIMES NEWS SERVICE, NEW YORK
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  The resignation of Mark Hurd last week from his seemingly secure post as chief executive of Hewlett-Packard (HP) has got to be one of the great head-scratchers in recent times.

  Here’s a guy who walked into a very troubled situation, replacing Carleton “It’s All About Me” Fiorina, and oversaw what appears to be a magnificent turnaround. In his five years at HP, every metric Wall Street uses to judge companies had gone in only one direction: up.

  Its revenue last year was US$115 billion, up from US$80 billion when he took over.

  Four years ago, HP even leapt past mighty IBM in revenue, making it the country’s biggest technology company. Its average annual 18 percent profit increases were remarkable given the company’s mammoth size. And the stock price more than doubled on Hurd’s watch.

  Stories about Hurd lavished praise on his no-nonsense style. HP under Hurd has “become the benchmark for efficiency in an industry known more for its ­­whizbang appeal than its operational excellence,” wrote Adam Lashinsky of Fortune last year.

  Four months ago, Forbes put Hurd on its cover, attributing HP’s success to “dramatic cost-­cutting” and “a brutalizing culture of accountability.”

  Even Hurd’s temporary replacement, chief financial officer Cathie Lesjak, who seemed to go out of her way to diss him, said in the news release announcing his resignation that “our ability to execute is irrefutable.”

  And then, on Aug. 6 — poof! — he was gone, brought low by a sexual harassment scandal.

  Or was he? In the news release, HP noted that while a claim of sexual harassment had been made, an investigation had cleared him of the charges.

  Instead, the company alluded vaguely to “violations of HP’s standards of business conduct.”

  When pressed, HP said that Hurd had fudged some expense reports. (It also said that his relationship with the woman, a small-time HP contractor, was a conflict, even if no sex was involved.)

  In fact, Hurd’s supposed peccadilloes were a smoke screen for the real reason they got rid of an executive they didn’t trust and employees didn’t like.

  Hurd’s sudden departure from HP can be traced, in truth, to the last time the HP board did something shameful. That was the infamous “pretexting” scandal, which burst into public view about a year-and-a-half into Hurd’s tenure.

  The essential allegation was that the company, led by its board chairwoman, Patricia Dunn, had gone way over the line in investigating a series of damaging leaks, including hiring investigators who used false pretenses to obtain phone records of people suspected of being the leakers.

  According to The Big Lie: Spying, Scandal and Ethical Collapse at Hewlett-Packard, an authoritative account by the former BusinessWeek writer Anthony Bianco, Hurd was very involved in HP’s efforts to hunt down the leakers. After the scandal broke, he hijacked HP’s internal investigation, hiring an outside law firm and ordering it to report directly to him, instead of the board, which is the normal practice.

  Dunn wound up taking the fall, because the board member who revealed the pretexting, Thomas Perkins, the former venture capitalist, had it in for her. So the allegations were skewed to make her look bad.

  Dunn stepped down as chairwoman, replaced by Hurd. Then, Hurd forced her off the board entirely, threatening to resign if she stayed. In October 2006, Dunn, who was also being treated for cancer, was indicted by the California attorney general on identity theft and fraud charges, only to have them tossed out of court five months later.

  “There was a residue of mistrust because of the pretexting scandal,” said Bianco, who added, “I conclude in the book that he lacks the moral character to be CEO.”

  Then there were the company’s employees. The consensus in Silicon Valley is that Hurd was despised at HP, not just by the rank and file, but even by HP’s top executives. (Perhaps this explains why Lesjak was so quick to denigrate him once she took over.)

  “He was a cost-cutter who indulged himself,” was one ­description that was heard.

  His combined compensation for just his last two years was more than US$72 million — a number that absolutely outraged employees, since their jobs were the ones being cut.

  Rob Enderle, a well-known technology consultant, noted that in recent internal surveys, nearly two-thirds of HP employees said they would leave if they got an offer from another company — a staggering number.

  After Hurd’s resignation, an anonymous HP employee wrote on the Internet: “Mr Hurd cares about one thing, how much money is in it for him. As an HP employee, I see it every day. We don’t have the tools to do our job, but he isn’t doing without anything, and doesn’t care.”

  Charles House, a former longtime HP engineer who now runs a research program at Stanford University, openly rejoiced when he heard that Hurd was leaving.

  “I think the sexual harassment charge was a total red herring,” House told me. He didn’t care. “I was delighted,” he said.

  House’s brief against Hurd went well beyond his outsize compensation and penchant for cost-cutting. As House saw it — indeed, as many HP old-timers saw it — Hurd was systematically destroying what had always made HP great.

  The way HP made its numbers, House said, was not just cutting any old costs, but by “chopping R&D,” which had always been sacred at HP.

  The research and development budget used to be 9 percent of revenue, House told me; now it was closer to 2 percent.

  “In the personal computer group, it is seven-tenths of 1 percent,” he added. “That’s why HP had no response to the iPad.”

  Plus, he said, Hurd was “incredibly rude and demeaning, and relied on the fear factor.”

  House summed up the Hurd era this way, “He was wrecking our image, personally demeaning us, and chopping our future.”

  Are any of these firing offenses? They probably should be, but they’re not, not in the culture we live in. That is especially true when the leader who is busy chopping the future is also posting fabulous short-term profits.

  Ah, but if you just whip up a personal scandal — make sure it has a little sex in it! — then you can get rid of your failed leader on the grounds that he “violated the company’s standards.”
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