Why Joe Nocera is wrong about why HP ditched Mark Hurd

Joe Nocera is one of the business columnists I respect most. So it’s rare that I find myself in strong disagreement with his take on an issue. But his blistering column about why he thinks Hewlett-Packard really got rid of CEO Mark Hurd is one of those instances. And since things in the New York Times have  way of becoming conventional wisdom, I think it’s worth explaining why his theory is almost totally improbable.

To be clear, I’m not defending the HP board or Hurd. As Nocera writes:

“In fact, the directors should be called out for acting like the cowards they are. Mr. 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.

The stand-up thing would have been to fire Mr. Hurd on the altogether legitimate grounds that the directors didn’t have faith in his leadership.”

I agree with that statement as written. And yet, I don’t agree with its larger implication. Yes, HP’s board is looking more and more like craven weasels every day. And they’re digging their own hole by not coming out with a plausible explanation for why Hurd was really ousted. I agree with Nocera completely on that point.

(As an aside, it seems the board is waging it’s own battle of counter spin by leaking at least one version of what happened to the Wall Street Journal this weeked. I’ll come back to this story at the end.)

While we don’t know exactly what Hurd did, it’s clear he did something. He had some kind of relationship with Jodie Fisher that went beyond professional but stopped short of sex. And whatever it is, he clearly shouldn’t have done it. He put himself in this pickle and has only himself to blame for that. And like the board, Hurd is also not explaining himself to the world, though most likely his separation agreements contains a non-disparagement clause of some kind. While telling the truth and stating the facts ought not to be considered disparaging to anyone, even if it makes them look bad, no doubt HP lawyers would use anything as grounds to recoup the $40 million or so that the board is paying Hurd to go away.

So where does Nocera go wrong? It’s with his conjecture on what the board’s real motivation was. In a nutshell, Nocera is arguing that the board secretly has disliked Hurd for years, in part due to his power play during the HP spying scandal. In the recent book, “The Big Lie: Spying, Scandal and Ethical Collapse at Hewlett-Packard,” former BusinessWeek writer Anthony Bianco claims Hurd was really the main actor, but managed to pin the blame on board chair Patricia Dunn.

Nocera then goes on to note that employees detested Hurd, citing an internal survey in which two-thirds of HP employees said they would bolt the company for another if they could find a similar job. Nocera writes:

“Then there were the company’s employees. The consensus in Silicon Valley is that Mr. Hurd was despised at H.P., not just by the rank and file, but even by H.P.’s top executives.”

So here’s the leap Nocera wants us to make: After several years of massive layoffs, savaging the HP way, and not being a nice guy, the board was looking for an excuse to ditch him. In essence, Nocera wants us to believe that all of the sudden, the board of HP developed a conscience.

When you look at it like that, you realize this theory is nonsense. First, let’s remember this is, in fact, just Nocera’s theory. Like all of us on this story, he’s on the outside looking. He doesn’t point to a source or an internal memo or anything that bolsters this theory. He mainly relies on conversations with ex-HP workers, who not surprisingly despise Hurd.

Next, the Mercury News has reported that Hurd and the HP board were in negotiations for a new contract until the sexual harassment allegation hit. That would seem unlikely if they really wanted to force him out somehow.

But the part of this that I have the hardest time swallowing is that all of a sudden HP’s board suddenly started caring about what employees thought of Hurd. After all, in its various configurations over the past decade, the HP board has signed off on the mass firings of more than 94,000 employees. This was part of a deliberate strategy to reinvent the company that was launched by ex-CEO Carly Fiorina and perfected by by Hurd. Here’s what I wrote on this subject back in June, when Hurd announced another 9,000 layoffs:

“It’s a ruthless, brutally effective strategy launched under former CEO Carly Fiorina and practiced with precision by current CEO Mark Hurd. Without question, the strategy has transformed HP from being the sickly also-ran at the end of the last century to its present position of dominant front-runner.”

The other side of this strategy is the $45 billion that HP has spent on acquisitions under both Fiorina and Hurd. The most recent of the deals was the acquisition of Palm, but HP is still digesting numerous others, including 3Com and the much larger EDS. To one degree or another, these deals were orchestrated by Hurd as part of a relentless march that increased the overall number of employees at HP from 88,000 (pre-Compaq merger) to more than 300,000 (current employment after layoffs).

Many of these most recent acquisitions remain very much works in process. There are complex integration and strategic issues to be worked out. Hurd, though rightfully dinged for being less than a visionary leader, still obviously had some strategic and operational plan in mind for all of this. And no doubt he communicated that to other executives. But he had developed a strong track record for pulling all of these things off. His successor will have to not just lead HP forward, but sort out this massive integration puzzle. HP’s board would be seriously crazy to jettison the architect of all this in midstream without a darn good reason.

Even worse, the HP board got rid of Hurd at one of the most dynamic and challenging times in the industry’s history. As a result of all the mergers and acquisitions by HP and others in recent years, the competitive landscape has completely shifted. HP now finds itself in direct competition with Oracle (thanks to the Sun Microsystems deal) and Cisco Systems (now that HP has gotten into networking via its 3Com acquisition) while at the same time the company is taking on IBM even more directly in the services market (thanks to the EDS deal).

That’s a lot for any new CEO to walk into. Plus, let’s not forget the company now probably needs to hire a new board chair and president. After this, it would smell bad if they don’t break all of those jobs up. When the board says all is well, carry on, well, I can’t believe they’re really that delusional.

For all these reasons, though, I think Nocera’s theory is just plain wrong. I admire him taking a strong stand and delivering a strong critique on the board’s handling this. But his reason for doing so is off base. When Nocera refers to “the real reason they got rid of an executive they didn’t trust and employees didn’t like,” the truth is that we still don’t know what that reason is.

Finally, a word about the Journal story today. The story relies on a source who claims the board was angry about Hurd’s settlement with Fisher, which supposedly short-circuited their own investigation and caught them off guard. I have a hard time buying that the board didn’t know Hurd was talking to the woman about settling, but I suppose it’s possible. But for me, the story boils down to this sentence:

“The account of thinking at the board—which has faced criticism to the effect that it rushed to judgment and that the ouster wasn’t warranted—contrasts with an account given by someone familiar with Mr. Hurd’s thinking.”

In other words, it’s “He said, She said.” And it still feels like we’re not closer to knowing the real story here.

 

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  • ” THE PALO ALTO WEAKLY” NEWSPAPER…

    Here are the best stories published in this short-lived underground newspaper between 1995 and 1998. I printed and distributed these to coffee shops, public libraries, bookstores, and record shops in Palo Alto and surrounding cities. I also published all of the stories online on Geocities and caused quite a stir… seems any time someone searched for “Palo Alto Police” my site came up first in the search results for years and years – uh oh!

    Hewlett Packard Company Operated Escort Service
    Female employees “entertained” company clients in exchange for promotions
    By Jonny K
    Palo Alto Weakly Staff Writer

    If your grandmother, mother, or wife worked for HP in the 1940’s, 50’s, or early 60’s there is a good chance that she was approached to work as a sort of corporate prostitute.

    Many young attractive female employees were coaxed into entertaining company clients, escorting them to dinner, dancing, and later to local motels.

    “It was made clear that we would receive benefits and advancement within the company if we showed them a good time,” says Edith Kellar, an HP employee of 31 years, “it was something all companies used to do.”

    As far as this reporter knows, no sexual harassment lawsuits have ever been filed against HP in this regard. Of course, in the 1940’s and 50’s, women really had no recourse for this type of sexual harassment and exploitation.

    “Some of the girls thought it was a chance to have some fun,” Edith recalls, “they would come in late to work after a night of drinking and who knows what else, looking terrible. The supervisors wouldn’t say a thing.”

    It is not uncommon to hear stories of women who have been forced or coerced into having sex with their bosses to keep their jobs or for promotions. But what makes this story unique is that the Hewlett-Packard company seems to have had a policy of offering sex to potential clients and business representatives in order to further the company’s interests.

  • Kyle

    I’m just one of HP’s employees, but I felt compelled to speak up. HP employees didn’t hate Mark Hurd. They hated Carly, but they didn’t hate Mark. Here’s a brief re-cap of HP’s adventure’s in CEO’s from outside of HP:

    1. Carly Firorina: Carly tried to redefine the HP Way, but she wouldn’t admit she was doing it. She told us HP had always been that way. She lied to us. She laid us off. She lied to us about what we could do to avoid being laid off. We collectively despised Carly and sang “Ding Dong the Witch is Dead” when she was fired. We really sang “Ding Dong the Witch is Dead”… at least in Roseville and Palo Alto.

    2. Mark Hurd: After the Carly debaucle, we got Mark Hurd. Mark Hurd was honest about doing away with big pieces of the HP Way. We hated to see them go, but at least he was honest. During Mark’s time, we didn’t despise him, but actually began to despise HP. We’ll always love the legend of HP. We’ll always pause and happily reflect on amazing ideals, amazing engineers, and amazing people when we think of Bill and Dave; but that hope that HP will once again embody the HP Way from the top down has been reduced to ash in the hearts of even the most die hard HP employees. This happened while Mark Hurd was the CEO, but we don’t hate Mark for it. He told us what he was going to do, and then did it.

  • Zingah

    I don’t think that settling with Fisher was as much the problem as the fact that when Hurd settled he obtained a confidentiality agreement that prevented her from talking to the Board and impeded their investigation. Nothing says he couldn’t get a confidentiality agreement that prevented her from talking to anyone except that she could cooperate in the Board investigation. Hurd’s end run was to shut Fisher up before the Board could complete their investigation. Why would Hurd do that, unless he had something to hide?

    The Board did the right thing in kicking him to the curb. Ten minutes or more watching soft porn of Fisher on a company computer? You mean with all that money he made, he couldn’t afford his own $300 netbook for matters of a non-work nature? That is a pretty big error in judgment on Hurd’s part. He assumed he was untouchable so he could do whatever he wanted without fearing the consequences. No one in the rank and file would expect to keep a job if they obstructed a company investigation. Why should Hurd?

  • joey

    So I am an HP employee, and I do despse Mark. The VOW points out that most people would leave if they received an EQUIVALENT job offer, not a better one. I found Mark to be someone that would cut jobs to receive his bonus.

  • Evan

    The witch may be dead but I fear her predecessor in the post-Hurd ruins will make Fiorina look like Mother Teresa.

  • Indian Techie

    Kyle – I am an HP employee as well. However I joined the company due to an acquisition on Mark Hurd’s watch. Right from day 1, integration of the company was on a rocky road. First , the vacation was cut by 5 days, pay increments were stopped. Later HP told foreign nationals that they would not persue permanent residency for them as was promised by our pre merger employer. That came as a shock and then we threatened to resign in mass. Thats when HP budged a bit. I got the first pay raise that time.

    I worked like a mad dog, spending a hell lot of hours in work throughout 2007 & 2008. All this time, I had some resentment. I always wished that HP never bought my company and many my colleagues felt the same. Finding a better offer in recession was not a good idea.

    Then came shock again 5% paycut and 2% cut on 401(k) match and no discount on espp. Thats a 7.5% paycut in total. We work in the area of consulting services. Now despite billing client consistently and working overtime for no pay, I got a 7.5% paycut.

    I did not like Marks Hurd’s layoffs but choosing between layoffs and paycuts, I would choose layoffs as paycuts cut into employee morale and causes good people to leave.

    My feeling from this went from resentment to hatred. I was thinking maybe there is a plan to reward loyal employees. But no. Loyalty is for suckers. I learnt a hard lesson. Now just as I interviewed with IBM, the same day I heard the news that Mark was fired.

    I am having a smile on my face since that day and I am not losing it. Not all HP employees have stock options, those who do and their options outweigh salaries will be happy with Mark but none of my colleagues are.

  • Glad2beGone

    I worked at HP for a short while a couple of years ago. The people were odd and the place was run like a sinking battleship. I laugh when I think of HP challenging Apple or Google, or whoever. Because it seems HP can’t afford coffee, let alone talented workers.

    The larger story though is why these big companies have become so terribel towards their employees. IBM, GM, HP, AT&T, no one really seems to like working for these “institutions”. Indeed one can find (and this should give the HP employee with a MS something to chew on) that the Federal Government offers as much as 60% better benefits and 30% better pay for the same level. There aren’t 40 million dollar severance deals there.

  • Chris, I want to congratulate you for the impeccable logic behind your demonstration. You are able to stay with the facts and resist the urge to look for a sensationalist angle to the story. It is possible Joe Nocera is right, but it is highly unlikely.

    More than the complex business issues facing the next HP CEO which you articulated well, the main challenge to the next CEO will be a cultural one. The rupture in corporate culture between the pre- and post Carly Fiorina ages has been brutal, effective in many ways but very dangerous in others.

    May I suggest that in future articles you drilll into this issue and give a hand to the HP Board in their decision to appoint the next CEO? Let me volunteer some thoughts.

    By way of background… After working at HP from 1988 to 1993, I eventually jumped ship to Sun Micro, frustrated with the slow pace of HP’s management by consensus approach. Many rising stars did the same in the pre-Carly era (let’s call them ‘self-perceived’ rising stars to be fair). What is interesting about these people, is that the vast majority kept a tremendous emotional bond with, and loyalty to, HP after their departure, in spite of the frustration that drove them to leave. This to me speaks to the tremendous brand value in the HP-way culture, in spite of its shortfalls.

    Keep in mind that these folks are of the age of the generation of the next HP CEO. A few have accumulated experiences that should qualify them for consideration.

    This said, not every rising star left the ship. Cathie Lesjak for example endured and thrived. She should be an incredibly interesting case study for you. No one expects Cathie to be a legitimate candidate for permanent CEO. Like Bob Wayman before her, she is a non-controversial figure expected to go back to her CFO job. That might be a mistake.

    Her profile may be what the doctor asked for. Built on a core of what is timeless in the “HP-Way”, with the ability to swiftly adapt to a less forgiving word – all of this in a genuine sense, without the Carly Gimmicks and with a better ability to evangelize the troops than Mike Hurd.

    For full disclosure, I am now the CEO of a $10 million company and do not even remotely qualify for any consideration myself. Cathie Lesjak was my first manager when I joined HP out of MBA school (and I believe I was the first manager she ever managed), but just for one year and I entirely lost touch with her 10+ years ago. So most of my observations are from a distance.

    From these early years I remember Cathie as smart, driven, and with all the qualities you would expect from a future successful CFO and interim-CEO. She was extremely loyal to the old HP-way. Yet she also thrived in the more “ruthless” era. She was too young, too junior, to be considered for the job when Carly or Mike Hurd took over, unlike HP old-timers who seemed to have just survived the transition, like Ann Livermore foor example, and who in my view would not be exciting choices for HP.

    It could be that the Cathie Lesjak profile is exactly what HP needs to steer the ship. It could be someone else. I just think HP would benefit from someone who at least in part grew in the HP way because the HP Way could also be a big reason for the company’s future success.

    I will be looking forward to reading your own thoughtful views on this.

  • I am an HP employee, I fully agree with your article and I think the board is making a big mistake in not telling the truth.
    First, they are officialy blaming Hurd for not being SBC but is a big lue on what really happen SBC on their side.
    Second, as long as thé true is not coming out thé média Will not let it go and it will be negative advertising for the company.
    Third, we are told to demain focus on our jobs but how can we in these conditions. Thé employees are also speculating on what the true raisons could be. They are not dumm and they deserve better explanations than what we got so far. They know that if the board decided to get rid of Hurd, it was for some very serious reasons.
    Fourth, I dont agree with above comments from Kyle, you must be a manager to talk like that. Yes Hurd said what he was doing, he was arrogant, greedy, autochratic brutal without much moral nor respect for the people. He was smart enough to givre huge bonuses to the top executives and all managers in the company in order tohave his plan executed. That is the same principles as for any dictaturship to be established you need fears for the many and huge rewards for the few. Kyle if you don’t agree with me you just have to look at HP internal and external surveys. Even during Carly’s year I have never seen so much anger expressed even publicaly on web sites or blogs of all kind. Employees would danse on the table when they heard about Hurd leaving the company, the only major disapointment is that he found the way to cash a “few” more millions.

  • Soon to be Ex HP

    I’ve been at HP for almost 20 years. Carly had those who disliked her, but her vision is what Mark executed on. She had the strategy, he had the execution capabilities. But once that strategy was complete, and there were no more jobs to cut, where was mark going to go? We need an innovative leader who can see beyond the hatchet jobs and revitalize HP.

    Employee morale is at an all time low, and while I disagree with Kyle, as people really do despise Mark, (and they absolutely loathe Randy Mott – we all hope he is next), I do agree that the HP Way is dead and gone, never to return.

  • QZZF1W

    I think that Mark Hurds usefullness had come to an end, and the board new it.

    It is one thing to grow the top line by buying companies, it is another thing to grow the bottom line through ruthless cost cutting. Hurd did great things with both of these brute force techniques, but neither of these are sustainable. Sustainable growth takes a whole lot more finesse, and Hurd didn’t have that. Moreover the qualities that made him great at the brute force methods are actually counter to the finesse that is now required.

    Everyone focusses on the R&D and the old hp way. Probably true, but I will give you another example.

    You have a manufacturing company, you lay off factories workers, great. People are comodities, People are costs, you get real cost savings from squeezing them.

    Hurd acquired a Services company, EDS, the rules are completely different, poeple are assets. You cant do the same thing. Yet he did.

    EDS made Hurd good money in the first year. ACtually buoyed up the fall in ink sales… But what did he do. He cut salaries from 5% to 20%. Fired a bunch of employees, let a bunch of 3rd party contractors go. And a whole bunch more walked across the street to 25% to 50% increases (EDS had been giveing raises for years). Now Hurd has made it impossibel to hire staff or contractors.

    So here is the thing EDS has had 1% bench for years. What that means is that every employee is genereating billable revenue or they are gone.
    So, yes HUrd certainly reduced costs. Unfoortunately every dollar he reduced in cost he walked away from 1.25 in revenue. And you gotta know that it is the best people who are leaving, not the deadwood. So, all of this sets up a very destructive cycle in a services company. People are truly the assets.

    The former EDS has and continues to walk away from 100’s of millions of dollars of profitable busines, all so Mark Hurd could reduce costs and make head count comittments to Wall Street.

    So now we are sitting a year later and we get results today and everyone is wondering why the former EDS contribution is down and not growing. That is Mark Hurd. In services the people are the asset and he has all but destroyed the asset.

    So taht is services, we can talk about R&D and investment as well. The point is that Hurd was not finesse player. ANd the days of growth from brute force were ending and the writing was on the wall that impact was
    poised to go negative.

    The board saW it, Hurds contract was up, time for a change.

  • Carly left with a small fortune from HPites…….
    Now she wants power, running and buying her way into office…
    (Wonder if my vote really is going to count….)
    “THEE HP Way” started going down hill when they no longer offered free coffee and donuts to the employees at the Stanford Park branch…Bill and Dave were very generous to the original employees and their families..simply put, others greed took over when they let go and loosened up the rein…………..

 
 
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