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.

Last year, our most popular post by far was “HP’s Mark Hurd made $42.5 million in fiscal 2008.” The post has drawn a whopping 254 comments, with more still coming in.

So given the interest, it seems only right to post an update with Hurd’s last salary numbers for fiscal year 2009: $24.2 million. A story in the Mercury News this week covered the basics:

“The filing showed that Hurd, 53, got a salary of $1.3 million, down from his $1.5 million salary the year before.

His base pay was cut 20 percent in 2009 as part of companywide pay cuts announced in February. But Hurd recouped the difference with his $1.2 million bonus, which HP said included the amount its executives’ pay was reduced under the pay-cut plan. At the time of the cuts, Hurd said that all employees might wind up making up the difference in the form of bonuses if the company performed well.

Hurd received a $5.3 million bonus the year before.

HP, which is based in Palo Alto, said some executives’ bonuses were hampered by the fact the company’s revenue in all business units were below internal targets for bonuses set in January 2009, “at a time when the full extent of the economic downturn that had begun in the fall of 2008 was not known.”

Now, the story says that was down 29 percent from the before. Still was he worth it? Let us know what you think.

If job anxiety has a sound, it just got louder in Silicon Valley today when its largest company reported an unexpectedly dramatic slowdown in sales for its fiscal 2009 first quarter. One result is that the company is “reducing base pay and certain benefits across the company” beginning this quarter, according to remarks Cathie Lesjak made on the company’s earnings conference call this afternoon.

After the call was over, HP distributed more details of the pay reductions, including a 20 percent cut in base pay for its chief executive, Mark Hurd. Based on the $1.4 million salary he was paid last year, that amounts to a cut of $280,000. That amounts to a rounding error compared with the $42 million Hurd collected in total compensation last year.

Members of HP’s executive council will see their base pay cut 15 percent, with gradually smaller reductions made down to a 2.5 percent cut in the pay of non-exempt wage earners. The company is also capping its 401(k) match at 4 percent and ending the practice of selling shares to employees at a discount in its stock ownership plan.

Those steps, however, are not expected to do the trick on their own. “We need to do something more about our cost structure,” Lesjak is quoted in an interview reported by Bloomberg News. “We’re looking at the first quarter results and saying let’s model that that will continue for the rest of the year.”

One major reason for the decline in sales was a 19 percent drop in revenue from the company’s cash cow, the imaging and printing group. As CEO Hurd put it in the company’s conference call, “when you don’t have a job you’re not printing as much, is typically how it works.”

If you’re in the market for a printer, you might want to pay close attention. Lesjak, in speaking about challenges with inventory in the printing group said, “we need to get that inventory down.”

The company is still generating a whole lot of cash, enough so that it could spend another $1.2 billion buying up 34 million of its shares. Those shares, which lost 21.5 percent of their value in the last quarter, that got even cheaper in after-hours trading: down $1.94, or 5.7 percent, to $32.14 as of 4 p.m., according to data found on Yahoo Finance.

Hewlett-Packard gave its boss, Mark Hurd, $25.4 million in cash last year, including a $1.45 million salary and $23.9 million in bonus money, according to compensation figures contained in the company’s proxy which it filed late on Inauguration Day.

Throw in stock awards that the company  valued at $7.9 million, and don’t forget $738,392 in other miscellaneous items, including  $98,000 worth of dividends paid on his restricted stock holdings and $71,482 of “relocation” compensation paid out to Hurd, who joined the company more than three years ago.

HP’s proxy presents the 2008 compensation two ways and comes up with different totals, depending on how you count it up. According to the compensation committee’s view of things, they paid Hurd $23.3 million during fiscal 2008. However, the company reported compensation paid to Hurd of $42.5 million, including incentive payments earned from prior years but paid in 2008.

Either way, it’s a lot of money.

Hurd exercised options for 400,000 shares last year, which he sold, making $10 million in the process. Also, 336,666 restricted shares due him vested, worth $15.7 million at that time. They are now his, free and clear.

Has any large American company been so thoroughly transformed in recent years as Hewlett Packard? I started thinking about this when I heard the company planned to lay off 24,600 employees in the wake of closing its purchase of EDS in August. That represents about 7.7 percent of the combined workforce. On average, post acquisition layoffs range from 7 to 10 percent.

Still, the raw number underlying that percentage represents the latest in a series of dramatic moves to reshape this valley icon. First under Carly Fiorina, and now under Mark Hurd, the company is almost unrecognizable from the company that began this century. The most obvious signs of this are the blockbuster acquisitions: Compaq, Mercury Interactive, Opsware, and now EDS.

But underlying those big moves is the enormous upheaval within the ranks of HP and the companies it has acquired. To get a sense of how profound this has been, I went back to look at some of the numbers related to HP’s various restructuring announcements. By my count, including the enhanced retirement plan offered in 2007 and the EDS cuts, HP has gone through seven rounds of restructuring since 2002.

When the latest EDS cuts are completed, a process expected to take at least three years, the company will have announced lay offs of 57,500 since 2002. The total cost of laying off that many people: $9.01 billion dollars, about half of that in cash. I’ll explain how I got that figure in a moment.

Of course, these cuts only tell part of the story. Because while HP was ushering people out the door, it was busy letting even more in. Before the 24,600 layoffs announced this week, HP had already laid off 32,900. But during that same time, before the EDS merger, it’s total employment had grown to 178,000. That means while 32,900 jobs were eliminated, almost 60,000 were added back. At a company that once valued long-term employment, about one-third of its employees joined within the past six years. Can you think of another company the size of HP that has churned through that much of its workforce this decade?

Following such restructurings, executives like to emphasize the cost savings. In the announcement this week,  CEO Mark Hurd said the company would achieve annual savings of $1.8 billion once the layoffs are completed in 2011. But don’t expect that savings to necessarily show up in the bottom line. First, the company has also said it would hire another 12,300 or so folks back. Then factor in that other divisions of HP will continue to grow, and that some of that money will be reinvested elsewhere, and there won’t be a drop in expenses. Instead, there will be a reallocation of resources.

As Hurd said this week to analysts:

“I am a big believer that having the most efficient cost structure directly relates to your ability to scale and grow. We’ve got to do tough stuff.”

But aside from savings, there also costs. Including the latest round, HP will have incurred $6.6 billion in restructuring costs for severance and other related items. But that understates the actual total. In the announcement this week, Hurd explained that of the $1.7 billion charge the company will take related to the EDS restructuring, only $300 million will be counted against earnings. The other $1.4 billion will get added into the cost of buying EDS.

So what? That $300 million will count against HP’s profit next quarter. The $1.4 billion will go on the balance sheet where it is categorized as something called “goodwill” and won’t immediately affect profits. HP must test and occasionally reduce goodwill over time, and when it does, it must reduce its profits by a similar amount. The main point here is that HP can spread the cost of firing EDS employees over a number of years, which makes it in a sense less expensive in the short term for HP to fire EDS employees. If EDS had stayed independent and fired the same number of folks, it would have had to take an immediate hit on earnings.

To be clear, this kind of treatment is perfectly normal and legal under accounting rules. HP used this same accounting method when it acquired Compaq in 2002. The company incurred $960 million in charges for Compaq related layoffs that were added into the balance sheet, rather than reducing profits. And when HP bought Mercury Interactive in 2006, it did the same thing: $58 million in restructuring costs hit the balance sheet, not the income statement.

So officially, HP has recorded $6.6 billion in restructuring charges. But in fact, the real tally is closer to $9.01 billion.

Was that the best use of corporate assets? Depends on how much savings HP has achieved since 2002. And for reasons I noted above, that’s harder to deduce. Assuming all the cuts kick in by 2011, the company would have needed to achieve an average of $1 billion in annual savings.

It seems clear that EDS was certainly in need of some kind of kick in the pants. According to a Bloomberg story this week:

Hewlett-Packard generated eight times as much profit per employee as EDS last year. Hewlett-Packard had earnings of $42,200 per worker in fiscal 2007, which ended in October of that year, compared with $5,130 at EDS, according to data compiled by Bloomberg.

Whatever the wisdom of all this, a couple things are clear. First, HP has overtaken Dell as an industry leader and has tremendous momentum. And second, shareholders are clearly pleased: The stock has more than doubled since Hurd took over in April 2005.

(photo courtesy Dan Farber via Flickr)

After the tumultuous reign of Carly Fiorina, Mark Hurd was brought in to bring the boring back to Hewlett Packard. And for the most part, he’s succeeded. The stock is up about 50 percent over the past two years. And against the odds, Hewlett Packard has left rival Dell in the dust when it comes to PC sales (though it had some help from Dell’s little accounting problems).

Hurd has done all this by being the un-Carly. No flash. No big headlines. No game-changing moves. Which is what makes the announcement about EDS this week so surprising. Despite the size of the acquisition, Hurd tried to play it down, insisting he and HP were well equipped to handle the integration challenges. In one filing with the Securities and Exchange Commission, the company even posed the question: “HP has said it was not focused on transformative acquisitions.  Is this not transformative?”

HP’s answer:

“This acquisition fills out a part of our portfolio that we consider to be strategically important. This acquisition will strengthen our ability to compete in the important services segment. By using our technology to automate, we will be able to drive greater efficiencies for our customers on a global basis while expanding our offerings in key segments and extending our reach in important vertical industries.” 

But that doesn’t really answer the question.

In fact, the deal will add 140,000 EDS employees to HP’s 172,000. Tranformative? I’d say so. Over half the folks at HP-EDS would be working in services (HP says it has 70,000 employees in the services category.

To get the efficiencies Hurd wants, he’s going to have to whack a lot of people to get there. Granted, HP has developed a certain expertise in this area, having canned a whole town’s worth of people this decade. It’s not a question of whether there will be more layoffs after this deal, just a question of when and how many. And most importantly, how big of a distraction will this all become?

Hurd is trying to make this deal seem as boring as possible. But by imitating a deal that Fiorina tried but failed to pull off when she bid for KPMG, and by setting his sights squarely on IBM, Hurd is creating a lot of drama and raising the stakes on his tenure.