At H.P., Governance Trumps Gossip - Commentary by Jeffrey Sonnenfeld
At H.P., Governance Trumps Gossip
By Jeffrey Sonnenfeld
Published August 26, 2010, on the New York Times DealBook Blog
Read the article in its original context on the New York Times website.
The legendary movie mogul Samuel Goldwyn once complained about a bland film script this way: "We want a story that starts out with an earthquake and works its way up to a climax." Some disappointed critics of Hewlett-Packard are similarly seeking escalating drama, revealing their concerns about frustrated gossip rather than frustrated governance. As a past critic of the old H.P. board, I salute this largely new board for getting it just right.
The H.P. board, with noteworthy courage, has emphasized long-term enterprise principles over short-term business performance. This is how great enterprises are built to last. The H.P. sequel may not be steamy potboiler, but it is a welcomed model of board governance after a steamy season of costly corporate cowardice elsewhere.
Shareholders suffered disappointing apathy from the boards of shattered companies as they rallied behind weakened leaders. This summer, the BP board seemed paralyzed as its overwhelmed chief executive, Tony Hayward, compounded tragic decisions about the Gulf of Mexico oil disaster with credibility-destroying communications. This followed years of the BP board’s circling the wagons around his scandal-plagued predecessor, John Browne.
H.P. was not BP. Instead of denying bad news through gauzy misleading public relations, H.P.’s directors promptly conducted an independent investigation, ensured due process and then made a painful decision to dismiss Mark V. Hurd, a highly successful chief executive who had increased shareholder wealth by 112 percent but who lost their trust. The minimal legal severance was paid with accumulated earned stock, but no accelerated vesting was offered, as other boards have done.
H.P. appointed its highly regarded chief financial officer, Cathie Lesjak, as its interim chief executive, and she enhanced her own independence by denying her candidacy for the permanent spot. Another great legacy of Mr. Hurd is H.P.’s exceptionally strong executive bench strength. Many hope that the H.P. board, like those at Intel, General Electric, DuPont and U.P.S., will fortify morale and cultural values by considering highly respected insiders for chief executive; top candidates may include Todd Bradley, Vyomesh Joshi, Ann Livermore and Shane Robison. A prominent outside search firm has also been brought in to guide H.P.’s board. These are all the right steps.
Thus, the hot tabloid-like headlines on Mr. Hurd’s exit have cooled into routine legal severance and a standard leadership succession process. Mr. Hurd is a talented leader with much to offer whose career need not be over. He can learn from this incident and easily rebound.
Still, as H.P. and Mr. Hurd move on to new but separate paths, some techies of Silicon Valley grasp for prurient details.
For example, ignoring H.P.’s just-announced strong third-quarter earnings across its businesses, Chris O’Brien, a columnist for The San Jose Mercury News, complained on Friday that "we still do not know the full story" about Mr. Hurd’s departure, adding that H.P.’s "only responsible option is to disclose the full truth so investors, employees and customers can judge how the board handled this situation."
Relishing the plot details that investors need to know about the personal relationship between Mr. Hurd and a controversial contractor, Jodie Fisher, Mr. O’Brien states:
There are certainly other questions we’d love to know the answers to ("Did they have sex?" "Did Hurd harass her?") … What was the nature of Hurd’s relationship with Fisher? The other supposed misdeeds stem from this one key issue. All sides say there was no sex and no affair.H.P. has disclosed that Mr. Hurd failed to disclose a "close personal relationship" with a contractor, indicating a potential conflict; that there were numerous instances in which the contractor, Ms. Fisher, was paid when there was no legitimate business reason; and that misleading expense reports had been submitted to conceal the relationship with Ms. Fisher. "The board concluded Mark’s conduct demonstrated a profound lack of judgment," Michael J. Holston, H.P.’s general counsel said.