Monday, September 26, 2011

The HP board and the firing of its CEO

The Hewlett Packard (HP) board fired Lou Apotheker, its CEO,  several days ago, stimulating many questions about its functioning. The board hired Apotheker 11 months ago after a divisive and fractious board process through which they fired the previous CEO, Mark Hurd. By many accounts, Hurd had “pulled off one of the great rescue missions in American corporate history, refocusing the strife-ridden company and leading it to five years of revenue gains and a stock that soared 130 percent.” He was fired for submitting false expense reports to hide expenses, of between one thousand and twenty thousand dollars, incurred in dining with a woman contractor. Though she had earlier charged sexual harassment, the matter was settled privately and a law firm hired by the board subsequently found no evidence of sexual harassment. The woman, Jodie Fisher, also denied having any intimate or sexual relationship with Hurd. One person close to Hurd noted, “Mr. Hurd did not have a romantic relationship with Ms. Fisher. He did enjoy her company at meals as he wound down from long days.” They had worked together at sales and promotion events.

The firing of Hurd divided the board, with one board member noting, “There were so many hard feelings. It became difficult to conduct business in a civil manner.” Or as another board member put it, the board “was rife with animosities, suspicion, distrust, personal ambitions and jockeying for power that rendered it nearly dysfunctional.” Unfortunately, the divisiveness undermined the search and hiring of a successor. Apotheker was hired carelessly, for example none of the board members outside the selection committee chose to meet with him before or after he was hired, and they were aware that he had been fired from SAP 11 months earlier. Apotheker proved to be an indecisive leader, for example releasing an HP tablet to compete with the Ipad, only to withdraw it from the market six weeks later. In light of what transpired – a drop in the share price of 45% over the course of Apotheker’s tenure - the board looks self-destructive. 

Apotheker's hiring suggests that the board was in flight from a toxic process of its own making.  The proximate cause of the toxicity was its divisiveness. But what was the source of divisiveness? It seems plausible that the ambiguity surrounding the charges against Hurd. --he had not harassed Fisher, had no affair with her, and at most, perhaps out of embarrassment, he covered up some small expenses incurred while dining with her -- created significant anxiety rather than a clarity of purpose. 

To put it another way, a board in exercising leadership could under many circumstances feel proud that it took a difficult decision to uphold ethical standards even if this would harm the shareholders in the short run. Feeling proud they would dedicate themselves to managing the transition to a new executive with great care. But the board’s flight from the decision of hiring a successor suggests that they felt shame instead of pride. 

What might they have been ashamed of? One hypothesis is that in firing Hurd, despite the ambiguity of his lapses, board members felt they were “covering their tracks.” They felt under the gun themselves and they behaved more as victims than stewards.

Now political correctness can certainly stimulate such primitive feelings. But what is most striking in this case is the Board’s flight from its work, and if I am right, its sense of vulnerability.

There is a way in which many leaders today do not experience the authority of their own leadership roles. They are just one more among the many bit players trying to “make out.” Indeed ethical misconduct in the run-up to the financial crisis reflected this same dynamic. Feeling at risk despite the resources they had garnered, leaders retreated to the defense of their narrow self-interest and exploited their clients and customers. Ironically, while seeming to act bravely, the HP board acting cowardly. And this I suggest was the source of its shame.

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