HP, Hurd, soft porn & the morality game
What happened to Mark Hurd at HP was the stuff of Hollywood. Michael Moore or Oliver Stone to the fore?
There was no upside to HP’s reputation from ridding itself of Mark Hurd. The Economist described HP as Hurdless chickens. Wall Street pulled the rug on the share price. Shareholders looked on bewildered as, as the FT reports, transparency turned to opacity as the Board lost its nerve. Now let’s review how this might make a movie.
Married and slightly nerdy CEO gets obsessed with an events contractor, B-movie actress and former soft-porn star. He buys her dinner more times than he ought. She claims she was sexually harassed and hires a top lawyer with a nose for publicity.
The CEO gets cleared of the charge by the company. But he has difficulty explaining the more than $10k (perhaps $20k) he claimed on expenses to entertain her. He gets told to jump ship. As a result, HP’s share value drops by around $13 billion. That would be the opening scene. Then would come the flashback.
Mark Hurd’s predecessor knocks billions off HP’s share price after her fraught merger with Compaq proves nigh on disastrous. The Board that once backed Carly Fiorina decides to ditch her, but the news leaks. Yet only fellow Board members were in the know. So she orders private detectives to spy on the Board to uncover the traitor. Before they can report, Carly’s fired.
However, the chairman of the Board continues with the investigation (widened to include senior executives), which stoops to lies and deceit and unethical borderline legality. When the rest of the Board discovers how the culprit was identified, members resign in protest and the chairman is forced out. From then on, whenever somebody knocks on their front door, they fear that they’re being bugged by a colleague (the film would portray their spouses’ paranoia).
Carly’s merger antics alone mean that from day one, Mark Hurd is CEO of a company with a psychologically damaged and neurotic Board. The breaking of the spying story and near-implosion of the Board, just deepen his problems. But against the odds, he restores HP’s fortunes, winning widespread praise for the turnaround.
To top it all the temptress in the story proves to have a heart (surely that’s a heart on her sleeve?). She weeps and says she never wanted him fired. She backs up his defence and says that they never had intercourse. The audience weeps with her on behalf of their fallen hero.
What can we learn from this mess?
Above all, the scandal at HP is more about a failure of corporate governance, team-building and trust, than it is about Mark Hurd’s peccadilloes. The major issue for the Board was trust, and the issue of Hurd’s seemingly falsified expenses.
Contrary to popular opinion, corporate governance is not about CSR and personal ethics so much as about improving corporate performance. It is about making the right operational choices. It is about protecting shareholder interests and about assessing strategies to ensure that corporate assets are used properly to achieve corporate purposes. As Larry Ellison has pointed out, HP’s Board has clearly failed to do its job.
The PR consultants at APCO recommended, rightly, that the Board should proactively make a full disclosure of the “scandal”. However, they wrongly advised that Hurd should be sent packing. They produced mock scandalous headlines of what the media might say if Hurd was not ousted. This scared the risk-adverse, emotional Board. In APCO’s favour, however, they probably knew better than anyone else just how broken were the internal relations at the top of HP (leadership requires trust to function). This was no ordinary crisis.
The Board was like a rabbit caught in headlights. It first froze, then panicked. Not for the first time it collectively put personal feelings before the company’s interests.
Meanwhile, Wall Street punished the Board and the company for firing Hurd.
But what about Mark Hurd’s role in all this? His comment about his resignation (cue $40 million pay off) was revealing. He said:
“I did not live up to the standards and principles of trust and integrity that I have espoused at HP”
So, he knew that he broke the bonds of trust at HP, and that he was guilty of hypocrisy on the morality front. So here’s my guidelines for how to avoid such moral hazards in future:
• Don’t let PRs sell the politically correct narrative of your personal life.
• Don’t use personal virtues as a shield to promote your professional ones.
• Headlines about your personal virtues are hostages to fortune.
• Avoid the temptation to indulge in moral outbursts on any topic.
• Don’t bring your personal life to work or include it in your PR.
• Those who live by the sword die by it.
• Don’t lecture anyone (especially not your staff) about personal morality.
• Always assume that everything always gets into the media in the end.
• The public love sinners and winners. It loathes saints.
Well Paul I am sure that your guidelines and truisms are more than useful but I don’t see any of them that would apply to Hurd `though I think that the HP Board would do well to remember that ‘those who live by the sword ……etcetera.
None of us know the full story any right minded non exec would be asking:
– what on earth is a company like HP doing using an outside sole consultant to set up meetings with key customers – don’t we have a competent public relations department and/or people within it who manage the CEOs programme to do this?
– who signs off on the CEO’s expenses
– how come we’ve got ourselves into another mess that indicates pretty poor relations between the CEO and the board
Now those are matters of corporate governance and it is the Chairman of the board who should be in the firing line. APCO and/or whoever advises the board on Corporate Governance needs to focus on the corporate governance issues. Once is an accident, twice is co-incidence and board should be mighty wary of co-incidence because if Goldfinger is right the third time will be enemy action and that’s likely to be final.
Excellent analysis, as ever.
But there are one or two additional dimensions. Would a European business have been less bothered by the sex allegations (of two adults apprently not having sex)? And at least it’s still easier to be in business than in politics (curiously, Carly Fiorina’s new focus).
Richard, I agree. In Switzerland this would have been a non-issue. In France, at President Mitterand’s funeral his wife and his long term mistress stood side-by-side at the grave, accompanied by their respective legitimate and illegitimate children.
Peter, I think that HP’s Board can be described as dysfunctional. And I agree with you that the real problem is weak corporate governance and leadership at Board level. Third time “lucky”?
Paul – why does anyone want to serve on a corporate board these days? Sure, you get some cash (which you mostly don’t need), some perqs, some new lines on your resume…Oh, and you also get scorn for enforcing rules, or scorn for failing to do so. You’re too conservative, and too reckless. What a gig.
But, you’re right. The board seems to have panicked. This one should have been easy — pay the excess expenses back, apologize to the lady and if she sues, settle it. The issue has nothing at all to do with performance, and the responsibility is to run the company effectively.
We’re such a bunch of Puritans.
Sean, I agree about how it could have been handled. It is amazing how difficult simple things become when all kinds of baggage gets in the way of straight thinking.
As to why people sit on boards, I think it is because it is a great honour and responsibility. It is a means of giving back to society and doing something truly worthwhile. It should be much more celebrated and respected than it is. In short, corporate boards need better PR, and to perform better than HP’s board just did.
The New York Times has issued a correction, which seemingly relates to APCO’s role in all this:
Correction: August 12, 2010
“A headline on Tuesday about criticism of Hewlett-Packard after the resignation of its chief executive, Mark V. Hurd, misstated, in some copies, the recommendation of a public relations specialist consulted by the company. The specialist urged the company to disclose accusations of sexual harassment against Mr. Hurd; the specialist did not advise the company to oust him.” ends.
However, in the same piece as the correction the NYT also reports:
“An APCO spokesman said the company has a policy against discussing counsel given to clients.”
http://www.nytimes.com/2010/08/10/technology/10hp.html?_r=1