HP’s board, CEO Mark Hurd’s resignation, and the morality police circus in Corporate America

Corporate America has done it again. They pulled out their “morality” card and managed to topple one of the most powerful tech executives in the country. If you don’t know about HP CEO Mark Hurd’s resignation by now, I won’t get into details, just google “Mark Hurd resignation” and you’ll get thousands of links to the story. In short, Mark Hurd resigned abruptly late last week after investigations into a sexual harassment suit revealed that he had tweaked his expense accounts to hide the woman’s name.

I’m no big fan of Mark Hurd’s. I’ve been on the record criticizing him when it came to light that he was severely cutting back on HP’s R&D activities, and later again when he mocked cloud computing. But this?!

Granted, whenever you find sex, money, and power mingled together, you’re bound to have a good story. I intentionally waited a few days for more news to come down the pipelines before writing about this, but nothing new is coming out on the story.

From all the articles I’ve read, it’s clear Hurd did nothing illegal. HP is in no way compromised legally or monetarily. Hurd didn’t spend lavishly on this woman (he offered to pay any money owed HP, which was a few thousand dollars). They both deny any physical relationship. And he personally settled the case with the woman in question prior to his forced resignation.

So why was the HP board so adamant to let him go? It’s the case of morality policing that’s all too present within Corporate America. They didn’t like the fact that he hid the name of this woman he hung out with, and possibly had a crush on. Here’s the question: if he tweaked other information that had nothing to do with a male/female relationship, would they have forced him to resign? Highly unlikely, they'd probably give him a wrist slap, rightfully so. But, oh, there was a woman involved and he had to resign.

This is nothing new.

Back in 2005, Boeing forced its new (and very promising) CEO to resign after the board was tipped off about an affair he was having with a company employee who didn’t directly report to him. No joke. They didn’t want the CEO to have a consensual affair.

A few years back I worked with a small public company struggling to increase sales. The company’s top sales executive was costing the company about 2-3 pennies a share every quarter from his total compensation and travel expenses. If you follow stocks and earnings reports, you know that’s huge. They didn’t fire him for his lackluster performance or his ridiculously lavish travel expenses. They fired him because they didn’t like that he was having an affair.

So back to Hurd.

The board didn’t mind that he practically decimated the R&D organization at HP (he was even on record making fun of the R&D folks).

The board didn’t mind that he acquired Palm, the bottom-of-the-totem-pole mobile player on the brink of bancruptcy, for a staggering $1.2 billion in cash.

No that was OK. But they didn’t like that he had a crush on this woman and wanted to hide it.

Here’s what I have to say to these boards. How about you focus on the CEO’s strategies, leadership qualities, and overall performance and let the wives slap them across the face for cheating on them? It’s much more their business than yours.

The first trading day after Hurd's resignation, HP's stock dropped 10% on almost 10 times the average volume. The board is lucky the damages weren't worse.

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And now that we’re moving on from Hurd, I think it’s high time HP promotes Anne Livermore to the CEO post. She’s a long time insider who was passed up in favor of Carly Fiorina back when the company was focused on hiring an outsider. She’s responsible for almost half the company’s revenues, and the most strategic businesses within HP (storage, servers, software, and services), and she’s probably the only person who has enough internal insight and operational capability to continue with the integration of the slew of HP’s recent acquisitions. Go Anne!

HP CEO, Mark Hurd, speaks from both sides of his mouth: cloud computing good for the customers, but not for HP

In my very first blog on The Directive, I wrote a not-so-nice article about Mark Hurd, the CEO of HP. The blog was a reaction to Hurd’s major cutbacks in HP’s R&D expenditures, and the idea was that by cutting back on R&D programs, HP would lose its innovative edge and corner itself into commoditized markets. I find myself perplexed by Hurd again. I have nothing against the man, or the company he leads. In less than 12 hours from publishing this article, I’ll be buying an HP laptop, so there.

This isn’t about laptops though. How much innovation is left in laptops? Or margins for that matter?

In a Q&A with Gartner analysts this week, Hurd made some comments about cloud computing that need major PR damage control. In a nutshell, he said that he doesn’t trust cloud computing due to security issues, and that if HP CIO, Randy Mott, had a big idea and wanted to put general ledger and accounting in the cloud, Hurd “would send him back to work.” He added, “We have 1,000 hacks a day and I can’t tell you why, but they keep showing up. We wouldn’t put anything material in nature outside the firewall.”

Really?!

This, coming from the CEO of a company that is heavily pushing cloud computing into the enterprise markets, and boasts articles and brochures about “Cloud Assure” for “enabling business confidence in the cloud.”

Wouldn’t you know, I have a few thoughts on this.

Thought #1. HP needs to think about why its customers should believe in cloud computing if HP’s own CEO doesn’t. Sales rule #1: believe in what you’re selling.

Thought #2. Millions of internet users trust in their banking and brokerage firms keeping their financial data in the clouds. If Fidelity and Wells Fargo have figured out how to keep client data securely in the clouds, shouldn’t HP be miles ahead of them? This is the company that’s developing the technologies for cloud computing in their R&D labs.

Thought #3. I work out of a small office on a single computer (sometimes two), and I get hacked several times a day (I know this because my computer is set to alert me with that annoying ding whenever a hack has been attempted). I have relatively inexpensive software to protect my computer and my data. 1,000 hacks a day on HP? I’m sure someone at HP’s IT can figure out how to deal with this. You can’t control the problem, but you can control the solution.

Thought #4. Cloud computing is here to stay. Instead of open expressions of doubt about this market and related technologies, shouldn’t Hurd discuss how HP is working to alleviate the problems in this relatively nascent market through innovation and technological excellence?

Thought #5. Google will lead the way and leave the rest in the dust. Enough said.

Thought #6. HP needs to ponder Thought #1, really really hard.

HP is on my radar screen because I followed the company’s product line competitively for many years. I have the highest regards for the company and its culture, but I want the company to show some signs of innovation again.

Bring back “HP invent” any time!

Is HP’s CEO, Mark Hurd, stifling innovation?

When I worked at Xerox many years ago, our division (unsuccessfully) competed with HP’s printer division. HP was the king of that sector, and all we could do was idolize the company and grapple for the dust they left behind. As masters of innovation, they drew the maps for everyone else to follow.

I hadn’t followed HP closely for some time, so when I ran into a profile of the company and its CEO in NY Times recently, I was a bit perplexed. Mark Hurd, who was brought in as the anti-Carly from NCR (not exactly the beacon of innovation), is known as a calculating left-brainer, obsessed with operational efficiency, and someone who would rather talk in numbers than words.

This worked out well for some time. Silicon Valley companies are not known for their operational efficiency, and this helped HP stay lean. But there’s more in the article. Since he arrived at HP, the HP Labs “has whittled down the number of projects it tackles at any given time to 30, from about 150”, and according to some employees “the willingness to take risks has faded”.

Really?! Is this HP, the “innovation company”? What did ever happen to the “HP Invent” mantra?

The core of HP’s products are in mature, highly commoditized sectors: printers, PCs, servers, storage devices, etc. And the problem with commoditization is the vicious cycle of continual price reductions feeding back into commoditization. Cost cutting becomes essential if the company is to survive, but the way to break this cycle is to feed innovation, to develop new technologies and product lines in order to ensure future revenue growth.

I thought I’d compare HP’s R&D expenditures to a couple of other companies: IBM, a tech behemoth, and Apple, the poster child for cutting edge products; and the results are quite surprising.

Here’s a look at how much each company spends on R&D as a % of revenues (common benchmark).

IBM: 6%
HP: 3% (lowered from 4% a year earlier)
Apple: 4%

Not a pretty picture for HP. IBM’s % is double that of HP’s. In fact, IBM spends over $6B in R&D annually (vs. HP’s $3.5B), and the result was that in 2008, IBM was awarded more patents than any other company. Apple has increased R&D expenditure by over 20% year-over-year but its % looks low because revenues also accelerated at a healthy pace.

And here’s a look at another (less popular) metric, the amount of R&D each company spends per employee.

IBM: $15,600/employee
HP: $10,900/employee
Apple: $40,600/employee

Even an uglier picture for HP, and a big WOW for Apple (this also shows that Apple has significantly higher revenues per employee – talk about efficiency!). But even if we assume Apple is an anomaly, IBM spends about 45% more in R&D per employee than HP does – those patents didn’t come out of thin air.


By the time Hurd took over in 05, HP’s stock was already on an upward swing, and it continued its upwards move. Reasons for the rise: general market conditions, Hurd’s cost cutting measures, and top-line improvements from the Compaq acquisition, among other factors.

But there’s only so much fat a company can cut out, and right-sizing can help a company’s balance sheet and stock price for only so long. HP has lagged its peers in new and exciting market development. Is it counting on acquisitions to refresh its product portfolio? If not, where will its stock price end up 2-3 years from now? Is HP forced into cost cutting because of its commoditized markets or is it unintentionally digging itself deeper and deeper into the cycle?

Finally, is HP competing on operational efficiency or on an innovation platform? At its extreme, excessive sandbox experimenting can waste valuable corporate resources, but intense efficiency measures and streamlining work better on factory assembly lines, and not necessarily so with high-tech R&D organizations.

This is HP’s post-post-Carly era, and the company needs to plan and execute accordingly. Perhaps Mike Hurd can allow himself to unleash innovation on a massive scale at HP, and allow HP’s talent to start drawing the maps like they used to. It’ll be good for him, and even better for HP.