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 user 2005-02-16 at 10:48:00 am Views: 77
  • #10296

    Should CEOs tell truth about
    being in trouble?
    Carly Fiorina’s refusal to admit
    she was in trouble is no secret.

    Two weeks ago,During a meeting with
    journalists at the World Economic Forum in Davos, Switzerland, the now-ousted
    chief executive of Hewlett-Packard said her relationship with her board was
    “excellent.” Rumors were swirling that H-P directors were unhappy with the
    company’s financial performance, but she insisted that “since the merger (of
    Compaq Computer and H-P in 2002), our competitive performance has improved in
    every dimension.”

    H-P directors may not have been pleased
    to hear that Ms. Fiorina thought everything was hunky-dory. They had already
    told her she had to open up the office of CEO and give more day-to-day authority
    to several operating executives. Last week they asked for her

    What should a CEO whose company is
    rumored to be in trouble and whose tenure may be on the line do or say? Is it
    suicidal to admit publicly that things haven’t gone as expected and own up to
    mistakes? Or should business leaders always appear confident, even

    “No CEO who is still leading a company
    and serving customers can announce publicly, ‘I’m just about out of here,’ ”
    says Jim Citrin, a managing partner of executive recruiter Spencer Stuart. “But
    the first job of any leader is to define the real situation he or she is in. If
    you are on thin ice and asked about that, you might say ‘My job is to drive
    value, and we’re not doing that as well as we can, so I’m going to try to do
    whatever it takes.

    ‘ “

    But admitting weakness doesn’t come
    naturally to most CEOs. So many are surrounded by subordinates who want to
    please them that all they ever hear is “everything you are doing is right.” When
    problems do arise, they often blame others, producing a culture of fear that
    further stifles frank feedback. When H-P badly missed its fiscal third-quarter
    financial projections last August, for instance, Ms. Fiorina fired three top

    Taking responsibility can pay off,
    though. In October 2000, five months after she took over as president of Xerox,
    Anne Mulcahy bluntly told Wall Street analysts that the company’s business model
    was unsustainable. Her challenge, she said, was to radically restructure,
    abandon Xerox’s reliance on its aging copier-machine business and stave off
    bankruptcy. Within hours, Xerox’s stock fell 60 percent. “Some (Xerox) people
    had warned her that the market would react badly, but she wanted to be candid
    about the situation we were facing,” says Christa Carone, a Xerox

    Ms. Mulcahy also traveled to numerous
    Xerox sites to talk with employees. “She looked people in the eye and said,
    ‘This is going to be one of the most stressful situations of your life, so if
    your heart isn’t in it, please don’t stay,’ ” says Ms. Carone. To stay solvent,
    Xerox eliminated profit sharing and outsourced half of its manufacturing,
    shrinking its work force 41 percent to 58,000. But under Ms. Mulcahy, who is now
    chairman and CEO, the company has also cut debt in half, moved heavily into
    digital products and increased cash flow from zero to $1.5 billion at the end of

    Just because CEOs own up to
    difficulties, though, doesn’t mean they necessarily get to keep the top job. As
    head of Electronic Data Systems, Richard Brown had a tough time in 2002, when
    the company was hammered by the bankruptcies of WorldCom, United and US Airways.
    When the company missed its third-quarter earnings forecast, he took it hard.
    “You feel a pit in your stomach and like a failure,” he said then. But he also
    said, “I own this problem.”

    He was surprised when, early in 2003,
    his board asked him to resign, according to a person familiar with the
    situation. (Mr. Brown couldn’t be reached for comment.) One reason for his
    ouster: He apparently didn’t seek help from directors to create a turnaround
    strategy, and thus didn’t have their allegiance.

    “No one can be a master of the
    universe,” says Roger Enrico, former chairman and CEO of PepsiCo, who was among
    the EDS directors who asked Mr. Brown to resign. The most effective business
    leaders, says Mr. Enrico, who is also a director at Target, Dreamworks and Belo,
    “know their strengths and their weaknesses and are very honest with their boards
    about getting help.”

    Ken Freeman, former chairman and CEO of
    Quest Diagnostics, thinks executives must be “brutally honest” not just with
    directors but also employees and customers, especially when trying to turn a
    business around.

    Earlier in his career, as head of
    Corning’s TV-glass business, he had to convince employees they would lose their
    jobs unless they improved quality. But he was the fourth head of the business in
    as many years, “so when I went to our factory, employees figured they’d outlast
    me,” he says.

    To make them listen, he shut the
    factory for nine days and invited his biggest customers to address them. One
    customer said he would stop buying Corning products in six months unless the
    quality improved. “Employees who had turned their chairs away from the stage
    suddenly turned around and listened,” says Mr. Freedman. Within a year, they had
    overhauled manufacturing processes and solved the quality problems.

    The Music Stops for a Rock Star
    Carly Fiorina tried to jump-start staid HP by adding a
    dose of Hollywood glitz and celebrity cool. But in a post-Enron world, style
    alone just wasn’t enoug

    Feb.05 – Even in a belly-baring, hip-hugging plaid suit, singer Gwen
    Stefani couldn’t save Hewlett-Packard CEO Carly Fiorina. Neither could U2′s the
    Edge, Sheryl Crow, Alicia Keys, Ben Affleck or Matt Damon, who talked about his
    production company’s use of HP technology and joked, “I think I’m married to
    Carly, I’ve thanked her so much today.” These stars all made appearances over
    the last two years during Fiorina’s public speeches, as part of an effort to
    sprinkle Hollywood glitz and rock-star cool on her company, a Silicon Valley
    pioneer associated more with pocket protectors than celebrity schmaltz. Fiorina
    set out to prove that the high-school nerd really could hang out with the cool
    kids, and for a few years, at least, it seemed to work.

    it didn’t last. The HP board of directors asked Carly Fiorina to resign last
    week, ending the six-year reign of the highest-profile woman in American
    business. HP’s dismal financial results provide the easiest explanation for the
    dismissal: while its revenues are climbing slowly, its stock is down 50 percent
    since her tenure began, and her poorly conceived and contentious takeover of
    Compaq has done little to strengthen HP’s balance sheet. (The poor performance
    perhaps justified the board’s particularly harsh public statement, which didn’t
    contain the usual excuse of a suddenly demanding family.)

    the problem wasn’t just the substance of Fiorina’s leadership—it was also her
    style. She had plenty of it. Fiorina brought panache to HP: she combined the
    showmanship of Steve Jobs with a dash of Donald Trump’s ostentatiousness.
    Instead of working quietly for the first few years to fix the company, she
    believed that building buzz for herself—including appearances in early TV
    ads—was key to re-energizing staff and exciting customers. Tech CEOs named Jobs,
    Ellison and Gates can get away with this; as founders, they seemingly have more
    leeway in cultivating a cult of personality. But Fiorina’s style clanged
    dissonantly off HP’s wonky products and the staid corporate culture that HP
    founders Bill Hewlett and Dave Packard initiated 65 years ago in a Palo Alto,
    Calif., garage. Some employees loved her—but many disliked her and were no doubt
    glad to see her go. Last week, interim CEO Robert Wayman told NEWSWEEK that
    senior executives “were very pleased with the reaction of the employees to all
    the communication. They were way more comfortable than [senior execs] had
    worried they would be.”

    the benefit of hindsight, Fiorina’s outgoing approach seems like the wrong
    strategy at the wrong time. But back in 1999, it was exactly what the HP board
    of directors wanted. At the time, the Asian financial crisis had wrecked HP’s
    bottom line and the company had missed out on the Internet boom. The board
    decided that HP needed a bomb thrower. They tapped flashy 44-year-old marketing
    and sales whiz Fiorina, who, one director said at the time, “has an exceptional
    track record of accelerating growth in large technology businesses.” For leaving
    AT&T spinoff Lucent to take over HP, they paid her $69 million in signing
    bonuses and stock grants.

    Fiorina immediately did what she was asked to do, transforming all
    aspects of the company. Along with streamlining how the company was organized,
    and instituting large bonuses for sensational employee achievement, she bought a
    corporate jet, a first at the company. She also placed her own portrait
    alongside those of the founders in HP’s main lobby and made the infamous ads,
    featuring herself, speaking in front of the garage where HP was founded—only it
    was a fabricated look-alike, because camera crews couldn’t get access to the
    original. Employees felt their sacred culture was being corrupted.

    new parade Fiorina tried to lead quickly began to lose followers, including her
    own board. The directors endorsed a 2001 takeover of the consulting arm of
    PricewaterhouseCoopers that would have helped HP compete with IBM, then changed
    its mind and withdrew the offer (IBM later bought the consulting unit). They
    also approved Fiorina’s 2002 bid for ailing PC company Compaq, but then director
    Walter Hewlett backtracked, leading to a destructive yearlong proxy and legal
    battle. “The board never really got back in sync,” says Brian Sullivan, CEO of
    executive-search firm Christian Timbers, which brought Fiorina to HP. (Sullivan
    now admits, “Perhaps there was an error in judgment as to what skills were
    needed at HP.”)

    results from the Compaq takeover fell short of her projections, Wall Street gave
    up on Fiorina. She crisscrossed the country, explaining her strategy of
    leveraging HP’s disparate technologies into a more comprehensive pitch to
    customers. But Wall Street concluded the acquisition did little more than give
    away part of HP’s valuable printer business to Compaq shareholders. Its brutal
    voting mechanism—HP’s stock price—was relentlessly down. Kevin Rendino, a
    portfolio manager with Merrill Lynch Asset Management who backed the deal in
    2002, now says, “I don’t know anyone who has any faith in her.”

    sagging stock led to questions about whether Fiorina had the time and skills
    necessary to oversee the day-to-day details of the 151,000-employee firm. Her
    board didn’t think so; it wanted her to bring on a strong lieutenant, the kind
    Bill Gates has in Steve Ballmer. But Fiorina thought she could do it all: run
    the company and jet to give speeches at global confabs like the World Economic
    Conference in Davos last month. That began to look bad when the financial
    results got worse and customers noticed problems, like the shipments of HP
    servers and storage products delivered late to customers last summer when the
    company was having software problems related to the merger.

    the end, Fiorina may have suffered in part from bad timing. While a high-powered
    marketing whiz seemed like the answer for HP back in 1999, the post-Enron,
    post-dot-com business environment appears better suited for low-profile,
    operationally minded chief execs who leave grandstanding to the quirky
    entrepreneurs, like the Google guys.The HP board now has to flip its old
    formula around and seek a quieter CEO with a better record at long-term stock
    growth.One thing is for sure: no singer or actor can help HP