HP's Collapse: A Case of Sex, Lies, Hatred and Stupidity

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Date: Tuesday November 27, 2012 08:31:43 am
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    HP’s Collapse: A Case of Sex, Lies, Hatred and Stupidity

    SAN FRANCISCO - NOVEMBER 12:  (FILE PHOTO)  He...

    Saying that beleaguered tech giant Hewlett-Packard has “some challenges and shortfalls” that it needs to correct would be an understatement.  On the heels of reporting on another quarter where results impressed no one, HP dropped a bombshell on the market by recording a writedown estimated at $8.8 billion in its acquisition last year for Autonomy.

    While current HP management cries accounting fraud, former HP execs involved in deal as well as Mike Lynch, Autonomy’s former CEO assert that proper due diligence was done and its disclosures were highly transparent. Investors want to know what this really means for HP. The answer is simple – nothing.

    In other words, what do we know now about HP that has altered our expectations in any meaningful way? Did this news suddenly hurt its market lead? Or did it worsen its chances of beating Apple, Google and now Research in Motion in the age of new tech? Not really.

    The Shot “Hurd” Around the World

    Instead, what it means is that aside from the fact that the company’s board has made one poor hire after another, it highlights what I consider to have been its most egregious mistake – its failure to stand behind former CEO Mark Hurd in the guise of corporate governance. Hurd’s departure shook the grounds of Wall Street and rightfully so. He was the one person that had HP heading in the right direction. HP’s performance before and after Hurd is startling. Nonetheless, nobody could have envisioned what his departure would have meant for the company’s future.

    Hurd, who is now president at hated rival Oracle,  was ousted at HP over allegations of sexual harassment brought to the company by an outside contractor, Jodie Fisher. Fisher, who was an actress with several credits to her name including movies such as “Intimate Obsession” and “Sheer Passion” expressed sympathy for Hurd when she learned of his firing and saying that she was “surprised and saddened” by the company’s quick decision.

    What’s more, Gloria Allred, who was the attorney representing Fisher claimed that Hurd and Fisher had no sexual relationship, which supports Hurd’s own defense. Still, this was too much for the HP’s board to handle as they wanted to move quickly from what (then) appeared as their worst nightmare. Except, they had no idea what was coming.

    Board’s Failed Due Diligence

    Hurd’s departure came after an intense internal investigation, results of which have not been publicized. But suffice it to say, HP discovered what it felt were grounds for termination.  Still, I wonder were “these findings” actionable violations or (as if often the case in these matters) did HP just want Hurd to fall on the sword so everyone can move on with their lives?

    From my vantage point, even if Hurd did violate some provisions of managerial misconduct, I question the board’s decision to act in such a rush manner absent not only clear evidence, but it seems Fisher was no longer looking to press the issue. Never mind that the company’s performance under Hurd was solid – including taking the stock from $21 to $42 while giving the company the strategic direction that was lacking. It seemed too much of a sacrifice.

    Since Hurd left, the stock has been in a free-fall.  After trading as high as $47 in August 2010 to plummeting to a 10-year low of $11.35 last week following the assertions of fraud related Autonomy. Essentially, Hurd was forced to take the fall for what could have been handled differently. Although HP’s board won’t publicly admit that it was the wrong decision, it is one that they’ve now been given two chances to correct in two years with Leo Apotheker and now Meg Whitman.

    Intense Hatred Between Bitter Rivals

    As noted earlier, it didn’t take long for Hurd to land on his feet. Larry Ellison, Oracle’s CEO immediately called and (as they say) the rest was history. Both men now had a mutual interest in HP’s failure. Although Oracle already competed with HP in various enterprise services, the company’s acquisition of Sun Microsystems intensified the level of hate as it was rumored that HP also had an interest in Sun – except it was unable to close the deal.

    With Hurd’s new position at Oracle, HP feared for its life worrying about what trade secrets Hurd might divulge to Oracle. This prompted the company to do what any other company in its position would do – go to court. HP brought claims against Oracle citing a non-compete agreement that it had with Hurd. Oracle’s response – back off or else. Although the case ended up being settled, what followed were more suits between the two bitter rivals – including Oracle’s decision to stop porting software that runs on HP’s servers that uses Intel’s Itanium chips.

    Although HP won the suit, this meant little for the company in terms of promise as revenue from that segment had already eroded by $275 million. Since then, for HP it has been one mistake after another, which makes me wonder where the company might have been if Hurd was not forced out. For that matter, I question how this would have affected some of Oracle’s own decisions.

    Bottom Line

    HP’s situation highlights the importance of due diligence, which the board failed twice to fully execute. Not only from the standpoint of Autonomy, but also as it relates to corporate governance in Hurd’s departure. Because although we may never truly know all that occurred in Hurd’s personal life, we can at least acknowledge that his public image as a leader was pretty significant to HP’s success. But the HP’s board had other ideas. Except, they were wrong.

    Likewise, with all of the losses that the company’s investors have had to endure since his departure and also the thousands of jobs that the company has had to shed in its attempt to reinvent itself, it’s fair to ask could Hurd’s “cloudy” image have been that bad? At least according to Hurd’s own accuser, it wasn’t.

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