HP’S BOARD CONSIDERS CUTTING CEO’S POWER

[Anonymous]

Hewlett-Packard Board Considers Cutting Fiorina’s Power

Directors of Hewlett-Packard Co.,Unhappy with the uneven performance of the giant Printer and Computer maker, are considering a management reorganization that would distribute some key day-to-day responsibilities of Chairman and Chief Executive Carly Fiorina among other executives, said people familiar with the situation.

At its annual planning meeting between Jan. 12 and Jan. 15, H-P’s board discussed giving three senior executives more authority and autonomy over key operating units, according to people familiar with the matter. The board also has asked Thomas Perkins, a prominent venture capitalist and a former H-P director, to rejoin the board, these people said.

Ms. Fiorina, who plans to attend the World Economic Forum in Davos, Switzerland, declined through an H-P spokesman to comment. “Boards discuss a wide range of topics consistent with their fiduciary responsibilities,” said the H-P spokesman. “The board discussed structural changes at its recent meeting and these were announced on Friday, Jan. 14.”

People close to the situation emphasized that Ms. Fiorina’s job isn’t on the line and that the board wants her to succeed. These people said the board isn’t aiming to curb Ms. Fiorina’s power but to help H-P more quickly meet customer demands and respond to competition from rivals like Dell Inc. and International Business Machines Corp. Ms. Fiorina has rejected suggestions from some investors that she name a strong No. 2.

Ms. Fiorina “has tremendous abilities,” one person close to the situation said. “But she shouldn’t be running everything every day. She is very hands on, and that slows things down.”

Ms. Fiorina, 50 years old, is one of the nation’s most visible CEOs. The former Lucent Technologies Inc. executive joined H-P as its first outside CEO in July 1999 with a mandate to revive a Silicon Valley icon that had fallen behind its peers and was viewed as a lumbering, inefficient giant.

During her tenure, Ms. Fiorina has centralized power by winnowing the number of H-P’s business units from 83 to just a handful and consolidating executive authority through her office. She has stemmed losses in H-P’s personal-computer division, in part through extensive layoffs and other cost-cutting. She also pushed through H-P’s bitterly contested $19 billion acquisition of Compaq Computer Corp. in 2002.

H-P’s profits and revenues have soared during her tenure, in part because of the acquisition of Compaq. In November, the company reported fiscal 2004 net income of $3.5 billion, up 38% from a year earlier, while revenue at $80 billion was up 9%. Since 1999, revenue has roughly doubled, while net income for 2004, after dropping in her early years as the tech bubble burst, has returned to its 1999 levels. When Ms. Fiorina arrived, H-P had missed Wall Street earnings expectations for nine consecutive quarters.

Yet she also has faced some obstacles. H-P’s stock is down roughly 55% since Ms. Fiorina took over, while rival IBM’s shares have dropped 32% in the same period and Dell shares are off only about 9%. To win approval for the Compaq deal, Ms. Fiorina had to overcome opposition from Walter Hewlett, son of H-P founder William Hewlett and at the time an H-P director, and survive a vitriolic proxy fight that spilled into the courts. After absorbing Compaq, H-P laid off thousands of workers to cut costs.

H-P still faces many of the same challenges as it did when Ms. Fiorina arrived. The PC unit has been losing market share to Dell, and the corporate-computing unit, which includes storage, software and server-computers, has remained weak amid competition from IBM and EMC Corp., among others. One of the few bright spots has been the company’s printing-and-imaging division, which generates more than three-quarters of H-P’s profits.

Meanwhile, the company’s financial performance, while improved, remains inconsistent. Last August, for instance, H-P badly missed its fiscal-third-quarter financial projections. Ms. Fiorina blamed the miss on a botched internal technology-systems transition, aggressive product discounting and a lack of sales specialists, and fired three top executives. H-P reported solid fiscal-fourth-quarter results a few months later. It is due to post fiscal first quarter earnings in mid-February.

Over the past few years, many rising executives have jumped ship to companies such as EMC and Nokia Corp., including former enterprise computing executives Mark Lewis and Mary McDowell. Last August, Alex Gruzen, an H-P executive in charge of laptop and hand-held computers, went to Dell to become a senior vice president. H-P’s board has been unhappy with the exodus of executives, especially of young up-and-comers, said one person familiar with the matter.

Throughout the turmoil, Ms. Fiorina has been subject to an unusual amount of criticism, in good part from critics who thought she eschewed H-P’s collegial roots, for instance with her aggressive pursuit of Compaq. But H-P’s board has stood by her, even during a difficult eight-month proxy battle over the Compaq deal. Indeed, Ms. Fiorina has said that the board had three times backed her position in rejecting a spin-off of H-P’s profitable printing-and-imaging unit, a plan she also opposed.

But in recent months, directors have grown uneasy with H-P’s uneven performance, according to the people familiar with the matter. The board’s concerns, according to these people, include the mediocre performance of the PC business, which ekes out thin profits, and the perception that H-P holds weak market positions against IBM and Dell. Three H-P directors discussed these issues with Ms. Fiorina during a meeting to set the agenda of the planning sessions several weeks before they were held, these people said.

Under the reorganization plan discussed by the board at San Francisco’s Park Hyatt Hotel, three H-P executives would gain more day-to-day control. They are Vyomesh “VJ” Joshi, who leads H-P’s printing and personal-computing division; Ann Livermore, head of services and enterprise computing; and Shane Robison, the chief technology and strategy officer, people familiar with the matter said. One person close to the situation said Ms. Fiorina initially had resisted the moves, but by the end of the session had agreed with directors and was on good terms with them.

Mr. Joshi would gain more decision-making authority in his role as the head of the printer-and-PC group, these people said. He was named to a newly created role leading the combined printing and PC unit only on Jan. 14, after just leading the printing division for the last several years.

The board also discussed how Ms. Livermore and Mr. Robison would transition into roles with expanded authority over a combined operating arm that includes corporate computing, services and sales, people familiar with the situation said. The details of Ms. Livermore’s and Mr. Robison’s responsibilities are still being worked out, said one of these people.

Directors also asked Mr. Perkins to rejoin the board, a year after he retired from it, these people said. Mr. Perkins, a founder of the venture-capital firm of Kleiner Perkins Caufield & Byers, had been an outspoken figure on the board. Directors contacted Mr. Perkins about potentially rejoining the board about two months ago, and formally invited him back on Jan. 12. In a Securities and Exchange Commission filing on Friday, H-P said director Sanford Litvack, a former Walt Disney Co. executive, won’t stand for re-election at the company’s annual meeting on March 16.

A break-up of H-P wasn’t discussed at the planning session, said one person close to the matter. Some Wall Street analysts and investors have clamored for H-P to spin off its printer-and-imaging business, arguing that it is worth more on its own. But this person said the board agrees with Ms. Fiorina that keeping H-P whole makes the company Stronger than breaking it into pieces.

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January 24, 2005 at 10:37 AM