*NEWS*INSIDE STORY OF HP’S CEO’S OUSTER

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Date: Saturday February 12, 2005 10:44:00 am
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    The Inside Story Of Carly’s Ouster

    By the end of 2004, the pressure in Hewlett-Packard
    Co.’s  corner office was almost unbearable. With Chief Executive Carleton S.
    Fiorina’s efforts to fix the $80 billion Computing colossus stalled and tensions
    building with the board, one of high tech’s most powerful executives began
    mulling an exit plan.

    Around the
    holidays,Fiorina held separate meetings with at least four high-profile chief
    executives to glean advice on making a “graceful exit” from HP, according to
    industry sources. These industry luminaries, approached by Fiorina at yearend
    business conferences, included Cisco Chief Executive John T. Chambers and Intel
    President Paul S. Otellini. During the conversations, Fiorina told the CEOs she
    was feeling some pressure from HP’s board and inquired about face-saving ways to
    leave the company should she decide it was in the best interest of shareholders,
    according to the sources. Fiorina, Chambers, and Otellini didn’t return requests
    for comment.

    It was a decision she didn’t get a chance to make. On the
    evening of Sunday, Feb. 6, HP’s board hunkered down with Fiorina in an emergency
    meeting held at Chicago’s O’Hare Hyatt Hotel. As a light rain drizzled outside,
    the directors stewed over their star CEO’s failure to execute her ambitious plan
    for the company. In addition, directors were concerned about the “board’s
    inability to work constructively with [Fiorina],” according to an HP insider.
    The next day, they asked Fiorina to step down. And on Wednesday, Feb. 9, at 5
    a.m. Pacific time, HP stunned the world, announcing Fiorina’s dismissal, ending
    her 51/2 year stint atop one of the legends of Silicon Valley.

    Despite
    the surprise announcement, the board’s concerns about its chief had been
    mounting for nearly a year. Sure, she had dazzled directors and many investors
    with her passionate work in pushing through the controversial merger with Compaq
    Computer Corp. in 2002. And the immediate integration of the two companies
    bested expectations, silencing even her fiercest critics. But by late 2003,
    investors began shifting their focus from the Compaq deal to HP’s ebbing
    position against key competitors IBM  and Dell . They bored in on the ragged
    financial performance that led to the swooning stock price. “[Fiorina’s] good
    with marketing; she’s a good speaker for the company,” says a former HP
    executive. “But this is a company that doesn’t need a statesman. It needs a
    hands-on operations person.”

    The tide really began turning against
    Fiorina following HP’s massive profit shortfall in the third quarter of last
    year. That marked HP’s second miss in five quarters and further damaged the
    company’s credibility on Wall Street — a major issue, since HP’s stock has long
    traded at multiples well below those of its competitors. Although Fiorina fired
    three top sales executives for the miss, the board’s doubts about its CEO grew.
    At the same time, the board’s proddings of Fiorina to bolster HP’s operations
    talent went largely unheeded.

    As HP struggled to nail down its
    operations, some directors were chagrined that Fiorina didn’t move more quickly
    to strengthen HP’s position against Dell and IBM. For instance, although HP has
    gradually built up its direct-sales efforts to better compete with
    ultra-efficient Dell, some directors felt the company wasn’t moving fast enough,
    according to the HP insider.

    In addition, HP balked at a major
    acquisition to bolster its money-losing software business. In 2004, HP had
    considered acquiring Veritas Software but didn’t move quickly enough, according
    to current and former HP execs. In December, Symantec  gobbled up the profitable
    software company — leaving some HP directors unhappy. “Things needed to make us
    more competitive in certain segments weren’t being done,” says the
    insider.

    By November of 2004, HP’s directors began holding periodic
    conference calls — without Fiorina — to discuss their CEO’s performance. And
    by the time of the board’s January meeting in San Francisco, it enlisted three
    directors to meet with Fiorina to discuss its concerns with her performance. The
    trio produced a document indicating their concerns represented the consensus of
    the entire board.

    The ensuing board meeting, which was supposed to be an
    annual strategy review, became focused on the performance of Fiorina and HP.And
    during the meeting, directors pushed forward a plan to distribute some of
    Fiorina’s operating responsibilities to her key lieutenants. Sources familiar
    with the reorganization plans say they are on hold because of the management
    shake-up.

    It was a heavy blow to Fiorina’s Credibility as the company’s
    leader. Just weeks later, she was out. It had become increasingly clear that
    HP’s need for a nuts-and-bolts Operations whiz far outweighed the benefits of a
    high-profile CEO.

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