Seeking Grown-Ups At Hewlett-Packard

The abrupt resignation of Hewlett-Packard (HPQ) CEO Mark Hurd has left many questions unanswered, not least of which is this one: Is a major American corporation being run without any adult supervision whatsoever?

An independent consultant who worked for HP, Jodie Fisher, had accused Hurd of sexual harassment. Before resigning on Friday, Hurd reached an out-of-court settlement with Fisher, whose prior moments in the limelight included roles in several Hollywood skin flicks in the 1990s followed by a brief appearance on reality television. HP, however, seems to have paid Fisher nothing to settle her claims. The company said its internal investigation uncovered no evidence of the alleged harassment.

HP did find that Hurd had violated the company’s standards of business conduct – by submitting inaccurate expense reports and by concealing his personal relationship with Fisher.

The nature of that relationship is unclear. Fisher has stated that she and Hurd never had “an affair or intimate sexual relationship.” Her official function seems to have been mainly to attend sales gatherings with Hurd, and to serve as something of a social buffer when introducing the wonkish CEO to clients. People close to Hurd reported that he also enjoyed having dinner with Fisher after long workdays.

The disclosure of Fisher and Hurd’s relationship, whatever it was, touched off a disruptive succession battle in HP’s executive suite. Nevertheless, Hurd walked away with a $12 million termination package. If fudging his expense account was Hurd’s real sin, and if it was serious enough for HP to cut him loose, the company’s board of directors should have fired Hurd “for cause.” In most cases, this would have meant no severance package whatsoever.

Deliberate theft of company money is serious, and a classic example of “cause.” It makes no obvious sense to buy out an errant CEO, but there is a lot in the Hurd-Fisher story that defies logic. There was a personal relationship, but not an affair. There may have been sexual harassment, but the specific charges are unclear. Money was used inappropriately or was misappropriated, but Hurd apparently intends to pay it back (perhaps out of his hefty settlement). Somehow Hurd sinned badly enough to resign, but not badly enough to walk away empty-handed. What, exactly, did Mark Hurd do?

Bafflingly, Fisher, in a statement released through her lawyer, Gloria Allred (whose career as a spotlight-seeker has been longer and more successful than her client’s), said she was “surprised and saddened that Mark Hurd lost his job over this.”

The man allegedly abused his power to sexually harass her, and she was sad to see him lose his job over it? What did she think was going to happen to him?

It is entirely possible that Hurd made bad decisions due to his relationship with Fisher, even if he and the consultant were not having an affair. But stupidity around an attractive member of the opposite sex is not, by itself, cause for termination. So we’re left to wonder why, exactly, Hurd finds himself out of a job.

The biggest losers are HP’s shareholders, who watched the company lose 7 percent in the New York Stock Exchange after Hurd’s resignation, the biggest drop in three months.

The now-ex-CEO brought calm and progress to the company after the tumultuous departure of former chief executive Carly Fiorina in 2005 and the disclosure of corporate spying, intended to find the source of news leaks from the company’s boardroom, the following year. Chief Financial Officer (and temporary CEO) Cathie Lesjak has downplayed the impact of Hurd’s resignation by reminding everyone that HP’s recent success has been a team effort, not just the CEO’s doing. “We are not going to slow down one bit,” she vowed.

Still, HP has now suffered three major failures of corporate governance in the past decade. First there was the acquisition of Compaq, an ultimately successful deal that nevertheless split the board into warring factions and led to Fiorina’s departure. Partly in reaction to the Compaq deal and its fallout, HP then faced the aforementioned misadventures in corporate espionage. Finally, the latest folly seems to have been a matter of using sex appeal to sell product, only to have the CEO swallow his own bait.

Now HP is once again searching for a new leader. Lesjack removed herself from consideration, and several outsiders are being considered along with executives within the company. If someone is promoted from within, those who lose out may depart altogether, analysts have suggested.

That might not be such a bad thing. The free-for-all set off by Hurd’s resignation illustrates how unprepared the company was for a sudden shock. Large enterprises are supposed to have effective plans for management succession and other contingencies.

Any company can suddenly lose a chief executive, though such things are more often due to accident or illness than to scandal. Just yesterday, Sara Lee announced the departure of chairman and CEO Brenda Barnes, who suffered a stroke in May. The company has been run since her illness by Marcel Smits, an experienced consumer products executive Sara Lee recruited from Unilever last year. Sara Lee’s stock was little changed after yesterday’s announcement, and it is trading near its 52-week high.

HP needs a new CEO, but it needs more than that. The directors overseeing the company still do not have a good handle on what is going on. Senior management seems to have a “me first” philosophy. What HP really needs is some adult supervision to get things under control.

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