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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About Larry M. Elkin 564 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

Visit: Palisades Hudson

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