In any other company, the decision to give your chief executive the title of chairman might simply be a matter of debate. But Hewlett-Packard (HPQ) isn’t an average company.
The once-revered tech giant holds a special place in the annals of boardroom antics. In recent years its directors have approved some truly terrible deals, including the $11.1 billion acquisition of Autonomy that turned out to be worth 80 percent less. The board fired popular CEO Mark Hurd, giving him tens of millions in severance, and then hired a replacement, Léo Apotheker, that most of them hadn’t met, only to fire him 11 months later. Add in the bickering, the public accusations, the embarrassing leaks, and the even more embarrassing spying scandal, and it’s easy to see why several governance experts once dubbed HP’s board the worst in U.S. history.
Luckily, under Chairman Ralph Whitworth, HP’s board seemed to have some measure of credibility with shareholders waiting to see if CEO Meg Whitman could fix the mess she inherited. Between the writedowns and 34,000 job cuts, it’s been a tough slog. But Whitman has made some progress, and the stock was starting to recover.
All the more reason to question why the board suddenly gave her the job of chairman this week. For one thing, it looks like a reward for a job well done–a verdict even Whitman herself might feel is a tad premature at this point. And HP is going against the growing trend among corporate boards to split the chairman and CEO roles in an effort to boost a board’s independence.
Whether an independent chairman actually improves a board’s performance is open to debate. Noel Tichy, a management consultant and professor at the University of Michigan’s Ross School of Business, isn’t a fan of splitting the roles. He thinks it undermines a leader’s effectiveness and can promote a dysfunctional dynamic where directors play the chairman off the CEO in the same way kids try to pit mom against dad. Still, Tichy agrees it’s too early to heap accolades on Whitman, who was plucked from the board to take over as CEO. At this point, he says, “they’re at base camp at the bottom of Mount Everest.”
All the more reason for HP’s board to aim for best-in-class governance instead of bucking the trend. Nell Minow of GMI Ratings describes HP as “a serial offender” with shareholders. “To unthinkingly give the same person the CEO and chairman role shows that they still don’t get it,” Minow says. “Given the many failures that this board has had, you have to wonder why they didn’t even explain this move.”
Will they give lead director Pat Russo more authority? Has Whitman been hampered by not running the board? Do directors realize they’re going against the advice of most governance experts in giving Whitman both jobs? For most other boards, such questions might suggest a lack of trust. For HP’s board, it’s more like standard operating procedure.
This board hasn’t yet earned the full trust of shareholders. To give Whitman the chairman role and say little beyond a bland corporate statement illustrates why. The issue isn’t whether Whitman has earned the right to be chairman. Shareholders should ask whether HP’s board has earned the right to make that decision.