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Position Vacant: A Savior for HP

By Peter Burrows Back in early 1999, just months before it hired Carly Fiorina, Hewlett-Packard's (HPQ) board spun off the instrument business to create Agilent Technologies (A) and seriously considered breaking up the rest -- either into a printer outfit and a computer company, or units focused on consumers and businesses. The reason: Sources say the board was concerned that HP had become so broad -- from $25 ink cartridges to multimillion-dollar supercomputers -- that no single human could be an expert in all of its businesses.

Of course, Carly Fiorina convinced the board otherwise back then. But now that she has gone, HP is once again facing the daunting task of finding someone to run the company -- and the search could be even tougher this time around (see BW Online, 2/15/05, "CEO Recruiting Advice for HP").

NOT THEN, NOT NOW. Back then, HP was a $47 billion outfit regaining momentum after a period of slow growth. Now, thanks to 2002's controversial Compaq merger, it's an $80 billion behemoth with a far more daunting set of problems -- from a fractured corporate culture to a drumbeat of demands from some investors that the company be broken up.

Who would want the top job? No obvious takers are among the usual suspects every time a big tech job opens up. Indeed, two of the most frequently mentioned names -- Edward Zander, former president of Sun Microsystems (SUNW), and Ray Lane, former president of Oracle (ORCL), both passed on the HP job back in 1999.

Zander was miffed that the board asked him to submit to a 340-question psychological test, and now he's happily employed as CEO of Motorola (MOT), say sources. Lane, who has a young family, decided he didn't want to give five years to an HP turnaround. Others, such as Dell (DELL) Chief Executive Kevin Rollins, were too expensive for HP to buy out back then and likely remain so today.

THE CONFIDENCE FACTOR. What about insiders? Count out interim CEO Robert Wayman, HP'S long-time chief financial officer who has wanted to retire for more than a year. That leaves only one really viable candidate, say numerous sources contacted for this story: longtime printer chief Vyomesh Joshi. Well-liked throughout the company, he wins big points for having kept HP's printer empire humming.

Some insiders wonder if Joshi could be as successful in turnaround mode. "He landed in a gold mine and has never had to make really tough decisions," says one HP manager. Still, of those already at HP, Joshi may well represent the best option. Given the inconsistent performance of the computing and services divisions under her watch, Executive Vice-President Ann Livermore probably wouldn't give Wall Street or HP's employees the confidence-booster that both need.

Some other members of the extended HP family make intriguing candidates, such as Xilinx (XLNX) Chief Executive Willem Roelandts, retired HP executive Webb McKinney, and Eastman Kodak (EK) President Antonio Perez. Roelandts ran HP's then-booming computer business in the mid-1990s and has managed to emulate some of HP's culture at Xilinx, which makes programmable chips. "Wim could reinstate the employee confidence in a hurry, and boost investor confidence as well," says Network Appliance (NTAP) CEO Daniel Warmenhoven, who worked at HP with Roelandts.

PATH TO GLORY? McKinney also worked at HP, for 34 years. His claims to fame include helping HP vault from nowhere to No. 1 in the home PC business in the late 1990s, and overseeing the massive integration of HP and Compaq, which went better than many observers expected.

And then there's Perez, who oversaw the formation of HP's printer empire before leaving because of differences of opinion with Fiorina in 2000.

Trouble is, not one of them wants the job. Sources close to Roelandts say he plans to retire when he decides to leave Xilinx, and McKinney intends to remain retired to focus on family and his charitable endeavors. As for Perez, his spokesman provided this comment: "Antonio has great respect for his former colleagues at HP, but he is not interested in being considered as a candidate."

There are certain to be other, less-exposed candidates with the ability to give it a go -- and with the desire to win the accolades that would come with restoring HP to glory. Certainly, one choice would be to hire one of IBM's (IBM) executives, the goal being to emulate some of the changes that have positioned Big Blue so well in recent years.

OUTSIDE CHANCES. Or maybe the best solution is what IBM did when it hit its low point in 1993. Back then, IBM was far sicker than is HP today -- beset by a hemorrhaging mainframe market and near financial collapse. To save the day, the board brought in Lou Gerstner, who had sold cookies for Nabisco and financial services for American Express (AXP), but had no tech experience.

Such an executive -- say, one of the General Electric (GE) executives unlikely ever to get a shot at the corner office with 48-year-old Jeff Immelt around -- could come in and make the cold, hard decisions about which way HP should go.

While HP hasn't disclosed details about what kind of executive it's seeking, the board has said it wants one with an operational background. That would be a change from Fiorina, a top-notch marketer and salesperson. Also, an insider says the board wants to hire someone with experience in the computer industry.

It's not clear whether the board would accept a candidate who hasn't yet been a CEO. Such was the case with Fiorina. Former HP director Walter Hewlett said during the divisive 2002 proxy fight over the Compaq merger that HP should find a new "CEO with a track record for creating shareholder value and not get a CEO who again is learning on the job."

STAYING THE COURSE. Either way, HP needs to run a more effective search than the last one. Numerous candidates who were contacted at the time now say they were concerned because the job was being shopped to so many people, leading many to worry about an extended "beauty contest," details of which they feared were likely to leak back to their existing employers. Others were put off by those psychological exams.

HP has already announced that it won't use the same headhunting firm it turned to when Fiorina was hired. Instead of Christian & Timbers, which had little experience doing big-time CEO searches, sources say HP is talking to top-flight Silicon Valley search outfits, including Russell Reynolds, Spencer Stuart, and Heidrick & Struggles. Sources at Heidrick and Russell Reynolds declined to comment for this story.

One final challenge: Interim HP CEO Wayman says the board has decided not to break up HP but to stick with the current strategy. While such a statement might calm customers and employees, it could also lead potential candidates to wonder if they would have total authority to run things as they wish. "That's a great way to drive away qualified candidates: Force them to execute the strategy that got the predecessor fired!" quips Warmenhoven -- who, by the way, says he's not interested in the job, either. "At this point in my career, I work because it's fun. And that job doesn't sound fun."

It's too early to know how HP's CEO search will go. But it's not too early to know that it won't be easy. Burrows, Computer editor in BusinessWeek's Silicon Valley bureau, has covered HP for more than 10 years

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