HP Board Mulled Apotheker Ouster Weeks Before Strategy U-Turn

Hewlett-Packard Co. (HPQ) Chairman Ray Lane told Leo Apotheker on Sept. 21 that he’d be ousted as chief executive officer after eight weeks of board wrangling that included the departure of a director close to the CEO.

Apotheker, whose dismissal was announced the following day, became the third CEO to be fired by a Hewlett-Packard board of directors in seven years. His successor, former EBay Inc. CEO Meg Whitman, inherits a company wracked by slowing growth and a share price that has plunged 47 percent in past six months.

Hewlett-Packard’s directors deliberated the possible dismissal even as they approved the very strategy overhaul that accelerated his ouster. Pressure on Apotheker mounted after Aug. 18, when Hewlett-Packard announced the $10.3 billion purchase of Autonomy Corp. and a possible spinoff of the personal-computer unit, sending the shares into a tailspin.

In the ensuing weeks, directors became more concerned about Apotheker’s inability to communicate company strategy, get senior executives to work in tandem or assuage investors’ concerns, according to people close to the company. Fellow board member Whitman, meantime, became an increasingly attractive contender to succeed him, they said.

“She’s a strong leader and that’s what this company needs,” Lane said of Whitman in an interview. “This is 90 percent about leadership, communications and operating execution.” The board considered the executive change for six to eight weeks, he said in the interview.

Didn’t Volunteer

Whitman didn’t volunteer for the job, though she agreed to the idea this week after about 10 days of deliberation, on the condition that Lane become executive chairman, according to a person close to the company.

Hewlett-Packard, based in Palo Alto, California, sank to a six-year low on the New York Stock Exchange yesterday, a day after announcing the change. While Lane lauded Whitman for her communication skills and role in building EBay into a consumer- friendly e-commerce pioneer, investors questioned whether she was qualified to run a company whose customers include the world’s largest corporations, said Frank Gillett, an analyst at Forrester Research Inc. (FORR)

“It’s not like she’s going to bring some insight that HP doesn’t already have,” Gillett said. “She doesn’t have the experience of turning around a large tech-industry conglomerate where she has to understand a complicated portfolio of services and a large base of customers.”

Search Intensifies

As the stock price tumbled in the wake of the Autonomy deal and spinoff proposal, though, directors fretted they had little choice other than to make a change at the top, the people said. The board stepped up a review of possible replacements, including candidates considered following Mark Hurd’s departure last year, one of the people said.

Adding to the urgency was dissention in executive ranks, Lane said on a conference call with analysts this week.

“This is a big, big company that requires the executive team to be on the same page,” he said. “We didn’t see an executive team that was working on the same page or working together.”

Members of Hewlett-Packard’s executive council tussled with Apotheker over strategy and didn’t support managers recruited from his former employer, SAP AG (SAP), people close to the company said. Todd Bradley, who runs the PC division, was among the most vocal opponents, the people said.

Autonomy Acquisition

Directors also took cues from investors who said they felt blindsided by the Autonomy deal, one person said. In private meetings earlier this year, Apotheker had told several large shareholders that the company wasn’t planning to make big acquisitions, the person said. The CEO didn’t alert the board to the remarks, even as they weighed the takeover, this person said.

Before deciding on Whitman, board members mulled internal candidates and deemed them “not ready,” Lane said on the call.

“When she told me that she wanted to do this and knew how to do this and laid out what she thinks she would do in the next six months to a year, we became convinced that this was our best choice, and there was not a better choice on the outside,” Lane said of Whitman.

Apotheker’s eventual fate was becoming clearer to the board by early September. Dominique Senequier, CEO of AXA Private Equity, the investment buyout arm of French insurer AXA SA (CS), announced plans to leave the board on Sept. 8.

Senequier Quits

Senequier, who had joined on Jan. 20 at the same time as Whitman and three other new directors, is a long-time associate of Apotheker. The two sit on the supervisory board of Schneider Electric SA (SU), the largest maker of circuit breakers, and Apotheker formerly sat on AXA’s supervisory board.

While the January shakeup added some directors who had worked with Apotheker, it also meant that the board included several people who hadn’t chosen him as CEO.

“This board did not select Leo,” Lane told analysts in the conference call this week.

Apotheker was preparing until the day he was informed of the board’s decision to defend his strategy to Hewlett-Packard’s board, according to a person familiar with his thinking. Still, he may have had an inkling he wasn’t long for Hewlett-Packard as early as Sept. 9, when he unexpectedly withdrew from the InformationWeek 500 Conference in Southern California scheduled for the following week.

“He told me he couldn’t divulge the reason but that if I knew the reason, I would understand,” Fritz Nelson, the editorial director at InformationWeek, wrote in a Sept. 21 blog.

Lane attended the conference in Apotheker’s stead. The former chief operating officer of Oracle Corp. (ORCL) was elevated to executive chairman 10 days later.

Lane, who provided coaching to Apotheker during regular breakfast meetings this year, warned the CEO of the board’s growing concerns in recent months, one person said. The brief mentorship ended with their meeting on Sept. 21 in Palo Alto.

To contact the reporters on this story: Douglas MacMillan in New York at dmacmillan3@bloomberg.net; Carol Hymowitz in New York at chymowitz@bloomberg.net; Aaron Ricadela in San Francisco at aricadela@bloomberg.net.

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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