Aug. 17 (Bloomberg) -- Bit by bit, more of the story seeps out about what lay behind the decision by Hewlett-Packard board’s to give Chief Executive Officer Mark Hurd the boot, albeit one stuffed with millions of bucks.
Now it seems there were so many grounds for firing, you have to wonder why he stayed so long and got such a lovely package when he left.
It wasn’t just that he had an inappropriate (however nonsexual) relationship with a contractor whose resume as a B-movie actress made her an odd choice to help run company events for HP.
Nor was it merely that Hurd tried to cover up his company-paid dinners and meetings with her by misrepresenting expense reports. Those were the reasons the board gave when it pushed him out the door on Aug. 6.
No, the final straw, anonymous sources close to the board now tell us, was that Hurd settled the woman’s sexual harassment complaint without telling the board, thus scuttling a mediation and denying HP investigators material for their sexual-harassment probe.
Hurd’s side of the story, also told through anonymous sources, contradicts that version. HP supposedly urged him to settle the complaint and knew that he was doing so.
Take a Leap
But maybe that’s not it, either. Perhaps directors wanted to dump him for altogether different reasons and leapt at the chance presented by the sexual harassment complaint and expense report fudging.
That’s the theory offered by New York Times columnist Joe Nocera, who slams the board for not saying what was really troubling about Hurd.
However popular the CEO was on Wall Street for turning around HP, he was widely despised closer to home for brutal cost-cutting while luxuriating in his compensation, $146 million in the four years beginning in fiscal 2005.
And, in slicing off massive chunks of R&D dollars, he shrank HP’s ability to keep up with, much less surpass, competitors in this fast-moving field, Nocera argues. Hurd chose short-term gains over investing in the future.
Whatever the specifics, this much is clear: The board lost trust in Hurd, and that’s reason enough to shove him aside. That’s what it should have done.
“You have to have confidence and trust in the person going forward,” says Charles Elson, corporate governance expert and professor at the University of Delaware. Otherwise, “You have to sever the relationship.”
That sentiment should outweigh the opinion of those who seem to believe short-term financial success is everything when judging a CEO.
The most biting public criticism of the sacking comes from Lawrence Ellison, Oracle’s CEO and a friend of Hurd’s. In an e-mail to the New York Times, he slammed the board for its decision.
Directors are “desperately grasping at straws in trying to publicly explain the unexplainable; how a false sexual harassment claim and some petty expense report errors led to the loss of one of Silicon Valley’s best and most respected leaders,” Ellison wrote.
So far, there’s plenty of open space on Ellison’s bandwagon.
True, a retirement fund that invests in HP filed suit against the board over Hurd’s ouster, but not because it thought his treatment unwarranted. Brockton Contributory Retirement System in Massachusetts complains that directors didn’t act quickly, transparently or severely enough.
The fact that directors handed Hurd a package worth an estimated $40 million to $50 million as he left especially galls. The board should have fired him for cause, which would have denied him most of that package, the plaintiff argues, rather persuasively.
But for the most part, Wall Street hated to lose Hurd and showed it. The shares have declined about 14 percent since he was canned.
Investors should have been pleased at the news that a board had taken a courageous step to make good on its corporate policy of demanding honesty and integrity from its people. But, in spite of the painful lessons taught by poor corporate governance, short-term gain still counts the most for investors.
The blow to the share price doesn’t make his firing wrong. It means that directors really, really wanted him out the door, knowing full well it was going to cost the company in market value.
Cougars Versus Kittens
However fascinating, the details as to why hardly matter. No, it doesn’t look good for Hurd that he personally interviewed and hired Jodie Fisher shortly after her brief stint as a contestant on the reality TV show, “Age of Love,” which would be degrading if it weren’t so stupid. Eliminated early, Fisher was one of several “cougars” in their 40s competing against “kittens” in their 20s for the affection of a 30ish bachelor.
Her relationship with the married CEO never turned sexual, according to all accounts. And the board found the harassment claim baseless, whether or not it was hindered in its investigation by the settlement. But while looking into that, investigators found that Hurd had tried to cover up his get-togethers with Fisher by saying he dined by himself or someone else, and that he overpaid her for her work.
A company scandal in 2006, which implicated Hurd who nonetheless survived it, prompted an overhaul of HP’s business standards. Hurd was a tough enforcer.
That code contains no exceptions for executives, no matter how much they may have boosted share price. Hurd knew that and he paid the right price for trying to dance around it.
(Ann Woolner is a Bloomberg News columnist. The opinions expressed are her own.)
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