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Hewlett-Packard Needs Some Back to the Future: Rich Jaroslovsky

That was some news out of Silicon Valley last week, huh? You know, the top-level shakeup at that huge high-tech company.

No, I’m not talking about Apple Inc., where Chief Executive Officer Steve Jobs began his third medical-related leave of absence. Nor about Google Inc., where CEO Eric Schmidt is being replaced by predecessor and company co-founder Larry Page.

In those cases, the cast changed, yet the corporate cultures are likely to remain intact. The really interesting company to watch is the third one that shuffled its highest-level personnel last week: Hewlett-Packard Co.

HP, in an unusual move that was overshadowed by the more personal dramas at Apple and Google, announced a wholesale revamping of its board of directors. Gone are four of the dozen directors whose handling of CEO Mark Hurd’s departure last year added to one of the sorriest decade-long records of governance in the history of corporate America.

The new directors have already drawn criticism from some quarters for alleged mediocrity and for having previous ties to new CEO Leo Apotheker. In any event, the turnover at HP has been extraordinary; nine of the 13 directors on the new board -- including Chairman Ray Lane -- will have joined since 2009.

Normally, you’d like to have more institutional memory around. In this case, though, a little dose of collective short-term amnesia might be a good thing. If ever a company needed to hit the reset button, it’s HP.

Board Miscues

Boards make mistakes all the time. That dazzling CEO hire turns out to be a clueless lightweight. The transformative merger becomes a cash-sucking sinkhole. And let’s not even get started on executive compensation. Still, it’s hard to think of another company whose leadership has steered it into the serial crises that have afflicted HP.

In 2001, then-CEO Carly Fiorina announced a plan to merge with Compaq Computer Corp. that set off a civil war within HP. Director Walter Hewlett, son of the founder, led an unsuccessful proxy fight to gain control of the firm and block the merger.

Ultimately, Fiorina won, the merger went through -- and turned out badly for her. HP shares traded at almost $40 when Fiorina became CEO in July 1999 and at about $20 when she was sacked in 2005. In hindsight, the deal hasn’t looked quite so bad. But even Ben Rosen, a retired Compaq chairman and a defender of the transaction, acknowledged in a 2008 assessment of it that Fiorina “simply did not have the skills to manage one of the world’s largest technology companies.”

Civil War

Her departure was followed by another board civil war that wound up with Patricia Dunn, the non-executive chairman, indicted by the California attorney general on charges stemming from an HP leak investigation that included obtaining the phone records of journalists and directors.

The criminal charges against Dunn were eventually dismissed, but not before she resigned, went on CBS’s “60 Minutes” to proclaim her innocence and accused fellow director Thomas Perkins of waging a vendetta against her.

Then came Hurd, who was beloved by Wall Street for making his numbers but -- it eventually came out -- quietly loathed by legions of HP employees for his cost-cutting ways, including in the cherished realm of research and development.

Hurd resigned last summer after the company found that he violated its standards of conduct by trying to conceal a relationship with a female contractor. Shareholders are now suing the board over how much it paid Hurd on the way out, while the directors have started a new investigation into the circumstances of his departure.

Soap Opera

By now, HP is the longest-running soap opera in Silicon Valley. What makes it even more fascinating -- in the same way you can’t turn away from an automobile accident -- is that this isn’t just any Silicon Valley company; it’s the template for all of them.

Bill Hewlett and Dave Packard were the first of the legions of valley duos -- Jobs-Wozniak, Filo-Yang, Page-Brin -- that followed. From a Palo Alto garage, now a California Historic Landmark, the two Stanford University graduates formed not just a company but a management philosophy that came to be known as “The HP Way,” characterized by an open, egalitarian environment coupled with a fierce emphasis on innovation, integrity and performance.

Corporate culture is a funny thing. What starts as a unifying force and sense of mission can devolve over time into an excuse for failing to adapt to new circumstances and seize new opportunities. That certainly was Fiorina’s diagnosis when she arrived: The HP Way, she wrote in her memoir “Tough Choices,” “was being used as a shield against change.”

Time to Adapt

Still, great companies find ways to adapt their core values, not trash them, and after 10 years of turmoil perhaps it’s time for a little back to the future at HP. In a Packard speech to company managers reprinted in his book “The HP Way,” he observed: “People work to make a contribution and they do this best when they have a real objective, when they know what they are trying to achieve and are able to use their own capabilities to the greatest extent.”

Once HP’s new board is in place, only one member will have been in place for more than five years. All those new directors will need a lodestone for a company that has so spectacularly lost its way. They don’t really have to look far.

(Rich Jaroslovsky is a Bloomberg News columnist. The opinions expressed are his own.)

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