What's the Truth about Walter Hewlett?

Hewlett-Packard sees an academic. Supporters see a smart shareholder advocate

Last Labor Day weekend, Walter B. Hewlett almost resigned from the board of Hewlett-Packard Co. (HWP ) The eldest son of HP co-founder William R. Hewlett was at a vacation home in the Sierra Nevada mountains, wrestling with how to cast his vote the following Monday on HP's proposed purchase of Compaq Computer Corp. (CPQ )

He hated the deal. But he had been told it would be completed with or without his vote, and he worried that a protest vote would allow Compaq to demand a higher price from HP. "I agonized all weekend," Hewlett says. "I could vote yes, vote no, or I could resign--and resigning meant I wouldn't have to vote against my convictions. But I've been involved with this company in some way for 50 years, and I felt it was important for me to stay involved. The employees couldn't resign from their jobs so I wasn't going to abandon my duties."

In the end, Hewlett made the decision to vote with the board, setting the stage for high tech's very own Peyton Place. Two months after the September vote, with HP's market cap cut by $12 billion and the Hewlett family's stock down $600 million, Hewlett declared his opposition to the $24 billion purchase of Compaq. He said he would vote the 5% stake owned by the family and the Hewlett Foundation against the merger because foundation officials and his own financial advisers felt it would hurt the company by giving it too much exposure to the lousy PC business. Since then, the dispute between Hewlett and the company's first outside CEO, Carleton S. "Carly" Fiorina, has escalated into a public battle for the soul of one of Silicon Valley's legendary companies.

When the dust settles, only one will probably be left standing. If Hewlett wins, Fiorina has hinted that she will leave HP. If Hewlett loses, there's little chance he will be renominated to the board of the combined companies, even though the foundation he chairs would still be one of the largest shareholders. Fiorina declines to comment, but Michael D. Capellas, Compaq's CEO, says he doesn't want Hewlett to remain a director if the merger goes through. "This thing has gotten a little ugly," Capellas says. "The battle lines are drawn."

And it's getting uglier by the day. Hewlett has accused HP's management of railroading him into voting for the deal by making unanimous board support part of the terms. He says an HP lawyer gave him the impression that a no vote could cost the company money. HP shot back with a "Dear Walter" letter, filed with the Securities & Exchange Commission, accusing him of fabricating the story. And in a January letter to shareholders, the company portrayed Hewlett as a "musician and academic," suggesting he lacked credentials to question a board with 300 years of combined management experience.

So what's the truth about Hewlett? He's a man of many interests and just as many contradictions, making him neither sinner nor saint in this boardroom feud. Friends say he has a sharp mind for business and is waging his fight on the grounds of shareholder value rather than emotion. And some investors are impressed. "This clearly isn't someone who is acting because [the deal] isn't the way his daddy would have done it," says Banc of America Capital Management analyst Kevin A. Fujimoto. While Hewlett is soft-spoken and private, he's not likely to back off this fight. "This is a guy who ran marathons. He has the body and the mind for this kind of thing," says his brother-in-law, Jean-Paul Georges Gimon. "When he's convinced of something, he's not going to be shut up."

Hewlett's passion for HP goes back to his childhood. The second of Bill and Flora Hewlett's five children, he was close to his father, who took his son to HP regularly. But Walter chose to delve deeply into academics instead of working at HP. "I had other interests, and I wanted to develop an independent career," he says. After graduating from Harvard in 1966, he spent 12 years at Stanford, collecting a doctorate in music and two master's degrees, in operations research and engineering.

Sound like a renaissance man? He is. The 57-year-old plays 10 instruments, his favorite being the cello, and performs with several amateur chamber music ensembles, among them a quintet that included Condoleezza Rice on piano until she left for Washington to become National Security Adviser. He carries a sketchbook with him regularly. And computing is in his genes. He frequently writes code all night at the Center for Computer Assisted Research in the Humanities (CCARH), a lab he created at Stanford University in 1984 to digitize classical music for easy access by students and others. Yet he avoids e-mail, preferring letters and the phone.

Hewlett approaches the outdoors with the same vigor he applies to his intellectual pursuits. In college, he was a world-class marathoner who finished 16th in the 1964 Boston Marathon with a time of 2:32. Even now, Hewlett trains six months of the year for the Markleeville Death Ride, a 139-mile bicycle race over six Sierra Nevada peaks.

In some ways, Hewlett lives an inherited life in the long shadow of his father. He resides near the Palo Alto (Calif.) garage where HP was founded and still has the 1965 Volvo his father gave him for his 21st birthday. He and his four siblings have adopted their father's homespun ways. "People used to say my father was as common as an old shoe," he says with a smile. "He had a very good sense for what's important in life." While the family owns two mountain homes and shares a ranch south of Silicon Valley with the Packard clan, Walter shuns ostentation. He drives a Ford minivan and a $17,000 electric car.

Although he has rarely sought the limelight, Hewlett is the public face of this publicity-shy family. His elder sister, Eleanor Hewlett-Gimon, is a homemaker and expert bridge player in Greenwich, Conn. Younger brother William Jr., who got his father's name since Walter was named after his paternal grandfather, is a psychiatry professor at Vanderbilt University. James Hewlett does volunteer work in Silicon Valley. And Mary Hewlett-Jaffe is an amateur botanist in Portland, Ore., where she is active in environmental matters.

Much of Walter's time is spent carrying on his parents' commitment to philanthropy and education. He chairs the William & Flora Hewlett Foundation, which last May gave a $400 million gift to Stanford in his father's name, the largest given to a school at the time. He has purchased thousands of acres in the Sierras for preservation. And just as his father saved a beloved valley in Lake Tahoe from development, so has Walter. In the mid-1980s, he quietly put up $660,000 to buy 560 acres that were slated to become part of a ski resort. The land is now part of Donner Memorial State Park. Asked once what his life's motivation is, he responded: "I'm really very simple. The privilege of my life is to be my father's son."

Although his critics argue that Hewlett opposes the Compaq deal because he wants to preserve HP as his father's company, his backers insist that's not true. They point out that until the Compaq deal, Hewlett had supported all of Fiorina's moves--including her aborted $18 billion bid for the consulting arm of PricewaterhouseCoopers and HP's recent $1 billion acquisition of high-end printer maker Indigo Technologies Inc. "There's no reaching back for the good old days," says former Verizon Communications President James Cullen, who sits with Hewlett on the board of HP spin-off Agilent Technologies Inc.

The big question is Hewlett's business experience. He's been on HP's board since 1987. And he is chairman of Vermont Telephone Co., a 21,000-line local phone outfit based in Springfield, Vt., that he started with a Stanford friend in 1994. But that's not enough, says Fiorina. "Walter Hewlett is a good man. But remember, it is he who is asking investors to accept his business judgment over that of HP's board and management team. We believe comparative business experience is germane."

Still, Hewlett is proving a formidable opponent. The Hewlett and Packard families have pledged their 18% combined stake in HP against the deal. Now, Hewlett has to win over only 40% of the remaining shareholders who vote. While Fiorina has won over some investors, so has Hewlett. Banc of America's Fujimoto was leaning towards voting with Fiorina, but a Jan. 24 meeting with Hewlett has him rethinking.

So how did the current mess come to be? His critics say Hewlett cavalierly refused to consider the merits of the deal. For starters, he missed part or all of three of the eight meetings to consider the deal. During a July 12 board meeting, Hewlett was in the mountains for the Death Ride. Hewlett says the meeting wasn't scheduled when he went on vacation and though he had left a phone number, HP couldn't reach him.

Then there was the two-day board meeting that started on July 19. The first day, everyone but Hewlett spent more than six hours debating the acquisition. Hewlett was playing cello in a concert at Bohemian Grove, a high-powered, male-only retreat north of San Francisco. The next morning, with a chill in the air over Hewlett's absence, the board members were asked whether they believed HP needed to take drastic action, such as buying Compaq. As they went around the table, all of Hewlett's peers said yes. When it came to Hewlett, he said: "I don't know why you guys want to make a crisis out of [HP's situation]," according to one attendee. "Nobody said anything rude, but there were lots of white eyeballs looking at the ceiling." Hewlett says he only questioned why the board was rushing into a big deal so quickly.

His relationship with the rest of the board only got worse after the Sept. 3 vote. His critics at HP say Hewlett repeatedly refused to talk in detail about his concerns when approached by board members Richard A. Hackborn and George A. "Jay" Keyworth in October. "The thing that hurts the most is [his] self-righteousness," says Keyworth. At a board meeting following Hewlett's November surprise, Keyworth and Hackborn asked him to talk with them privately. They went to Bill Hewlett's old office, which HP maintains as a museum of sorts. There, they posed a question to Hewlett, says one critic: "We know you know what happens if you lose, but what happens if you win?" The meaning, the critic says, was that Fiorina and some board members might quit, leaving HP rudderless. "He turned ashen. It was clear he had not thought it through," says the critic. Hewlett says he had carefully considered the impact of his actions.

He certainly didn't back off. By late November, he was visiting shareholders to garner support. So is there nothing left of the chivalrous old HP? Maybe a bit: During HP's Jan. 17 board meeting, Hewlett offered to recuse himself when board members wanted to discuss how to win their proxy war with him. As HP and Hewlett take the gloves off over the next few weeks, that may be as gracious as things get.

By Peter Burrows in San Mateo, Calif.

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