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Does Fiorina's HP Tenure Really Matter?

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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You can tell how well Carly Fiorina is doing by the sudden interest in attacking her. Conservative and liberal columnists are engaged in a raging battle over whether Fiorina, a Republican presidential candidate, slightly misdescribed the contents of a video about Planned Parenthood’s late-term abortions, or brazenly made up horrid scenes in order to score points during the last debate. And, of course, there is a brisk columnist business in debating her tenure at Hewlett-Packard: Was she a blithe failure or a beleaguered CEO doing the best she could with what she had?

The best case for the prosecution is made by Jeffrey Sonnenfeld of Yale, while I think Bloomberg View’s own Justin Fox makes the best case for the defense. Who’s right?

They both make good points: Fox that HP was in a hard place, Sonnenfeld that Fiorina seems indisposed to admit to and learn from her failures. But at the risk of seeming to suck up to a colleague, I find Fox more persuasive when he says that if Fiorina wasn’t the best CEO in history, she certainly wasn’t the worst, either.

Critiques of Fiorina’s tenure seem excessively focused on the outcome. People are far too prone to confuse outcomes with good decision-making. Surgeons who do everything right will sometimes see patients die anyway -- and many doctors who fail to wash their hands send a happy, healthy patient home at the end. The important thing is to know whether you followed a process that gives you the best odds, not what happened in an individual case. Too many of Fiorina’s critics pointed out that the company lost shareholder value, then settled back with a satisfied QED.

I freely admit to the truth of all the prosecution exhibits. The merger she spearheaded with Compaq was costly and did not noticeably improve the company’s competitive position. The company stock price certainly did fall a lot from the time she started there to the time she finished (something that unsurprisingly happens to a lot of CEOs before they’re forced out). A lot of employees were laid off in the process of making a larger, less profitable company.

But this doesn't necessarily convince me that Fiorina did a bad job. Fox makes this point: The strategy she started paid off much better after she left, but she gets no credit for it. I’d like to make a different, if related point: Sometimes, CEOs don’t really have any good options.

At the time Fiorina took over, HP made a fine server and a nice workstation and a very good printer -- I installed a lot of each during my time as a technology consultant. But it had become clear that the hardware business wasn’t such a great place to be. In fact, that had been true for a while, but until the late 1990s, there was some hope that things would shake down to a few players, prices would stabilize, and things would get better, as had happened in the automobile market. That never really happened. Hardware remains a brutal commodity business where it’s hard to retain a competitive edge -- unless you’re Apple, which commands a premium price through elegant design and bundling of its software and hardware. Apple is profitable in the consumer segment; however, it has ceded most of the corporate market to others.

Did Fiorina manage to fix this problem? Not really. But it’s far from clear to me that anyone else could have fixed it, given that she presided over a difficult business model during the Great Tech Meltdown and the recession that followed. Her idea to merge with Compaq, in order to give the company enough scale to take on IBM in the corporate market, didn’t work out as she’d hoped, but while that’s obvious in hindsight, it was undoubtedly a mite harder to see at the time. Trying to get the company better positioned for the most stable and profitable sector of the market doesn’t seem obviously crazy to me.

Failure doesn’t always mean that you made the wrong decision. It might just have meant that there were no good options, or that you got unlucky. It’s very easy in business analysis to commit the fundamental attribution error -- to think that success or failure is due to some innate quality of the CEO, rather than the market they’re in or the entrenched problems of the company they have to manage.

But there’s another point to be made, too, which is that I’m simply not sure how much this matters. Fiorina could be the best CEO in the world, or the worst, and that wouldn’t give us much insight into how she’d do as president.

We’re in the midst of a great outsider boom, from Bernie Sanders to Donald Trump, to populist parties in Europe and the election of a far-left Labour backbencher as leader of the party in the U.K. Much of the appeal seems to be that we need someone to shake things up who’s not beholden to the same tired, focus-grouped, compromised, corrupt political culture. On the left, this appetite seeks out radical firebrands who promise they won’t sell out to the neoliberal consensus; on the right, it looks to business leaders (or maybe surgeons), who have proved they are competent in a competitive domain utterly unlike the political system.

This is another way of committing the fundamental attribution error. Politicians are the way they are because they operate under serious constraints. Every time I talk to fed-up voters, they name some problem -- the cost of health care, the bacteria-like growth of regulations, the stagnation of middle-class wages -- and opine that politicians could easily fix it if only they weren’t hostage to special interests. In almost every case, subsequent conversation reveals that the voter in question has made no deep study of the issue, and merely feels that it ought to be easy, because after all, they have observed a striking difference between our situation and that of some other time or place.

In fact, the problems are usually very difficult, as is the job of the president. It is not like being the head of a nonprofit or a certified Very Smart Person in academia or in the media. It is also not like running a business, unless your business has a 535-person board that must approve or veto every major decision the CEO makes, as well as voting him or her the money to spend on it. The closest job is either head of another government (most of whom are not legally eligible to run for U.S. president) or governor (few of whom have any foreign policy experience).

The problem, in other words, is not the people or the “culture” they live in; it is the system. And at least politicians know how to get results out of that system, however puny those results may seem next to our grand dreams of wholesale change. They do this largely by means of the very things we hate about them: staying within fairly narrowly plausible lines, compromising, trading favors, catering to single-issue interest groups, focus-grouping and poll-testing everything to death. An outsider may not do any of those things. But if not, they won’t do much else, either.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor responsible for this story:
Stacey Shick at sshick@bloomberg.net