The CEO Hiring Practices at HP

October 3, 2011

The press tells us that Hewlett Packard is the largest technology company in the world with revenues of $126bb. Impressive as those numbers may appear, they do not seem to impress HP’s Board of Directors. You see they do not believe that any of the firm’s 324,600 employees are capable of leading it. Not one person. Not this year or last year when CEO changes were made. In fact they were apparently not capable six years ago or even eleven years ago when CEO changes were also made. But before summarily indicting the firm’s succession planning/leadership development programs, it is useful to consider the track record of the external candidates who were considered better choices than the firm’s internal candidates. This analysis decidedly shifts the spotlight to the competence of Hewlett Packard’s Board of Directors.

In 1999, in a gesture aimed squarely at shaking up the ‘HP Way’, the company’s Board of Directors replaced veteran Lew Platt with Carly Fiorina, an outsider who was described at the time as “a star – unshakeable, self-reliant, fond of the dramatic gesture, impervious to criticism, passionate about the big picture; the kind of person who bounds from project to project, embracing change as a way of life”. Not surprisingly, on joining the firm Ms. Fiorina proceeded to bound from acquisitions to divestitures to personnel changes as she shaped and reshaped the firm. Unfortunately, the board became increasingly frustrated by Ms. Fiorina’s bounding and in 2005 fired her using terms such as ‘deeply divisive’, a ‘change junkie’ and ‘celebrity CEO’ as their rationale.

HP’s Board of Directors then proceeded to look for the mirror opposite of Ms. Fiorina, a decidedly un-glamorous, detail-oriented operator who would stabilize the business while starting to extract ‘shareholder value’. One assumes the board looked inside HP for this person but alas found no one and in the end elected to hire NCR CEO Mark Hurd who one board member said, “impressed us with his operational and execution skills and by his emphasis on developing internal talent”.

Hurd appeared to be a very good choice. Yet despite delivering solid results and showing evidence of strategic capabilities often not seen in operational efficiency types, Hurd was fired last year for what we were told were sexual/expense improprieties. Some have suggested Hurd got too big for his britches and wanted too much money, but who really knows. Oracle’s Larry Ellison described the firing of Hurd as “the worst personnel decision since the idiots at Apple fired Steve Jobs”. Ellison promptly hired Hurd to work at Oracle as one of his lieutenants.

With Hurd’s supposed emphasis on developing and/or acquiring HP’s internal talent, one would have thought that after his five years at the helm an internal successor would be waiting in the wings. But alas, the board announced that the internal candidates were ‘not quite ready’ and as a result they would go outside yet again for a replacement CEO. Reports last year suggested that Hurd’s drive for efficiency and profits had reduced innovation spending in the firm and that the board now coveted an executive who could adroitly steer the giant’s vision and strategy through ever-more fierce competitive and market turbulence. Clearly seeing the company’s future in software, HP hired Leo Apotheker, a 20 year SAP veteran who had been released after only 9 months at the firm’s helm. SAP founder Hasso Plattner explained Apotheker’s firing as follows “There was a lack of trust between the management and the employees of SAP, particularly in Germany, but also in Europe -- and I couldn't see how to close that gap. Although I did my absolute best to help Leo Apotheker, employee surveys showed that management was unable to make up for this dramatic loss of confidence”. When Apotheker’s hiring at HP was announced, Larry Ellison commented that he was ‘speechless’ as to why the board would hire a guy fired for doing a lousy job at SAP over a number of competent internal candidates.

Apotheker joined HP and soon after started announcing shifts in strategy and major acquisitions. Before he could actually implement many of his announced initiatives he was fired because, according to the board, “he lacked the ability to get deep into the business and understand the dynamics that were going on in the businesses, and that could land us on a quarter ahead of expectations”. We are left to conclude that while he was fired at SAP because employees didn’t think he got it, he lost his job at HP because the board didn’t think he got it. Judging by the performance of the stock while he was at the helm of the firm, clearly shareholders did not think he got it either.

Turning to HP’s Board of Directors for a moment, we have a well-known Chairman (Ray Lane) who was apparently a candidate for the CEO role when Carly Fiorina was hired but who turned it down because of the hiring process at the time. Lane joined HP’s board last year, in part he said, because he was a big fan of Leo Apotheker, describing him at the time as “a principled leader of outstanding personal and professional integrity” who was ideally suited to lead HP. After subsequently becoming Chairman, Lane replaced a number of board members and then defended his decision to fire Apotheker by saying, “this board did not select Leo. This is a board who objectively evaluated whether he was the right guy to operate the business. And we came to the conclusion he was not”.

By way of background, Mr. Lane worked for 8 years at Oracle rising up to the COO position before ‘quitting’ because in his words “the founder surrounds himself with yes men” and this was not a place for him. We are left to conclude that Mr. Lane was either the sole ‘no’ man in that sea of ‘yes’ men for eight torturous years or that he said yes to Mr. Ellison on more than a few occasions in order to survive and thrive for that length of time. History suggests that Mr. Lane is likely a very competent execution-oriented professional manager who at some point got too close to the founder’s flame and was burned. The only certainty is that it is Ellison guided and controlled the very successful Oracle, and not Lane. Ironically, Lane does now control the fate of the world’s largest technology company.

And finally, HP most recently hires celebrity CEO Meg Whitman, an investor relations friendlier executive who led a much smaller consumer oriented auction site before running unsuccessfully for Governor of California. Mr. Lane called her ‘the best choice’ among the other candidates the board considered (internal candidates included presumably) when hiring Apotheker. Ms. Whitman has indicated that she believes Mr. Apotheker’s strategy to exit the personal computer sector and to buy Autonomy are ‘right’, though she will step back ‘and take a hard look at it’. A deeper dive would be wise since Apotheker was supposedly fired for his belly flop surface dive. It is unclear what she has done in her past that convinced the board that she is a better choice for such a task than anyone currently employed by HP who one would think are significantly deeper already in the business. It may be that she is there to help Lane who is really at the helm of the firm.

Replacing leaders is not easy, and as HP illustrates even the biggest and best companies in the world can struggle mightily with the task. The challenge is particularly acute in fast changing sectors such as technology where vision, execution and governance balance delicately and founding visionaries are regularly discarded for the professional managers more adept at squeezing out shareholder placating short-term efficiencies. Inconveniently, the circadian rhythms of business invariably call upon those entrepreneurial, visionary capabilities and this presents no end of challenges for professionally managed firms. Strong board involvement and leadership is critical, but as HP illustrates, the old-boy graveyard boards so common in such firms, are rarely up to the task.

About the Author

Robert Hebert is the founder and Managing Partner of StoneWood Group Inc., a leading executive search firm in Canada. Since 1981, he has helped firms across a wide range of sectors address their senior recruiting, assessment and leadership development requirements.

Contact Robert by email at rhebert@stonewoodgroup.com or call (1) 416-365-9494 EXT 777