09.22.11

HP’s Inner Turmoil

The world’s biggest tech giant just fired another CEO. Is all hope lost? It’s starting to look that way, reports Dan Lyons.

It’s now official: HP, the world’s largest technology company, has gone off the rails, and it’s hard to imagine that this legendary company will ever be great again.



On Thursday HP’s board of directors fired Leo Apotheker, an incompetent CEO who had held the job for only 11 months. Apotheker had previously been CEO of SAP, a big software company based in Germany.



Apotheker will be replaced by Meg Whitman, a HP board member and former CEO of eBay who last year waged an unsuccessful campaign to become governor of California.



The choice of Whitman had some players in Silicon Valley scratching their heads. “I thought that was a joke when I first read it,” said a high-profile Valley venture capitalist who asked that his name not be used. “What HP needs is a technology product person as a CEO. That’s clearly not Ms. Whitman’s forté. She’s a number cruncher. She’s Mitt Romney.”



Whitman’s career involves stints at Procter & Gamble, Bain & Co., Walt Disney Co., Stride Rite (shoes), FTD (the flower delivery company), and Hasbro, the toy company. In 1998 she joined eBay as CEO and resigned in 2007.



Whitman will be the fourth CEO at HP in six years, following Carly Fiorina, who took over in 1999 and was booted in 2005, and Mark Hurd, who replaced Fiorina and was booted in 2010 in a scandal involving allegations of sexual harassment.

The real villains in all this are not the hapless CEOs who have been brought on board, but rather the 14 people who sit on HP’s board of directors.



HP’s financial results began to suffer almost as soon as Apotheker took over, and its stock price followed suit, dropping 47 percent on his watch.



The real disaster came in August when Apotheker announced HP would spin off its PC division; exit the mobile device business that it had just entered with a $1.2 billion purchase of Palm in 2010; and spend $10.5 billion to buy Autonomy, a U.K. company that makes software used by giant corporations to perform data analysis.



That decision sent HP’s stock into a swoon. Shares fell 30 percent and have not recovered.



But these problems are just the latest scenes in a disaster movie that began more than a decade ago.

Gallery: 10 Worst Corporate Boards of the Decade
Gallery: 10 Worst Corporate Boards of the Decade
AP Photo (6)

The real villains in all this are not the hapless CEOs who have been brought on board, but rather the 14 people who sit on HP’s board of directors, a group of bumblers whose string of stumbles and missteps has earned them a spot on The Daily Beast’s “10 Worst Corporate Boards of the Decade” list, based on data from GovernanceMetrics International, a researcher that tracks corporate governance issues.



“None of these directors should stay on. They should clean house. They have screwed up repeatedly,” says Eric Jackson, a hedge fund manager who said on Twitter that “every director should be arrested.”



Jackson says he was kidding about having people arrested, but said, “I’m frustrated that these directors can be so awful and there are no ramifications. There is nothing. There should be some consequences. They should do some time in director prison."



It’s bad enough that HP’s board is bloated with people who lack experience working in the computer industry, and even worse that it has now come out that most of HP’s directors did not even bother to meet Apotheker before HP hired him.



What’s even more shocking is that after Apotheker was hired, he was allowed to help choose five new board members, a move that a corporate governance watchdog group Institutional Shareholder Services (ISS) said “runs contrary to best practices” and “raises red flags.” ISS recommended that shareholders vote against three board members who had allowed this to take place.



The people Apotheker helped choose include Patricia Russo, the former CEO of Lucent who drove that company into the weeds during her tenure. Another was Dominique Senequier, who runs a French private-equity firm and has ties to Apotheker—and who now says she will be leaving the HP board.



Some of the new directors also had been customers of SAP when Apotheker was CEO of that company, Bloomberg reported.



HP’s troubles go back even further, to when the board hired Carly Fiorina, then after six years realized she wasn’t working out and fired her. Then came a spying scandal in which the board’s chairperson, Patricia Dunn, authorized an outside firm to spy on other board members whom she suspected of leaking private information. Then came the Hurd sex scandal, which HP handled clumsily. Then came Apotheker, and now this.



It makes you wonder who is running the show over there? Who is in charge? HP’s board chairman is Ray Lane, a veteran of Oracle and Kleiner Perkins, the big venture capital firm. Marc Andreessen, the entrepreneur-turned-investor who runs a VC firm called Andreessen-Horowitz, has been on the board for two years and in that time has defended the firing of Hurd and helped lead the search that culminated with the hiring of Apotheker.

 Will any of this blow back on these guys?

Will anyone ever stand up and take any responsibility for any of this mess? Probably not. This is Silicon Valley, after all, where weak, spineless boards are par for the course and where failure is viewed as a “learning opportunity.” In the Valley, serial screw-ups don’t get punished—they get rewarded, and told to try again.