HP Board Revisits Dramatic Change

A perspective on the relationship between CEOs and their boards, focusing on Carly Fiorina and Mark Hurd.
Posted October 5, 2010
By

Rob Enderle

Rob Enderle


One of the things that Carly Fiorina wanted to do was build HP into a software power. Her heir seemed to increasingly be Nora Denzel, the then new head of HP’s fledgling software division. As is often the case, when Fiorina’s replacement Mark Hurd came in, he pushed out Nora Denzel. But with IBM putting Steve Mills in as a strong number two to Sam Palmisano, and Oracle buying Sun, it would seem that Carly actually got it right first. And had Hurd stayed the course, HP would now be far ahead of where they now are.

While Carly Fiorina clearly drifted out of line with her board, looking back, she actually appeared relatively visionary. She saw the importance of the consumer market, the importance of software, even the importance of vastly stronger marketing -- all of which defined much of Apple’s success over the last decade.

In the end, this speaks to the “why” behind HP’s latest changes at the top, and it has more to do with the positional power between the CEO and Chairman of the board than anything else.

Fiorina was Right

If you go back and look at the things she was driving at HP, things that were driving most of the HP executives nuts, Fiorina actually was on the right track. She was finding the rapid expansion of the HP software unit well in advance of this current wave.

What was fascinating at the time was that the image of software was largely wrapped up in the image of Microsoft, which appeared to be increasingly struggling, and during a time when HP and Microsoft were closer partners. This means that from the outside what she was doing seemed counterintuitive.

She knew HP needed a strong consumer product line and unfortunately fell for a deal from Steve Jobs that resulted in HP’s licensing of the iPod and being locked out of the growing MP3 player market until it matured. However, she clearly saw the importance of the iPod back when it was in its early generations and long before any of the other CEOs. The only company Steve Jobs personally moved to shut down in this market was HP, suggesting Fiorina was the only CEO, and HP the only company, in those early years that really frightened him.

Even when Mark Hurd came in he met with Fiorina on several occasions and, with the exception of software, largely executed the strategy she had created. Granted he overdid it with regard to cost cutting and overturned her efforts on software and R&D, all of which actually hurt HP strategically. But his vision was mostly Fiorina’s.

So what was wrong?

Poor Board Leadership Negated Fiorina and Hurd

The recurring problem with both Hurd and Fiorina was that they were either executive Chairmen of their respective boards or the board didn’t have enough power to contain them.

You may recall that Fiorina stepped down from the board chair but still was fired because the board didn’t feel she was following their direction, which was the direct result of weakness on the board. When Mark Hurd took over he demonstrated that weakness by helping force out Patty Dunn, the sitting Chairman, and then taking the role himself. He then also became intractable and eventually crossed a line that allowed this weakened board to replace him. But they didn’t want to make the same mistake made by two prior boards and place the absolute strength in the office of the CEO.

They had 6 candidates. Ray Lane was likely one of them because he had been a candidate before. And because they wanted balance between the board and the office of the CEO, they effectively took two candidates and placed them in together so neither could drop out of control. Ray Lane, the more powerful of the two, is placed as Chairman to both keep the CEO focused on the job rather than his own compensation (or in the case of Fiorina, next job) and keep the board from fragmenting as badly as it did during the Fiorina/Hurd transition.

Leo Apotheker is running the day-to-day operations of the company but won’t have the ability to steam roll the HP board because Ray Lane has too much positional power. The end result is balance between the executive office and the board where both work for the benefit of the company. The problems HP has had in the past, with regard to out of control CEOs and boards, shouldn’t recur.

Wrapping Up: HP Leading to a Better Corporate Future

While the key part of this new arrangement has more to do with correcting the problems that directly lead to the failure of two CEOs, there clearly is a software aspect of this as well.

I think we can expect HP to dramatically increase its investment in software and that their relationships with Oracle will likely become even more strained. Particularly when you think about the example its making, assuming their experiment is successful. It is a counterpoint to the ultra-powerful CEO/subordinate board that often defines current generation companies like Oracle and is at the core of why so many CEOs have gotten into trouble of late.

In short, they are revisiting the idea of dramatic change at HP, but after learning why it didn’t work last time, they are implementing the idea differently and focusing the firm where the market is going, this decade rather than last.

Learning from your mistakes is critical to success and it appears that HP’s current board may be learning from the mistakes of their predecessors. If IBM’s tag line is “Think,” maybe what HP’s is becoming is “Hope.” Hope that HP and other firms will evolve back to a time when making a firm a great place to work was important and where drama had more to do with interesting new products than alleged sexual misadventures. I think, after the last decade, we could all use a little inspiration that this is what HP’s change is about: providing that hope.




Tags: Oracle, IBM, Apple, HP, Hurd


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