September 23, 2011

The HP Soap Opera

H-P Defends Hasty Whitman Hire
SEPTEMBER 23, 2011


Hewlett-Packard Co. fired Leo Apotheker after 11 months as its chief executive and appointed former eBay Inc. chief Meg Whitman in his place, a change unlikely to quell the turmoil that has engulfed one of the world's largest technology companies.

H-P ousted CEO Leo Apotheker and replaced him with Meg Whitman, but it won't immediately back away from Apotheker's strategy to separate the PC business. Don Clark and Spencer Ante discuss on The News Hub.

Numerous questions remain over H-P's strategy, including its plan to possibly spin off its mainstay personal-computer business. But in a conference call to reintroduce Ms. Whitman to Wall Street, analysts questioned her selection and the board's search process. H-P's chairman, Ray Lane, was asked whether the board was rushing to judgment, as critics say they did by hiring Mr. Apotheker last year after firing his predecessor.

Mr. Lane strongly defended the choice of Ms. Whitman and the board's decision not to conduct a formal CEO search. He said that H-P still had the results from the search following former CEO Mark Hurd's ouster last year and that the company considered several internal candidates.

He said when Ms. Whitman, who was eBay's CEO for a decade until 2008 and joined H-P's board earlier this year, agreed to take the job, there was no need to look anymore. "If we thought there was a better choice outside, we would have conducted the search," Mr. Lane said.


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On Thursday, Ms. Whitman, 55 years old, said she endorsed the strategy put together by Mr. Apotheker. In addition to exploring a potential spinoff of its $40 billion-a-year PC business, H-P has agreed to pay $10.3 billion to buy U.K. software maker Autonomy Corp. and scrapped its TouchPad tablet computer, moves that had sparked concern from customers and investors alike.

"I think the strategy is right," Ms. Whitman said, adding she expected the board to complete its review of the PC business this year and was "excited" to close the Autonomy deal. Ms. Whitman noted: "I will obviously step back and take a hard look at this."

H-P reaffirmed its profit outlook for its fiscal year ending in late October but said it had "less certainty" on revenue.

Mr. Lane, a venture capitalist at Kleiner Perkins Caufield & Byers, was appointed H-P's executive chairman.

H-P's shares fell 4.9%, or $1.18, to $22.80 Thursday amid a broad decline in the stock market.

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H-P's stock was down 5% following news of incoming CEO Meg Whitman, while financials were in the red overall, following an ongoing global rout, MarketWatch's Dan Gallagher reports on digits.

The firing of Mr. Apotheker, 58 years old, had been in the making for several weeks, said people familiar with the matter.

Directors had steadily grown frustrated with Mr. Apotheker as he had been unable to make H-P's quarterly numbers for three quarters, people familiar with the matter said. The CEO also tended to consult only a few people, notably Mr. Lane and strategy chief Shane Robison, these people said. For instance, Mr. Apotheker didn't inform H-P's PC head Todd Bradley about plans to potentially spin off that unit until days before that decision was announced publicly, Mr. Bradley and others have said.

After the August announcements about the PC spinoff and the agreement to buy Autonomy—which caused H-P's stock to plunge 20%—Mr. Apotheker appeared unable to explain the moves to investors. That crystallized the need for board members to act, the people said.

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In late August, some board members began looking into how employees, investors and others viewed the CEO, one of the people said. They learned that the CEO failed to rally his troops well and staffers believed "he was not clear on the strategy, not articulating clearly what the direction was,'' this person said.

Board members also learned that some H-P investors were upset over the proposed Autonomy takeover because Mr. Apotheker privately promised them that H-P wasn't "going to make any big acquisitions that will make you lose sleep,'' this person said.

The combination of the botched possible PC spinoff announcement, poor report card from employees, negative press coverage and unhappy investors persuaded directors to explore a change in leadership, according to this person. They didn't reach a conclusion quickly. "Nobody wants to dump a CEO,'' this person said.

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New H-P chief Meg Whitman said the company's 'strategy is right.'

Ms. Whitman was first approached about becoming CEO a few weeks ago, a person familiar with the matter said. Initially she wasn't inclined to take the job. But she made up her mind to accept the post if Mr. Lane agreed to be executive chairman, another person said. The board's final vote over H-P's leadership occurred Thursday, said this person.

"We didn't see an executive team working on the same page or working together," said Mr. Lane of the decision to remove Mr. Apotheker. He said Mr. Apotheker lacked the "ability to get down deep into the businesses and understand the dynamics that were going on in the businesses, and that could land us on a quarter ahead of expectations."

Mr. Apotheker didn't respond to a request for comment. A person familiar with the matter said Mr. Apotheker would leave H-P with an exit package worth $10 million to $12 million.

Questions remain over whether Ms. Whitman can manage H-P. While she grew eBay into a multi-billion dollar company last decade, it was "an Internet services company that manufactured nothing," observed Jim Bethmann, head of the high-tech practice at recruiters Caldwell Partners International in Dallas. H-P dwarfs the size of eBay when Ms. Whitman left as CEO more than three years ago.

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Maggie Wilderotter, chief executive of Frontier Communications Corp., who serves with Ms. Whitman on the board of Procter & Gamble Co., said even though eBay is a fraction of H-P's size, Ms. Whitman won't have trouble being H-P CEO. That's because Ms. Whitman joined the H-P board eight months ago and "she probably understands…what the company should be doing differently,' said Ms. Wilderotter.

H-P's boardroom drama is the latest crisis for a storied Silicon Valley icon that has moved from a family-oriented firm under co-founders David Packard and William Hewlett to a behemoth that shed its folksy "H-P Way" under a series of outsider CEOs.

Over the last decade, H-P has been wracked by a contentious proxy fight over the 2002 acquisition of Compaq Computer Corp., the firing of controversial CEO Carly Fiorina in 2005, a 2006 boardroom scandal over snooping into board members and journalists, and the ouster last year of Mr. Hurd after a sexual harassment allegation. Under Mr. Apotheker, H-P's market capitalization nearly halved, hit by a string of disappointing earnings and strategic changes.

Today, H-P, generating $126 billion in annual revenue and with 324,600 employees world-wide, confronts a raft of competitive challenges. Its PC unit is grappling with the rise of Apple Inc.'s iPad and other mobile products, as well as a revived Dell Inc. Onetime partners such as Oracle Corp. are sparring with H-P as both companies have moved onto each other's turfs. In its services business, H-P continues to face off against deep-pocketed International Business Machines Corp.

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Meg Whitman, shown during her unsuccessful campaign for governor of California last year, is taking over a company in crisis.

With H-P having operations in so many different tech sectors, "there is no person on the planet who understands deeply all the theaters that H-P operates in," said Crawford Del Prete, an analyst at research company IDC.

H-P's current descent began when its board abruptly pushed out Mr. Hurd last summer after a internal investigation found he hadn't violated H-P's sexual harassment policy but had violated its code of conduct. Mr. Hurd, who took over the company in 2005, had remade a bloated H-P into a leaner and more profitable business, with revenue growing from $92.8 billion in 2006 to $126 billion last year.

In July and August 2010, two then-directors, Joel Hyatt and John Joyce, warned other board members that abruptly pushing out Mr. Hurd would be "a reckless way to make a change" and could negatively impact H-P and its shareholders for years, said a person familiar with the discussions.

As talks continued, one person said, Mr. Hurd told Messrs. Hyatt and Joyce he would be willing to continue as CEO until the end of fiscal 2010. The board declined to pursue that strategy. Messrs. Hyatt and Joyce, along with two other directors, didn't stand for reelection earlier this year. The company added five new directors to take their places.

Mr. Hurd, through a spokesman, declined to comment.

In the ensuing weeks, the board's search for a successor to Mr. Hurd identified fewer than a half dozen executives capable of running a company as large and complex as H-P, said person familiar with the matter. Mr. Apotheker, the board decided, was the best of the bunch.

After Mr. Apotheker joined H-P last November, he immediately began talking about beefing up the software business. Two companies H-P explored acquiring this year—Tibco Software Inc. and Autonomy—were on a list H-P put together in 2008, said a person familiar with the matter. At the time, Mr. Hurd thought Autonomy, which would have cost around $3 billion, was too expensive and not a good fit, this person said. H-P was close to a deal for Tibco earlier this year, but talks fell through over price, people familiar with the matter said.

Write to Ben Worthen at

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