HP’s Board Labelled ‘Dysfunctional’ By Former GE CEO

Hewlett-Packard’s board is taking more flak, this time from former General Electric CEO Jack Welch, who became the latest executive to criticise them for their handling of former CEO Mark Hurd and the subsequent hiring of Leo Apotheker as his replacement.

During an interview with Bloomberg Television, Welch called HP’s board of directors “somewhat dysfunctional,” and that by going outside for the third time to find a new CEO, the group showed that it has done very little in developing internal executives.

He also said that the biggest winner in this scenario is Oracle CEO Larry Ellison, who not only was able to hire Hurd to be co-president of his company, but also now can once again compete with Apotheker, who resigned under pressure in February from SAP after two years as CEO for the software company.

Internal Dynamics

“It is impossible to understand the backroom dynamics here. It certainly wasn’t performance. So there was another agenda with Mark Hurd that hasn’t yet come out,” Welch said, pointing to a New York Times article that indicated that Hurd was not liked by HP employees. “I do not know enough of the inside baseball. But it is clear this was not a performance issue. This was a dynamic between the board, which appears to be somewhat dysfunctional, and Mark Hurd. Larry Ellison scooped him up. And I think the winner so far in this is Larry Ellison.”

Hurd resigned under pressure in August after a former HP contractor accused the CEO and president of sexual harassment. A subsequent internal investigation found no basis for the sexual harassment complaint – though the former contractor, Jodie Fisher, did say she had settled the issue privately with Hurd – but found that he had falsified expense reports to cover up a personal relationship with her.

The resignation – and accompanying severance package that is reportedly in the $35 million (£22 million) range – brought a rain of criticism down on HP. Ellison – before he hired Hurd – called the board’s decision to essentially fire Hurd an act of “cowardly corporate political correctness” and said it hurt HP shareholders.

The situation also drew comments from the normally reserved IBM CEO Sam Palmisano, who criticised Hurd’s five-year tenure at HP and said that it was now Oracle – not HP – that represented the biggest challenge to IBM. Hurd had been widely credited with driving up revenues and profits at HP, but Palmisano and some industry analysts said that was accomplished through severe cost cutting. The IBM chief noted that Hurd sharply cut HP’s R&D budget, and that the company was declining in relevance.

Ellison ‘Speechless’

During Oracle’s OpenWorld 2010 conference last month, it appeared that Ellison and other Oracle officials were prepared to make peace with HP, which is both a strong competitor and partner of Oracle. However, HP’s announcement 1 October that it was hiring Apotheker as its CEO drew more sharp criticism from Ellison, who derided HP for passing over strong internal candidates.

“I’m speechless,” Ellison wrote in an email to the Wall Street Journal. “HP had several good internal candidates…but instead they pick a guy who was recently fired because he did such a bad job of running SAP.”

GE’s Welch had similar criticism, noting that before they hired Hurd, who had been CEO at NCR, the directors had appointed Carly Fiorina, another outsider.

“You know Todd Bradley [executive vice president of HP’s Personal Systems Group] is out there and Todd Bradley worked for us at GE and Todd Bradley is a very good guy,” Welch said. “Somehow or other he wasn’t picked. I don’t know any of the dynamics. So they chose to change the game again. This is their third outside CEO in eight years or something like that. It is obviously a board that isn’t thinking about management succession internally for a long time.”

He said HP’s actions show the board’s dysfunction, implying that its decision on Hurd had more to do with personal issues than business.

“There are boards that do not understand their role in companies,” Welch said. “Their role is to pick a CEO, work on the strategy with the CEO, and then get out of the way. If the CEO isn’t delivering, tell him about it, give him a chance maybe and then get him out of there. But on the other hand, don’t get involved in all kinds of internal squabbles.”