I Still Believe in Mark Hurd

We can now begin picking our jaws off the ground.

Hewlett-Packard's (NYSE: HPQ  ) gambit of breaking the scandalous resignation of CEO Mark Hurd shortly after Friday's market close worked. The stock may be getting hammered this morning, but there's really not a lot of news left to dissect on the matter.

Let me go against the grain, then, to suggest that this isn't a career killer for Hurd.

Time will probably reveal the extent of Hurd's relationship with the disgruntled contractor and clear up the allegations of expense fudging. However, if this is all there is -- and it's hard to imagine this getting even more damaging for Hurd since the company is forking over a $12.2 million golden parachute and allowing his latest options grant to vest -- I think we'll see Hurd at the helm of another turnaround situation sooner rather than later.

After all, if Alec Baldwin gets to berate his daughter and bounce back with a pair of Emmy wins -- and Tiger Woods can keep many of his sponsors intact after multiple affairs -- this isn't the last we've heard of Hurd.

Allow me to take this one contrarian step further. After turning around NCR (NYSE: NCR  ) and then HP, I would have no problem buying into whatever company decides to take a chance on the now disgraced helmsman.

I can't be alone.

You'd be nuts not to follow me.

Profit from the uncertainty
I'm not asking you to check your moral compass at the door. After all, look at your own portfolio. Unless all of your CEOs are being fitted for chastity belts, we'll never know what truly goes on -- 24/7 -- in their social lives.

In the end, we buy into results.

Character matters, naturally. Enron's shenanigans wiped shareholders out. However, there's a lot of integrity wiggle room between Dennis Kozlowski 's gutting of Tyco (NYSE: TYC  ) and Martha Stewart bouncing back from her insider trading conviction. She did her time and quickly grabbed the reins at Martha Stewart Living Omnimedia (NYSE: MSO  ) .

Hurd will be forgiven, in time, and it may be the best thing for both HP and the lucky company that nabs his acumen on the cheap rebound.

Easier times for HP
According to The New York Times, Hurd was negotiating a new contract that would have paid him $100 million over the next three years. The scandal broke, and now HP is going to find a capable leader who will earn far less.

Perfect!

Hurd did all of the heavy lifting in his five years at HP. Earnings, return on equity, and HP's stock more than doubled in his tenure.

Cynics will argue that Apple (Nasdaq: AAPL  ) has been the better performer in that time, but that only means that Hurd is the second-best chieftain for a computing company with a four-letter last name. Sorry, Michael Dell.

In fact, as HP's stock has more than doubled since Hurd's announced arrival in March of 2005, Dell (Nasdaq: DELL  ) has seen its stock surrender more than two-thirds of its value.

Ouch.

IBM (NYSE: IBM  ) -- perhaps a better fit than Dell as HP's closest rival after Hurd's EDS acquisition -- has treated shareholders to market-thumping gains in that time, but the stock hasn't doubled.

Running HP today won't be as hard as it was five years ago, so this may actually be a convenient time to pass the baton. The margin-widening initiatives are in place. There may be some challenges in integrating Palm into the HP bloodstream, but at least the company can count on lower capital expenditures at the top.

The Hurd mentality
Maybe I'm just cold.

I had a twisted thought when I first heard about the expense padding. If Hurd was taking out the contractor on fancy meals and then lying about her presence by claiming he dined alone or with others who may be more sensitive while on the corporate tab, doesn't this mean that margins at HP may be even a smidgeon better than reported? If so, Hurd is also a smidgeon better than advertised. The cost was probably immaterial, I know, but the thought was there.

I don't know if Hurd's wife will leave him over these salty allegations, but I know that I won't. In a year or two, there will probably be some fallen tech darling on the ropes that comes calling. Hurd will come, willing to work for a low salary that is rich in stock options incentives that will appreciate only if he is successful. He'll be kept on a short social leash, but attention will quickly turn to his hands-on steering.

I'll be there.

And just admit it: As appalled as you may be right now, you'll be right there, too.

Apple is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletter services, free for 30 days.

Longtime Fool contributor Rick Munarriz was one of Hurd's earliest cheerleaders when he joined HP, but he never bought into the company. That will likely change if the opportunity presents itself again. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 10, 2010, at 10:14 AM, zoningfool wrote:

    It's not a question whether or not HP will survive the loss of Hurd but of whether Hurd will not only survive the circumstances surrounding his departure--but surviving to the point of thriving as you suggest.You refer to Martha Stewart--but she was the company--the two are essentially synonymous. If the company survived, Martha would too. Not so with Hurd-- HP was a solid company (if not investment) before Hurd and it will be one after him. As far as what the future holds for Mr. Hurd--I keep thinking "Harry Stonecipher" .... Not sure I'd want to take that bet...

  • Report this Comment On August 10, 2010, at 1:08 PM, onepremise wrote:

    I don't buy into the hype with Mark Hurd and his "World Class Cost Cutting Measures". Hurd has completely destroyed this company internally. He has cut deep into engineering. HP labs is nearly non-existent. All technical talent has left as a result of his practices. Be prepared for the fallout of long-term debt from the results of his actions, acquiring companies with dead products and little consumer base.

    I believe the board has appropriate and valid reasons for firing Hurd. I certainly trust Andreesen's motives over Hurd any day. I don't care if Oracle's CEO backs him, he lacks more vision than Hurd. For all you that really want to understand what's going on at HP, you should read this article:

    http://www.forbes.com/forbes/2010/0412/technology-hp-mark-hu...

    It seriously is quite accurate. Otherwise, hear from the employees themselves:

    http://www.glassdoor.com/Reviews/Hewlett-Packard-Reviews-E32...

    Hurd has a 34% approval ratings. The employees loathe Mark Hurd. I'm glad the board did what they had to.

    HP will be in much better shape with a new CEO that actually understand engineering and technology.

  • Report this Comment On August 10, 2010, at 7:59 PM, srivatsan123 wrote:

    good article. Where was HP in 2005/Fiorana days?, no one bothered to care. I will see which new CEO fills in his shoes and withstands tough blows from IBM and CSCO in the coming quarters.

  • Report this Comment On August 10, 2010, at 9:16 PM, norespect wrote:

    As an engineer for 25 years, 13 of which are at hp, I can say that we have done major damage to the products, services that the upper executives are growing fat with. There has been little if any reinvestment in the company. Where we have bought companies, like EDS, we have systematically raped them and improved the bottom line by reducing the cost servicing the contracts in hand. Do you think that the customers are going to be back after how we have "serviced" them?

    Product development has suffered, schedules rule. There is a cost cutting mantra that has gone through the company like corn through the goose. Will the quality issues affect the customers decisions in the future?

    All of this starts at the top, Mark Hurd made himself a sweet deal, at the expense of the future of the company. The real problem is what to do some of the clowns that he brought in to drive the dismantling of hp talent. So Wall Street loved good old Mark Hurd, is that really such a great endorsement? See where their greed has gotten us... And really, do you think that this had anything to do with 20K and not his new contract? Maybe he just got too greedy.

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