Disgrace Under Pressure: The Hurd Drama

Silicon Valley's memory seems curiously short. Mark Hurd recently resigned from his CEO spot at Hewlett-Packard (NYSE: HPQ  ) amid allegations of inappropriate and unethical conduct. With startling speed, his friend Larry Ellison at Oracle (Nasdaq: ORCL  ) hooked him up with a new gig. Hurd's ascension to the co-president spot at Oracle has already sparked lawsuit threats from his former employer. Funny, he doesn't look like Helen of Troy to me.

The swiftness with which disgraced executives like Hurd easily land new, high-paying jobs just makes shareholder-funded golden parachutes seem even more inane. While there may be no rest for the wicked, it seems they don't face any forced retirement, either.

Friends in high places
Hurd's departure from Hewlett-Packard resulted from expense-report inaccuracies and a self-admitted "ethical lapse" at HP.

Regardless, Hurd still received a severance package reportedly worth around $40 million, all told. Now, even before the metaphorical ink is dry on his scandal-laden headlines, he's landing at Oracle. Thoughtful and prudent investors ought to be outraged at the audacity of all this.

Oracle's Ellison emailed a vehement defense of Hurd, accusing Hewlett-Packard's board of "the worst personnel decision since the idiots on the Apple (Nasdaq: AAPL  ) Board fired Steve Jobs many years ago." Apparently Ellison feels really, really supportive of his friend's talents, given Hurd's brand-new role at Oracle. But to me, Ellison's decision feels too much like corporate America closing ranks to protect one of its own.

Incidentally, Ellison recently topped a Wall Street Journal list as the highest-paid CEO of the decade. Therefore, it's no surprise Hurd will likely make out similarly well in his new position. He'll receive $950,000 annually, with the possibility of a bonus between $5 million and $10 million for fiscal 2011.

Hewlett-Packard has fired back with a lawsuit over Hurd's knowledge of confidential information. Oracle's rebuttal that this is a "vindictive" move on HP's part is turning this whole situation into a sideshow. (OK, maybe Hurd's not Helen of Troy. Maybe he's the Trojan Horse.)

The Hurd mentality
With a prestigious new job and a cushy salary to match, why does Hurd even need his lavish goodbye package from Hewlett-Packard? His fat payday already seemed like salt in shareholders' wounds, but now the sting has intensified.

Advocates of golden parachutes often argue that these parting gifts protect CEOs from financial ruin if things go wrong, and therefore give them the security to take necessary risks in their jobs. Maybe that makes sense in theory, but in reality, CEOs rarely end up jobless, broke, and out in the cold, even if they exhibited poor conduct or work performance.

To cite just a few infamous examples, Home Depot's (NYSE: HD  ) Bob Nardelli ended up at Chrysler, despite great controversy about performance during his tenure as the retailer's CEO. Stan O'Neal ended up on the board at Alcoa (NYSE: AA  ) shortly after his departure as head of Merrill Lynch, even though his disastrous bet on subprime mortgages cost Merrill billions in write-offs, and eventually its independence as well. For all intents and purposes, these folks failed at a job, collected lucrative golden parachutes, and then quickly secured new gigs elsewhere.

Such outcomes aren't uncommon; it's far more unusual to see a chief executive forgo a golden parachute, or a company ban them. PNC Financial (NYSE: PNC  ) shareholders did recently passed an advisory vote to trim the size of golden parachutes. Perhaps more stockholders are finally realizing just how much this practice insults and injures their investments.

Drama trauma
Do shame or disgrace ever register in corporate America? I'm all for forgiveness, but the swiftness with which new employers have embraced disastrous chieftains like Hurd just seems like a lack of decent judgment. Too many companies seem to assume that if executives are "talented" or "respected" enough, they're exempt from regular rules of conduct. That's bad news for investors and our economy alike.

However highly Larry Ellison thinks of Mark Hurd, Oracle shareholders may not be getting a very good deal when all is said and done.

Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on corporate governance.

Home Depot is a Motley Fool Inside Value selection. Apple is a Motley Fool Stock Advisor recommendation. The Motley Fool has a disclosure policy.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool owns shares of Oracle. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Fool has a disclosure policy.


Read/Post Comments (8) | Recommend This Article (24)

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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 September 08, 2010, at 5:06 PM, XMFShirKi wrote:

    Thank you Alyce for this time-sensitive piece. I too feel that Hurd's new gig is ridiculous, second only to the size of his parachute. I'm not a stockholder for either company - and have no intention on becoming one.

  • Report this Comment On September 08, 2010, at 5:16 PM, steveelcpo wrote:

    This article highlights the incestuous relationship between boards and CEO's. They're so busy scratching each other's backs that they forget they are there to enhance shareholder interests. I've seen the same lame justification in annual reports and proxy statements for years about making the CEO's interests consistent with shareholders (to justify stock options) or the multi-million dollar salary to "attract and retain talented people". The PNC example cited above says this is "an advisory vote"; any bets on the Board taking the advice? I would say that until shareholders vote no on CEO's and Directors who don't listen, it won't change, but individual shareholders have so little clout. It's the institutional holders (mutual funds, pension funds, etc) who control the lion's share of the shares, so voting my 200-300 shares is meaningless when fund managers seem to rubber stamp poor performance and enormous salaries. Nobody likes it, but I don't see it changing under the current system. Maybe if mutual funds had to give their shareholders the option to vote their percentage of a company's shares, then individual investors would have more of a voice. I even asked the fund manager at T. Rowe Price one time how they voted their shares on a specific issue; no response. I no longer hold any mutual fund positions and don't ever plan to.

  • Report this Comment On September 08, 2010, at 5:17 PM, oldengineer wrote:

    Another example of the boys at the top taking care of the boys at the top.

  • Report this Comment On September 08, 2010, at 5:43 PM, john795806 wrote:

    Uh-huh. Just to play the devil's advocate for a moment:

    To me, the question is, what was Hurd really worth to HP? Did he add value to that company in excess of his salary and golden parachute? If so, then what's the beef?

    And as well, while no one should be above the rules, was dismissal really a just punishment for sexual indiscretion and some less-than accurate expense claims? If that is HP's corporate policy, then I respect them for it. If it was a matter of PR and damage control that resulted in selective punishment, then I have to agree with Oracle's Larry Elison--stupid decision.

    People the world over make outrageous salaries. But that's the law of supply and demand. If a board can find someone to do the same job for less, then why wouldn't they?

    I'm actually serious when I ask these questions...just sayin'. I'd gladly welcome some reasoned answers.

  • Report this Comment On September 08, 2010, at 7:26 PM, solarfool314 wrote:

    I suspect that if one of the lower echelon was caught falsifying expense claims they may have found themselves charged with a crime as well as fired.

    I wonder what CEO salaries would look like if the board of directors were made up of all large shareholders. I suspect they would be a bit lower.

    Do most of today's CEOs produce more inflation adjusted value than their counterparts 50 years ago? Enough more to justify increasing the ratio between their wage and that of the average employee almost 30 times?

    I rest my case...

    Charlie

  • Report this Comment On September 09, 2010, at 12:57 AM, reflector wrote:

    weird article, long on hurd-bashing, short on rationale to justify such bashing.

    i mean, c'mon: "disastrous chieftains like Hurd "? where was the so-called disaster? minor sex scandal, ok, i get it, but it's no big deal. by the accounts i read his reign as ceo was pretty good.

  • Report this Comment On September 09, 2010, at 1:24 AM, cordwood wrote:

    john 795----re BOD finding someone else to do the job for less.....

    Two of many reasons why they don't :

    CEO s and Boards can be a "mutual admiration society",e.g a clique.

    A case of not "turning over the apple cart" may also apply IF CEO is an autocrat.

    I recently received a Proxy and noted that the BOD did not believe targets for performance awards were necessary..."We did not identify specific metrics..[to measure performance of executives]...but on our assesment..[of their performance].." A clique?

  • Report this Comment On September 09, 2010, at 4:07 PM, fennecfoxen wrote:

    I'm all for skepticism on executive pay, but you're going to have to do a better job of criticizing Hurd's contributions to his company's bottom line than this one.

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