"HP's Board of Directors Is Pathetic."
That was the headline floating around last week. It's hard to disagree. Hewlett-Packard's (NYSE: HPQ ) board is getting good at two things: tripping over their own incompetence and handing out dynastic pay packages.
It started last year when HP's board pushed out then-CEO Mark Hurd for allegedly abusing $20,000 worth of corporate expenses. For his misdeeds, Hurd was shown the door with a $35 million severance package, and quickly took up an executive position at rival Oracle (Nasdaq: ORCL ) . Some claim the board's hands were tied with the severance package, and that it was contractually obligated to make the payout. Blarney. As Nell Minow of the Corporate Library pointed out, by letting Hurd resign, rather than firing him, the golden parachute was entirely voluntary.
This was board stupidity at its finest: Take a well-liked and talented CEO, make him resign for what looked like a minor issue, give him tens of millions of dollars, and hand him over to the competition where he can work tirelessly to erode HP's future. As Oracle CEO Larry Ellison said, "The HP board just made the worst personnel decision since the idiots on the [Apple (Nasdaq: AAPL ) ] board fired Steve Jobs many years ago."
HP's board was just warming up. After the Hurd episode, HP's board set out to find a replacement. It eventually settled on Leo Apotheker, who had recently been ousted as head of European technology giant SAP (NYSE: SAP ) after less than a year on the job. James Stewart in The New York Times describes how botched the process of hiring Apotheker was:
[W]hen the search committee of four directors narrowed the candidates to three finalists, no one else on the board was willing to interview them. And when the committee finally chose Mr. Apotheker and again suggested that other directors meet him, no one did. Remarkably, when the 12-member board voted to name Mr. Apotheker as the successor ... most board members had never met Mr. Apotheker.
One of the board members who had never met Apotheker tried to explain: "I admit it was highly unusual. But we were just too exhausted from all the infighting." Try using that line on your boss sometime.
And then there's the weird twist of trust. HP ostensibly forced out Hurd because they couldn't trust him. Boards need their CEOs to be ethical bastions. But when they hired Apotheker -- a stranger -- the company he used to run, SAP, was involved in a nasty court battle with Oracle over intellectual property theft. As Joe Nocera of the Times explained, "It takes your breath away, really: the same board that viewed Mr. Hurd's minor expense account shenanigans as intolerable has chosen as its new C.E.O. someone involved -- however tangentially -- with the most serious business crime you can commit."
Investors universally panned Apotheker as a disappointment. HP's shares plunged nearly 50% on his watch, compared with double-digit gains from competitors Oracle and Dell (Nasdaq: DELL ) . What little confidence he commanded vanished after announcing plans to spin off the PC division and purchase software company Autonomy at a vulgar price. On a conference call explaining the deal, Apotheker crowed about how fast Autonomy's revenue has been growing. When an analyst pointed out that most of that growth came from acquisitions -- not organic sales growth -- Apotheker responded, "I cannot comment on that specific thing." It was painful to listen to. Shares lost more than one-fifth of their value that day. It was clear he had to go.
Last week, HP's board showed Apotheker the door 11 months after he was named CEO. For his service of destroying billions of dollars worth of shareholder wealth, he was awarded a $25 million exit package, on top of millions in regular compensation.
Who's responsible for this disgrace? Apotheker has, rightly, become the face of HP's decline. To a lesser extent, HP's board has been blamed. They hired him, after all.
But when people talk about the board, it's treated as this mysterious, impersonal monolith. That's not the case, of course. Boards are made up of flesh-and-blood people with names and reputations.
At The Motley Fool's investment conference last week, Nell Minow of the Corporate Library challenged us to "name names." Corporate boards need to be held responsible for their actions. Step one in getting there is ensuring that shareholders know the names of the people taking those actions.
In that spirit, please meet HP's board of directors:
- Marc L. Andreessen
- Lawrence T. Babbio Jr.
- Sari M. Baldauf
- Shumeet Banerji
- Rajiv L. Gupta
- John H. Hammergren
- Raymond J. Lane
- Ann M. Livermore
- Gary M. Reiner
- Patricia F. Russo
- Dominique Senequier
- G. Kennedy Thompson
- Margaret C. Whitman
Some of these names should look familiar. Ken Thompson is the former CEO of Wachovia, who singlehandedly ran the bank into the ground. Pat Russo is the former CEO of Lucent, which became a poster child of shareholder wealth destruction. Meg Whitman is the former CEO of eBay (Nasdaq: EBAY ) , and newly named HP CEO.
To be fair, several of these folks are new to HP's board, and weren't around during the Hurd ouster or the Apotheker hiring. But every one of them should be held accountable for the company's success going forward. You, as a shareholder, can make certain of that by exercising your shareholder rights and voting. If you're not happy with how the company is run, do something about it. This is easier than you might think.
Bob Woodward, who helped crack open the Watergate scandal, used to say that "it was accountability that Nixon feared." I have to think the same is true among corporate boards. Everyone knows HP's board is pathetic. What's sad is how little shareholders are willing to do about it.