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Why 95% of Traders Fail

In Defense of the Hewlett Packard Board to Vote Out Mark Hurd

Companies / Corporate News Aug 18, 2010 - 03:13 AM GMT

By: Static_Chaos

Companies

Best Financial Markets Analysis ArticleThe HP board has taken a lot of heat for their decision to vote out CEO and Chairman Mark Hurd. But the HP board had no other choice in the matter. Some of the confusion surrounding the Mark Hurd saga is the fact that the media is looking for some bigger story than there actually is, after all, controversy sells in their business. Moreover, Mark Hurd who is trying to conduct spin and damage control to save his future corporate career is making a pretty clear cut, necessary, and deserved firing look more mysterious than it actually is. This is a no-brainer, and every board, including Larry Ellison`s would have come to the same conclusion: namely, Mark Hurd had to go.


In almost every account there is a lot of confusion about what really happened. The reason for this is that these are sensitive topics, and corporations have to utilize certain discretion when discussing the events regarding his resignation. But I have read enough about the case, and am pretty good at filtering through the politically correct corporate speak framed by high paid lawyers.

Here is essentially what happened: Mark Hurd had an affair with an event contractor for HP, it ended badly, she was hurt, and wanted to get even with him, so she filed a sexual harassment claim against Mark Hurd and HP. When HP looked into the merit of the claim, they noticed that this event contractor was paid through perks and other means a larger salary than normal for said job duties. This is a major problem for HP and the board. Hurd used his position to show favoritism towards an employee who he had an affair with.

Then Mark Hurd tried to cover up his affair and special treatment of this contractor by filing misleading and inaccurate expense reports, and other corporate reports regarding this contractor`s pay, and working schedule which he had to sign off on and approve. This is another huge red flag for HP and corporate ethics and represents a policy violation at the least. Furthermore, corporations work so hard at pushing corporate policy code of conduct training from the top down to the rank and file employees, and their CEO sets a dangerous hypocritical precedent. Again he had to go for this fact alone.

However, the ultimate reason that Mark Hurd had to go is that he put HP in a bad position. Through his poor decision making process Mark Hurd put HP in the position of having to defend itself against a sexual harassment claim, all because Mark Hurd put himself and HP in this situation in the first place by having a relationship with an employee, i.e., “they visited each other`s hotel rooms late at night.” Yes I am reading between the lines on this statement, and so should you.

HP cannot have a CEO who puts the company in this position. The CEO gets paid a large sum of money to essentially represent the company, to set the standard for all employees to follow, to essentially represent the HP brand for Main Street. Remember this is a public company, and any CEO understands their responsibility as a CEO, and what they represent as the high profile face of the company. Plainly, HP cannot afford to have a reckless CEO who brings about sexual harassment claims due to exercising poor judgment with an employee of the company. So the only person at fault here is Mark Hurd, and the board handled this saga the way any board of a fortune 500 company would upon similar circumstances, according to the book.

The shareholders were put in a bad situation by Mark Hurd, but they should be proud of the way the board acted decisively in this case, to limit the damage, and clean the slate for a bright future with the next CEO leader with no long-term lingering damage which some CEO scandals can inflict on shareholders if not handled properly. They revealed what occurred, didn`t cover up, and made the best decision for the long term interests of shareholders. The HP board should be applauded for doing the right thing in this case, unlike Enron, Arthur Anderson and many other boards who failed to conduct proper oversight of their CEO and protect shareholders from any reckless behavior which could damage long term shareholder value.

So now the question should be resolved as to why the board fired Mark Hurd, but what about the large severance payout. Well, this is complicated by employment contracts, and the way they are worded. Plus Mark Hurd settled with the contractor, so they couldn`t gain evidence for a termination case without severance.

All in all, HP probably could have fought this with Mark Hurd, but it would only drag things through the court, may not even have been a winnable case (I am sure they consulted legal on this fact). I know that the sums involved seem like a lot of money to the average person on the street, but once you factor in the cost of having this saga drag on through the next CEO regime, and distracting HP from competing with the likes of Dell, Apple, Cisco, and IBM in the ultra competitive IT landscape. It makes for economic sense to just clear the desk as soon as possible and move on.

Remember, this isn`t your father`s HP, HP is the largest technology company in the world based on the all important metric of revenues, not market cap which is often based upon an overly inflated stock price with unproven revenues a la Bidu. So even if it comes as a $40 million dollar write-off, as a shareholder it is well worth it to get this ordeal done with in one fell swoop, and move on to the bright future that HP is positioning itself for in the technology space over the next decade. And make no mistake technology, and the productivity gains and quality of life enhancements brought about through technological innovation is what has driven American and global business growth for the last twenty years.

By Static Chaos

http://static-chaos.blogspot.com

© 2010 Copyright Statoc Chaos- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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