Why HP May Need to Find One of Its Own to Lead

Monday May 28th 2012 by Chris Preimesberger

NEWS ANALYSIS: With its fourth consecutive outsider in the CEO's chair, is Hewlett-Packard making a mistake not hiring someone from within the culture to lead it?

You have two choices when you're hiring a new CEO at a company: You either hire an insider or an outsider.

The CEO€”not the chairman, not the board of directors, not the founders€”sets the tone for the entire company. He or she is the face of the enterprise to the media on a 24/7 basis. When the CEO makes a statement, it is microscoped like something in a Petri dish by Wall Street, competitors, analysts and media folks.

CEOs, like politicians, members of the clergy and salespeople, also have to be actors as well as cheerleaders. They absorb the energy of the company and present it to the evening news, press conferences and large customer events. They have to soothe people's souls when a problem is cooking, and they have to shout hallelujahs when things are going well. They have to do this whether they feel like it or not, and they have to look good doing it for the cameras. Thus, they get big bucks for this work.

It really, really helps if the CEO has been in the company long enough to absorb all the important aspects of the culture, because the job is a trying one, and the person in it needs all the resources he or she can access.


Has HP Lost Its 'Way'?

HP is 73 years old. Most of its previous top leaders have been people brought up through the ranks, like at IBM. During the last 13 years, however, its last four CEOs have not been trained and nurtured in "The HP Way."  This is no longer the company of David Packard, Bill Hewlett, John Young or Lewis Platt, and it hasn't been for most of the Internet Age.

Interestingly, HP, while remaining very profitable in spite of itself, has stubbed its toes a number of times since Cara Carlton Sneed Fiorini came from Lucent in 1999 to become the first female CEO of a Fortune 20 corporation.

When she was ushered out in 2005 with the company losing profitability after the highly controversial $26 billion Compaq acquisition, the HP board went outside again and selected NCR's Mark Hurd. Hurd was proclaimed as the stout leader the company needed. His approach was to play the heavy, cutting back to make ends meet. He pillaged R&D, staff and, in the process, production, and then got embroiled in a personal scandal with a female contractor that got him forced out in August 2010.

Apparently not learning its lesson, the HP board again went to the outside, selecting former SAP CEO and longtime division executive Leo Apotheker in September 2010 to ostensibly lead it into the 21st century. Eleven months later, having announced that the world's biggest-selling PC maker wasn't going to make PCs anymore and buying a little British software company for $10 billion and change, Apotheker was shown the door.

He probably cursed the HP board in all five languages he speaks, but he also made out like a bandit with a golden parachute that will fund his family for the next six or seven generations.

Four Outsiders in Succession

Now we're in present day, and not much has changed. When Apotheker was sent packing, HP went for yet another outsider, board member and former eBay CEO Meg Whitman (pictured). Is Whitman a competent business executive? No question; she had been very successful at several corporations for years leading up to her unsuccessful run for the California governorship in 2010. It is true, however, that her last several months at eBay were pretty dicey; the macroeconomic climate of 2008-09 was generally blamed for that. eBay is back doing quite well now.

But here is The $64 Billion Question: Is Whitman the right leader for the HP job at this time?  She's only been in the chair since Sept. 22, 2011, so conventional reasoning is that it's too early to judge.

A large number of long-timers in the IT business weren't impressed with her hiring last year. They haven't been given much to change their minds since then.

Criticism Starting to Show Up

With two lackluster quarterly earnings reports under her sash and 27,000 employee layoffs in the immediate plan, some industry observers are already starting to call for her replacement. Forbes' contributing writer Adam Hartung came out with a piece May 25 headlined, "HP Is Broken, And Meg Whitman's Not the CEO to Fix It." It seems harsh, but the world is harsh. You take a job like CEO of HP, well, you'd better have a thick skin. Whitman alludes all the time to the one she acquired during her $160 million political campaign two years ago.

Writers for the New York Times, Wall Street Journal, Fortune and others haven't been quite that direct, instead writing about what she will have to do to right the ship. A few analysts are telling eWEEK off the record that Whitman's an excellent executive but that she still may not be the right one for the job. So there's no question that doubt is beginning to surface.

Whitman has said, several times, that production-line problems lie in HP's antiquated internal systems€”ironic for a technology company as ostensibly ahead of the curve as HP. Whitman said on the most recent earnings concall that HP's problems are "not the product €¦ it€™s not the market €¦ it€™s not the competition. This is about a classic entrepreneurial company scaling other [read that 'internal'] challenges. It€™s a whole different ball game."

HP should just face it: This may not be a job for an outsider or an insider. It's a job for Superman, although he was trained as a journalist and probably wouldn't be qualified, either.

Look at the hard financial facts. Investors have been dumping HP's stock lately like trash trucks heading to landfill.  The company market cap has slipped about 60 percent€”60 percent!€”in the last two years, from about $52 per share to $22 per hare. That's a paper total of about $60 billion.

There Must Be Somebody at the Company Who Can Lead

Sixty billion dollars could fund the R&D and marketing of a lot of new products to sell. There's true power in the HP name, history, product line and its 349,600 employees. Somebody in that group has got to have the vision, confidence, business acumen, charm, grace and, yes, balls to lead this company. Chances are awfully good there is somebody already on board who can do this job.

Meanwhile, Whitman the outsider incumbent rules, and she deserves all the luck in the IT world. Our hat is off to anybody who dares to claim that job. She has said that it may take four to five years to get HP back on a better track, and she's probably right. That makes The $63 Billion Question this: Will she get those four or five years to see it through?

In summary: As we discovered during the Wall Street crisis of 2008-10, some banks were too big to fail. HP may be too big to manage.

Chris Preimesberger is eWEEK's Editor for Features and Analysis. Twitter: @editingwhiz

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