Reference no: EM132178586
H P was once so successful that it was featured as one of a handful of visionary companies in the business bestseller Built to Last, published in 1994. These select companies outperformed the stock market by a wide margin over several decades. Built to Last opens with a quote by HP’s co-founder Bill Hewlett:
As I look back on my life’s work, I’m probably most proud of having helped to create a company that by virtue of its values, practices, and success has had a tremendous impact on the way companies are managed around the world. And I’m particularly proud that I’m leaving behind an ongoing organization that can live on as a role model long after I’m gone. [3]
Bill Hewlett passed away in 2001. Much has changed since then. Although generally CEOs are blamed for a company’s poor performance, it appears that in the case of HP much of the blame is to be laid on the board of directors. The board is a key corporate governance mechanism that is supposed to act in the best interests of shareholders, but many of the HP board’s decisions contributed to the destruction of $82 billion in shareholder value. For the last decade, it appears that HP’s board of directors was dysfunctional. It started with the pretexting affair, followed by the handling of the Mark Hurd ethics scandal, the appointment of Leo Apotheker, and the botched Autonomy acquisition. In order to appoint a successor to Apotheker quickly, the board made the controversial decision not to engage in an open search for the next CEO but rather appoint Meg Whitman, who was serving as an HP board member at the time.
A closer look, for example, at the Autonomy acquisition in which HP lost some $9 billion shows that the due diligence process by the board was flawed. The process itself was truncated. Moreover, the HP board did not heed the red flags thrown up by Deloitte, Autonomy’s auditor. Indeed, a few days before the Autonomy acquisition was finalized, Deloitte auditors asked to meet with the board to inform them about a former Autonomy executive who accused the company of accounting irregularities. Deloitte also added that it investigated the claim and did not find any irregularities.
Perhaps most problematic, the board fell victim to groupthink, rallying around Mr. Apotheker as CEO and Ray Lane, the board chair, who strongly supported him. Mr. Apotheker was eager to make a high-impact acquisition to put his strategic vision of HP as a software and service company into action. In the wake of the Mark Hurd ethics scandal, an outside recruiting firm had identified Mr. Apotheker as CEO and Ray Lane as the new chair of HP’s board of directors. The full board never met either of the men before hiring them into key strategic positions!
The HP board of directors experienced a major shakeup after the Mark Hurd ethics scandal and then again after the departure of Leo Apotheker. Mr. Lane stepped down as chairman of HP’s board in spring 2013, but remains a director. [4]
Questions
Discuss the general lessons in terms of corporate governance and business ethics that can be drawn from this case.