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History of HP
Hewlett-Packard Company, is an information technology company which began with working on a range of electronic devices. HP’s core business is in developing and manufacturing computing, along with hardware, software and other services. Personal computing devices, enterprise servers, related storage devices, as well as a diverse range of printers and other imaging products are the major product lines at HP. The company which acquired Palm for 1.2 billion in cash and debt in the previous month focuses in marketing to businesses, households in two ways. Firstly it does so directly and secondly, through online distribution.
Currently, HP holds the distinction of selling the largest number of computers and laptops in the world. It operates in the US market from its facility in Houston, in Texas. HP is recognized throughout the world for its unique management style that has come to be known as The HP Way. This was developed by HP’s founder’s Bill and Dave. In Bill’s words, the HP Way is “a core ideology which includes a deep respect for the individual, a dedication to affordable quality and reliability, a commitment to community responsibility, and a view that the company exists to make technical contributions for the advancement and welfare of humanity”
The founders of HP came up with five tenets which needed to be followed to achieve organizational excellence. These have been listed in the bestselling book by David Packard, ‘The HP Way.’ They are as follows:
1. We have trust and respect for individuals.
2. We focus on a high level of achievement and contribution.
3. We conduct our business with uncompromising integrity.
4. We achieve our common objectives through teamwork.
5. We encourage flexibility and innovation.
What we are going to explore in this paper is how Mark Hurd Ex-CEO of HP, failed to comply with all of these tenets, commonly known as the ‘mantra’ at HP, thereby leading to his forced resignation from the organization.
Biographical sketch HP’s Ex-CEO, Mark Hurd
Mark Vincent Hurd was the chairman, CEO and president of Hewlett-Packard from September 2006 till early this month. Under his leadership, the company topped sales in desktop computers and laptops, a feat that he achieved in 2007 and 2006 respectively.
Hurd had a reputation for aggressive cost cutting. He laid off almost 10% of the workforce after becoming the CEO at HP. Hurd imposed a 5% cut in pay for all employees and very interestingly took a 20% cut in his base salary. However the compensation committee at HP increased his salary by the same amount through bonus.
In 2009, Hurd was considered one of the ‘TopGun CEOs by Brendan Wood International which is an advisory agency.
What went wrong at HP?
Origin of the problem
The problem for Hurd began with accusations of sexual harassment which came from one of the lady members at HP. This resulted in a board investigation against Hurd for alleged sexual harassment claims by a former contractor at HP.
On further investigation, it was revealed that although Hurd did not specifically violate any company sexual harassment policies directly, they did find inappropriate judgments in the selection of the contractor and the use of her marketing services. Further investigation led to the discovery that Hurd cheated on expense reports. Some of this money seems to have gone to the contractor who has pressed charges of sexual harassment. At this point one can ask ourselves, wasn’t there any procedure in place for the selection of contractors at an organization as large and reputed as HP? Aren’t there any guidelines that needed to be followed in order to decide on the compensation to be given to these contractors? Coming back to the actual issue at hand, it seems bizarre that considering the kind of money that Hurd was earning, that he would actually have to stoop down to this kind of behavior.
The events whose expenses were falsified were billed as CEO executive summits, high profile exclusive gatherings, where according to what was expected, Hewlett-Packard officials would be responsible to woo top customers. When Hurd, HP’s chief, appeared at these gatherings, he relied on Jodie Fisher, the contractor in concern, a 50-year-old who formerly was a reality television contestant turned HP marketing consultant, who would in turn introduce him to customers and also keep him company for the gathering.
In these events, there were receipts submitted by Hurd submitted receipts for various expenses which were billed from $1,000 to $20,000 in the two plus years. These included meals and travel, which otherwise should have been accounted as personal since they were not related to business.
The expenses were incurred at HP-hosted “CEO forums,” mostly in North America, in which Hurd participated, this person said. The woman worked as a contractor hosting the events.
Hurd’s ouster is the third in five years at HP’s top echelon. First was Fiorina’s in 2005, then former Chairwoman Patricia Dunn was ousted in 2006 amid a boardroom spying scandal that involved spying on reporters’ and directors’ phone records to suss out the source of leaks to the media.
From the above incidents it sure looks as if HP needs to be much more careful in selecting candidates for their top brass candidates. Changing three CEO’s, for the wrong reasons in less than five years is certainly not what every ideal company aims towards.
There were three parties involved in this major issue which questioned the ethical standards at corporate once again.
Firstly, Mark Rudd who worked so hard to build such a fast track career to the top. He seemed to on the right track, knowing what he wanted and stopping at nothing less in order to achieve this, before this scandal struck him. As the investigations proceeded, Hurd admitted that he did not live up to the principles of trust, respect and integrity that he had espoused at HP. When a person at such a high position can succumb to such low ethical standards, one shudders to think of the prospective danger that companies put themselves into by hiring such wrong role models to lead their company.
Although Hurd was very prompt in stating that his behavior did not reflect on the operating performance or for that matter, the financial integrity at HP, the damage was already done. The complete HP name took a setback due to this incident. Investors at HP, very naturally responded to this incident, and the share prices of HP dipped by almost 10%. There is still no clear indication till now on who will be the future CEO of HP, though CFO Cathie Lesjak who stepped in as interim CEO made it clear that she was definitely not in the running.
Jodie Fisher, the contractor who accused Hurd of Sexual Harassment is the third party involved in this unfortunate incident. She is a single mother who is an actress and businesswoman working in sales and commercial real estate. Ms. Fisher was saddened by the fact that Hurd lost his job due to her allegations. Though there was no proof to indicate that the allegations were true, they ultimately led to the bigger issue of Hurd falsifying documents.
Actions taken by parties
Robert Ryan, lead independent director of the HP Board, said: “The board deliberated extensively on this matter. It recognizes the considerable value that Mark has contributed to HP over the past five years in establishing us as a leader in the industry. He has worked tirelessly to improve the value of HP, and we greatly appreciate his efforts. He is leaving this company in the hands of a very talented team of executives. This departure was not related in any way to the company’s operational performance or financial condition, both of which remain strong. The board recognizes that this change in leadership is unexpected news for everyone associated with HP, but we have strong leaders driving our businesses, and strong teams of employees driving performance.”
On his move to resign as the CEO at HP, Hurd said: “This is a painful decision for me to make after five years at HP, but I believe it would be difficult for me to continue as an effective leader at HP.” He further went on the state that it was the only decision the board and himself could come to a consensus to. He was very forceful in mentioning that his actions did not in any way reflect HP’s performance.
The unfolding of the incident
An insider statement from HP had previously revealed that Mark Hurd had resigned following a request from the board due to his inappropriate behaviour, which were not in line with HP’s business standards. In view of this incidence, they were not sure if he was the right person to take the company forward.
“Mark’s resignation followed an internal investigation into a claim of sexual harassment asserted against Mark and HP by a woman who is former contractor to HP. The investigation was conducted by outside counsel in conjunction with HP’s General Counsel’s office and was overseen by the Board. Based on the investigation it was determined that the former contractor’s claim of sexual harassment was not supported by the facts.”
The investigation did reveal, however, that Mark had engaged in other inappropriate conduct. Specifically, based on the facts that were gathered it was found that Mark had failed to disclose a close personal relationship he had with the contractor that constituted a conflict of interest, failed to maintain accurate expense reports, and misused company assets. Each of these constituted a violation of HP’s Standards of Business Conduct, and together they demonstrated a profound lack of judgment that significantly undermined Mark’s credibility and his ability to effectively lead HP.
Similar parallels in the past
Hurd isn’t the first CEO to resign after a relationship surfaced. In the past there have been incidents at Boeing Co., Penguin and much closer home, at Infosys where harassment at the workplace has caused serious damage to the reputation of the company at stake.
The Boeing Story
In March 2005, Boeing Co. announced that it had forced its chief executive to resign after an investigation uncovered that he had an affair with a female employee.
An official spokesperson declared that the requirement in the decrees align with existing and effective Boeing policies and procedures for reporting, investigating and remedying improper conduct. They also spoke about how in the wake of this incident, there would be attempts to review the existing policies and procedures and make any changes if needed.
The Ninth U.S. Circuit Court of Appeals ruled reversed the trial court ruling and remanded the case for trial, concluding that a jury could find that Boeing had manipulated the women’s performance evaluations in order to terminate them.
The appeals court found that “demeaning and derogatory comments” made by womens supervisors about women in general, along with his interactions with her, could provide enough evidence to convince a jury of “discriminatory motive” even if the comments weren’t directed at her, the opinion said.
In another case, Boeing substantiated a female employee’s sexual harassment claim but a year later, her manager gave her lower scores on a performance evaluation than others in her section.
She was subsequently fired even after several other managers requested that she be transferred to their departments, a fact that could lead a jury to find that the low performance score was “not credible,” .
Closer Home: The Infosys Story
At Infosys, Reka Maximovitch is a 30 year old lady lawyer who filed charges of “wrongful termination” and” sexual harassment” against infosys technologies and its ex-director Phaneesh Murthy in the U.S., settled the proceedings out of court. Infosys settled the case for US $3 million!
Announcing the Rs 15 crore settlement of the suit, which had rocked the company, N R Narayana Murthy, chairman and chief mentor said, The company would contribute US $1.5 million and the rest would be paid by insurance companies.
Virtually blaming Phaneesh Murthy, Narayana said, Phaneesh did not disclose to the company management, as an important functionary, that he had a relationship with Maximovitch and also of the fact that she had filed in the court for a restraining order against him.
Mr. Murthy, explaining reasons for the settlement, said that the allegations of Maximovitch were serious and the compensation demanded was in multiples of what had been settled. Also, under California law, Infosys was also liable for the conduct of Phaneesh Murthy because he was an officer and a member of the Board.
Phaneesh Murthy, who now runs a consulting business, said he had agreed to the settlement to avoid spending valuable time on fighting the case against his former subordinate. The episode is behind us now and we need to move ahead both personally and professionally, he said.
We need to ensure that organizational culture accounts for women’s presence at the workplace. Just the mere presence of laws alone is not enough to provide the solution. Institutions need to begin to value women as workers, and only after this change in attitude can we move towards a workplace free of harassment.
The Penguin Story
A noted Indian publisher David Davidar, who was the CEO and president of Penguin Canada was sacked from the top job after a sexual harassment case was filed against him by a former woman colleague.
The woman colleague reported of harassment for the past three years and an outright assault at the Frankfurt Book Fair.
This incident too marked the end of what was a sparkling career of a person from top management.
How do such an incidents take place?
It is indeed very sad to notice that some of the very leaders who enforce various standards for ethical conduct within an organization are the very ones who go against it. Why does this happen? Is it because people are not aware about the seriousness of the need for ethical conduct? Or because they feel that being at the top of the hierarchy keeps them protected from the consequences of their actions? Or is it merely a sad phenomenon where we misuse the power that is given to us when we feel that it won’t be noticed?
At the end of the day, tone at the top only counts when leaders use words that they believe in enough to live.
What can be done to prevent such incidents?
In Hurd’s case, it is very strange that someone at such a high level pulled off such false accounts and did not get caught for it earlier.
There were hundreds of thousands which was claimed to be spent for Hurd’s private security costs and the costs for private travel on the company’s jet.
Why did the officials at HP not look into these large sums of money that were claimed to be spent? Was the board too scared to report this unethical behaviour? Whichever the case, something needs to be done in order to prevent such an incident from happening again. If HP’s board sincerely wants to get rid of such unethical behaviours, it should begin by acting sooner and more decisively, thereby indicating that such behavior is not something it will tolerate.
Executives and employees at all levels in an organization need to be stressed about the importance of corporate governance. This is indeed the need of the hour.
Corporates can also follow some simple tenets like the ones listed below:
Add ethical and moral clauses to the business code and make sure that these are enforced very strictly.
The leaders at the helm of things need to set the tone right and give the right direction to the hundreds of employees below them in the organization chart.
Ensure that there is constant screening of the employees that is undertaken to unravel such shortcomings.
Audits can be conducted throughout the year in order to ensure proper accounting principles.
Proper procedures for hiring of people in an organization need to be ensured in order to prevent unfair practices for hiring of people.
With the economy as shaky as it has been, there is no longer a swelling flood to lift all boats. Companies must use resources wisely and get back to the basics of running companies.
Unethical Business Practices
Although Hurd’s actions were, while trivial in financial terms, they represented a systematic violation of the company’s trust and ethical standards — serious enough to oust a charismatic and widely admired executive credited with resuscitating HP.
Hewlett Packard’s Board of Directors demonstrated on Friday (August 6, 2010) that if you violate HP’s Standards of Business Conduct (SBC) you can lose your job, even if you are the chairman and CEO.
The decision showcased that everyone is expected to adhere strictly to the SBC in all business dealings and relationship and further enforced that senior executives should set the standards for professional and personal conduct.
Luckily, for HP, Mark Kelleher, an analyst with Brigantine Advisors, said Hurd’s resignation boils down to “one person doing some really stupid things.” Due to the fact that it was just one person who was responsible for unethical practices in the company, and not an entire network of people, the image of HP is not as badly damaged as it could have been.
HP: The Road Ahead
The road ahead for HP will not be easy. Although Lesjak assured that investors remained confident in the company, HP’s share price dipped 10% as news of Hurd’s resignation rippled through Wall Street.
Since Hurd had a stabilising presence in the company and galvanized the formerly chaotic company, he was known as the glue that held a complex organisation together. People saw Hurd as having a knack for finding new areas where HP could lower its costs, and for maintaining order among the top executives. Going forward, disciplined execution has become part of HP’s DNA. The new leader will have to maintain fiscal discipline more than anything at HP.
There have been suits known as a shareholder derivative lawsuit, which have been filed against HP. The suit accuses the management board at HP for not living up to the standards which are expected of this company which had such great repute.
In today’s times, causing a mistake can be so detrimental to an organization is so many ways. There have been so many incidents of unethical behaviour in corporate and some of the larger settlements tend to revolve around cases of romance and sexual harassment. There have to be proper guidelines and policies for issues such as harassment at the workplace in order for a company to function efficiently. Additionally, as seen in Hurd’s case, there also has to be proper procedures in place to ensure that contractors/employees are chosen only on basis of merit and not for other unethical reasons. Transparency has to be followed in organizations. And the need of the hour is effective corporate governance which needs to be practised in organizations.
What the HP case reinforces is that the claws of unethical behaviour can touch anybody in an organization, even the boss right at the top who is driving the company. One can always plan numerous workshops and seminars on ethics but there is no surety that those will be effective. When someone decides to beat the system, someone at such a high position, they will try anyway. However, organizations must stress on making employees aware of the procedures and policies in the company regarding ethical standards and encourage people to report wrong behaviour. Not knowing about what is ethical is not an excuse for unethical behaviour. It is difficult to get people in companies to be whistleblowers, especially when it is the person at the top who is in the wrong. Didn’t Mark Hurd’s aides realise that the accounts that they were preparing were not accurate? Didn’t they realise that something was amiss? Or sadly, was it merely a case of nobody wanting to be the whistleblower to a man so high up in the organization, for fear about the consequences. When a global company as large as HP can have such obvious discrepancies in the recruitment and selection process in the case of vendors, it makes one wonder whether this loophole in their system is also being misused at other levels of the organization. The worst has already happened. The person right at the top has committed mistakes that have changed the entire game for the company. Stock prices dipping, investors filing legal suits – and this has lead the IT major to be in turmoil. Luckily, in the case of HP, the damage was not too deep since it only included one person who made some bad decisions in the company. The company could bounce back due to the fact that there was no internal network of such malpractices in the company, and even if there are, this incident will definitely prove to be a lesson to everyone – No matter at what level up the hierarchy you may be, the hand of law will always get you.
I think that the climate for ethics and compliance has changed dramatically in the last decade.
A lot of this came out of the Enron and WorldCom scandals and the resulting Sarbanes-Oxley Act. But it’s more than just a matter of legal compliance. Companies need to do what is right, rather than simply complying with regulation. And what is right is determined by all our stakeholders, so we have to listen to them and understand their expectations to be successful.
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