Directorship Boardroom Intelligence - http://www.directorship.com -
The Shot ‘Hurd’ Round the Boardroom
Posted By Jeffrey M. Cunningham On August 10, 2010 @ 6:00 am In Blogs, CEO Succession No Comments
If another internal investigation is announced, Sergeant Joe Friday may soon be joining the HP board.
For those who have spent the last few days on the Lunar Module, the story goes like this.
[1]CEO Mark Hurd received a letter from the attorney of an HP contractor charging him with sexual harassment. He forwarded this to his legal department that, after an internal investigation, found no basis to the claim. But in their investigation they uncovered a conscious effort to submit expense receipts that disguised the fact he was meeting with this woman repeatedly over a two-year period. The full amount of his cover up was $20,000 vs. HP’s revenues for the past two years of over $240 billion.
Did the board do the right thing: Was HP CEO Mark Hurd’s termination a sign of corporate governance run amok? Or was it a rational and systematic way of dealing with the pressures on the board to investigate management’s misdeeds, and then justify its decisions to a vocal constituency of investors, the media, the public, regulators, politicians and employees?
The answer is both. It appears to be overreaching in terms of the charge vs. the punishment, but given the environment, most likely it was necessary. So let’s look at the logic here. With such a small amount at stake, and the fact that he did not commit harassment, was the decision to terminate appropriate? Materiality or intent to defraud were not factors in the board’s view of these violations, intent to deceive was. After HP’s fiasco with contexting and a follow-up investigation by the California Attorney General, the board wanted to assure investors and the public that they had no tolerance for ethical breaches. They felt the risk of moving too precipitously was more acceptable than a charge that once more the board was using bad judgment. It was less about a CEO who fudged (we have seen worse) and more about a company that needed very urgently to show the world that it can manage ethical issues independently and firmly.
The result of the board’s quick action? By the time the business world had seen Mark Hurd’s confessional resignation speech, and may have seen Mark Andreeson’s very impressive responses in a CNBC interview with Maria Bartiromo, the story will have moved in two business days from an office entanglement to who will run HP. Just what HP and the board wanted and needed.
And thereby provides an important case for study for boards at large.
What were the three main things did the HP board do right?
Succession planning, succession planning, succession planning: Although the company appeared to be in brilliant hands with Mark Hurd, and at age 53 there was no urgency to develop an immediate succession plan, the company had a plan in progress–on the shelf ready to go. And this is exactly why such a plan is needed: It is not only the disasters we know about but also the ones in the making. The criticism of HP’s succession plan in the Wall Street Journal leads one to believe that only by appointing a clear number two does a company have a succession plan. But that is just not the case. In technology companies in particular with short life product cycles, it may be more sensible to have a bench of potential successors, and to always keep the option of going outside the internal team. HP moved swiftly to appoint CFO Cathie Lesjak as interim CEO, and she agreed not to be a candidate for the CEO role. This was a smart ploy that both avoids dissension and leaves the company managed in the interim by a smart, popular executive. The company also left open the possibility of an external candidate, giving the board the widest room to maneuver. Finally, it appointed a well-known board director and technology guru, Mark Andreessen (founder of Netscape) to speak on behalf of the board with Bartiromo, and he did so brilliantly, parrying her questions and getting the points across the board needed the world to know.
Postscript
The care and feeding of the CEO is one of the board’s primary responsibilities. CEOs are susceptible; in other words, they are human. They are depicted by the media as very powerful and indulgent, but off the record their life and schedule are pressured beyond understanding which can lead to strange behavior. Some simple remedies: allow and encourage spousal travel. Invite the CEO to bring family members along on trips, friends even. It sounds like an old fashioned bromide, but the other alternatives available to relieve the constant pressure on these key individuals can be very costly, as we have seen.
Jeffrey M. Cunningham is a frequent speaker and writer on governance topics and the boardroom. He is managing director and senior advisor to NACD and has served on 10 public company boards in all capacities, including as chairman of four.
The views expressed in this column are strictly the author’s and do not necessarily reflect the views of NACD.
Article printed from Directorship Boardroom Intelligence: http://www.directorship.com
URL to article: http://www.directorship.com/hurd-round-the-boardroom/
********************************************************
http://dreamlearndobecome.blogspot.com This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
No comments:
Post a Comment