How Bad Boards Kill Companies: HP

http://www.mondaynote.com/2011/09/25/how-bad-boards-kill-companies-hp/

by alexandros • 15 years ago

101 25 15 years ago

ShawnJG• 15 years ago

this is a perfect example of when checks and balances go wrong. While CEOs and boards may not see eye to eye on every decision they sometimes forget that they are not enemies. They should be working together toward common productive goals. Even though these are billion-dollar companies, they cannot afford to continue to destroy themselves from within, sooner or later profits will dwindle and they will be no more. Mistakes are bound to happen. But according to this article, HP doesn't seem to learn from theirs. They are thoroughly living the definition of insanity as if it were a religion!

I hate to bring politics into this, but regardless of whatever side you're on Congress and the president seem to be doing the same thing. Although they're supposed to watch each other. They forgotten that they're on the same side. It should be working together to get things done. Internal fighting and derision can kill governments, as well as companies.

maxxxxx• 15 years ago

The comparison with politics is a good one! Working together but still keeping some distance is out of fashion. It seems most of America's leadership is too busy serving their egos instead of working on the things they have been hired to do.

linuxhansl• 15 years ago

A friend of mine works in the publishing business. He equated the previous few CEOs of his (large) company to locusts.

They move through, cut cost by laying of people. That leads to great profit increases for a quarter or two, after which the lack of qualified employees shows its toll.

By the time that problems become apparent the CEO collected a huge bonus and moved on, leaving the mess for somebody else to cleanup.

masklinn• 15 years ago

> He equated the previous few CEOs of his (large) company to locusts.

I'm not sure locusts is correct, but mercenaries definitely is: in this day and age, short-tenure CEOs are brought in specifically to raise stock prices over the short term (or in rarer situations, to take the knocks coming with a change of direction leading to short-term raises of stock prices with the next mercenary), regardless of the long-term outlook of the company.

Their outlook is generally under 24 months, and their job is to do everything they can to artificially inflate stock price in that time-span. This leads to scorched eath strategies instead of long-term planning and sustainability, since they won't be there when trouble hits the door. It's basically the tragedy of the commons all over again.

jacques_chester• 15 years ago

I think this is known as "Slash and Dash" or "Raid and Paid".

_delirium• 15 years ago

Boards are really not set up to do any sort of serious monitoring of a complex multinational corporation, especially if they're supposed to be doing it independently of the executives they immediately supervise (CEO/CTO/COO/etc.).

Nearly every major company's board is full of people who have more-than-full-time day jobs, plus sit on 3-5 other boards. There is really no way they can do a proper job in that situation; in practice, they devote one day a month to doing the bare minimum to fulfill the responsibilities of each board position they hold, if that.

For example, after a story about Cisco acting badly (http://news.ycombinator.com/item?id=2789540), I was motivated to look at who was on Cisco's board who might exercise some oversight. What I found didn't seem likely to be a group of people spending much time on the matter. One of the board members is the President of Stanford University, which I assume is a pretty busy job to begin with. Another is the now-former CEO of Yahoo mentioned in this piece. One more is the CEO of Mercer, the world's largest H.R. consulting firm. How much time do you think these people each take out of their day jobs to really understand how Cisco operates? I would wager very close to zero.

So this seems (to me) much more of a structural problem with how large companies are run, than an HP-specific problem. They may have gotten particularly unlucky roll of the dice, but this style of corporate governance isn't set up to favor good outcomes.

russell• 15 years ago

Pop Quiz: Why do CEOs get such outrageous compensation?

Answer: They are all on each other's boards, so when it comes time for their own compensation review, they trust that the other board members will remember their generosity.

ryanwaggoner• 15 years ago

HP last year had revenue of something around $125 billion from running a complex global supply chain spanning every continent except for Antarctica (who knows, maybe there as well). The company employs more than 300,000 people across dozens of countries, not to mention thousands of suppliers and subcontractors. They make money from selling consumer products, enterprise products, and services. Depending on the source, there are only about 55 countries in the world with GDP more than HP's annual revenue.

How many people in the world can run an organization of that size and scope? Not many at all. And surprise, surprise: those people are in high demand. Very high demand. Do you seriously believe that a guy getting paid $50 million a year at a Fortune 500 company had no other offers or alternatives, and so the board could have hired him at $5m instead? Right or wrong, they offered $50m because they thought that this individual could move the needle enough to make it worth it. Which is probably true, by the way: a 1% increase in HP's revenue is enough to cover the CEO's jumbo salary 20 times over.

jpdoctor• 15 years ago

> Nearly every major company's board is full of people who have more-than-full-time day jobs, plus sit on 3-5 other boards.

Considering the pay for BoD members: They should be fired by the shareholders and replaced.

cpeterso2• 15 years ago

If boards of directors are not currently filling the (apparent) goal of corporate oversight, is there an alternative system? I could imagine a corporate structure similar to the US government's checks and balances, a "legislative" board of VPs (and perhaps a couple external advisors?) and a peer-level executive president/CEO. Hmm, this doesn't really sound so different from what a board of directors is already supposed to be.. :\

rwmj• 15 years ago

Isn't it pretty dangerous on a personal level to spend one day a month? AIUI board members have tremendous liability if something goes wrong. In the UK, board members can be sent to prison if someone working at the company is killed through company negligence.

arethuza• 15 years ago

Executive directors can - non-execs almost certainly can't and the non-execs that, as far as I know, UK public companies are required to have on their boards are the closet thing to the US boards.

ilamont• 15 years ago

The author is correct to blast the board, but the claim that Whitman "has zero background in tech" suggests that she comes to the HP job as an old-school industrialist. Starting in 1998, she spent 10 years growing eBay, which required an understanding of market dynamics and making some smart technology hires and acquisitions (including PayPal) along the way.

aaronbrethorst• 15 years ago

> 'making some smart...acquisitions...along the way'

And some profoundly stupid ones, like Skype. I think Ebay ended up turning a profit on Skype in the end (under John Donahoe, the current CEO), but that doesn't mean that it ever made any sense.

jeffreymcmanus2• 15 years ago

She didn't actually do much with the technology when she was at eBay; she left that to lieutenants.

She also fostered a culture where people on the "business side" (mostly Harvard MBAs, like her) would sit in one building while software engineers would toil away in another building. The idea was to maximize worker flexibility and prevent businesspeople from getting too attached to engineering resources, but in practice it really felt more like you were outsourcing projects to teams located 300 yards away.

sliverstorm• 15 years ago

She didn't actually do much with the technology when she was at eBay; she left that to lieutenants.

That could be a blessing in disguise

rsanchez1• 15 years ago

They really should have promoted Todd Bradley to CEO. They had the chance to do it twice, but messed up both times. Oh well, he's probably glad they made the decision to spin off the Personal Systems Group. He can be the CEO of the PSG and finally escape the HP Board of Directors.

crag• 15 years ago

The board is not suppose to run the company. The "board" represents the shareholders (usually), overseas the CEO and sometimes runs PR. The CEO (and his exec's) are suppose to run the company.

Now usually there's a nice co-existence between the board and it's top execs since both depend on each other.

In HP's case the board IS trying to run the company. And worse, it's not supporting it's chosen CEO. Big mistake.

There's a lot of value in HP. Which is why after all the stupid shit the board has done the company is still alive.

We'll see if Whitman can cut through the board and get it all right. She has to pretty much force out those board members who aren't behind her. Not easy to do in any envionment.

VladRussian• 15 years ago

>She has to pretty much force out those board members who aren't behind her. Not easy to do in any envionment.

well, she managed to force out the previous, just recently hired, CEO. Seems like she has already excelled at the politics of this board.

How Bad Boards Kill Companies: HP

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