Steven Zolman

Oct. 15,2010

HP’s board has been widely criticized for the ousting of former CEO Mark Hurd. After initially publicizing accusations of sexual harassment, HP had to acknowledge that it actually found that Hurd did not violate the company’s policy on sexual harassment. In a Martha Stewart like moment, it then switched the crime from the actual crime itself, to lying about the investigation of the crime – with a focus on Hurd’s alleged fudging of some expense report information. The bottom line is that the board wanted Hurd out, and they didn’t want to take a stand on anything material, so they wussed out and picked on an administrative detail. In our book, that’s cowardly.

If the HP board wanted to fire Hurd, how about firing him for destroying HP’s rich history of innovation? Over time, HPs investments in R&D have waned. Under Mark Hurd’s leadership, HP’s investments in research and development dropped from 9% per annum to 2% - a shocking 78% reduction in product development budgets. This not only crippled the organization’s ability to innovate and develop new product offerings, it also altered the culture of the company, changing a once great product engineering firm into a company that had to focus on operational efficiencies to drive its market value.

During this changing culture, Wall Street investors showered Hurd with praise, and the market value of HP continued to balloon. Seemingly as a result, HP’s board gave Hurd a long leash, and did nothing to prevent the Wall Street darling from pillaging the R&D budget to drive greater bottom line performance. This rigid focus on cost cutting and operational efficiency soon stifled innovation, causing HP to go on a spending spree to fulfill its ambitions of competing more broadly with industry segment leaders and, ultimately, becoming the largest technology company in the world (by revenue), overtaking long time nemesis IBM.

During Hurd’s tenure, HP acquired EDS to better compete in services, it acquired 3Com to compete more directly in data networking, and acquired Palm to compete more broadly in mobility on phones and tablets, and shortly after Hurd’s departure, it acquired 3Par to compete more directly in enterprise storage, and ArcSight to compete more directly in cyber security.

HP paid huge premiums for these acquisitions. Get this… the combined premium market value of these acquisitions far exceeded the savings Hurd was able to slash out of HP’s ability to develop. We don’t know – we just find that funny. We guess if the board would have stood for something meaningful, it would have also needed to look at its passive participation in the destruction of HP’s culture, and would probably need to follow Oracle CEO Larry Ellison’s advice, and resign; en masse. The Bungling Herd, Bungled Hurd.

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