Horowitz defends HP

By Felix Salmon
October 9, 2010
Ben Horowitz has published his first Siwoti post!

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Ben Horowitz has published his first Siwoti post! That’s where you read something on the internet that is so wrong and misguided, you have no choice but to sit down and set the record straight.

The first rule of the Siwoti post, however, is that you have to link to that which angers you. Horowitz is perfectly capable of linking out — he’s even linked to me, in the past — but in this case, an attempted defense of the HP board, he just waves his hand in our general direction:

Recently, my old company Hewlett-Packard has been in the news—and not in a good way. I’ve been watching the coverage from the sidelines up to this point, but felt increasingly compelled to join the conversation and share my point of view. So here goes.

After firing their CEO, Mark Hurd, the HP board has been accused of everything from incompetence to being prudes. The criticism comes from credible, important journalists and bloggers such as Joe Nocera from the New York Times, prominent economics blogger Felix Salmon, and former GE CEO Jack Welch.

Horowitz then proceeds to argue that these named critics are wrong, and that Hewlett-Packard’s board was right to fire Mark Hurd. To read his blog entry, you’d be forgiven for thinking that our entire argument was, essentially, “HP’s board fired Mark Hurd. That was a stupid decision. Therefore, HP’s board is teh stupid.”

But from the very beginning it was clear that the board was full of weak and incompetent bunglers whether or not they were right to fire Hurd; there were numerous commentators saying that the board was wrong even though the decision to fire Hurd was the right one. Or, to be more precise about things, there were numerous commentators saying that the board should have fired Hurd, but it didn’t: instead, the board allowed Hurd to resign, collecting something over $30 million in severance along the way.

Take Nell Minow, for instance:

Some people are complaining that this was an over-reaction. They say it could have been handled privately, with reimbursement and a stern talking to. These people have clearly not consulted a lawyer lately…

The actual (not just apparent) tone at the top is the board’s responsibility. They cannot keep in place an executive who has demonstrated such a failure of judgment and responsibility. They cannot keep in place an executive they cannot trust. It is hard not to conclude that the culture that created a $50 million liability to settle fraud charges needs a new leader.

Many people are objecting to Hurd’s severance package, which may be worth as much as $30 million. This is indeed appalling…

The HP board has been a serial corporate governance offender, so we should not be surprised that they have bungled this one. This contract that fails to state what “cause” means is the one that famously — and outrageously — provided that all of Hurd’s first year performance goals were deemed to have been met. This is the board that mis-handled the hiring, direction, and firing of Carly Fiorina and then mis-managed the “pretexting” scandal following the investigation of a leak from the boardroom. This is the board that TCL has rated as high-risk for its inability to manage incentive compensation. And now, this is the board that is paying the CEO who essentially embezzled corporate funds by submitting his expenses for reimbursement $30 million to go away.

Or Michael Schrage:

HP’s directors may have been absolutely right to force Hurd’s departure. But the firm’s fiduciaries wrongly missed a world-class opportunity to simultaneously respect the best interests of its stakeholders and expand the boundaries of good governance…

This was an opportunity lost. Let’s hope other boards will learn from HP’s mistake.

In my first post on the subject, I was harsh on the board while being very careful not to make a determination one way or the other about whether the decision to oust Hurd was correct. And my second post had nothing to do with that decision at all — rather, it was about the entirely separate decision to sue Hurd for hiring Hurd.

Similarly, Nocera’s criticism of HP’s board is much broader than you’d guess from reading Horowitz’s post. He started off with this:

H.P. says its board should be applauded for not letting Mr. Hurd off the hook. But this is just after-the-fact spin. In fact, the directors should be called out for acting like the cowards they are. Mr. Hurd’s supposed peccadilloes were a smoke screen for the real reason they got rid of an executive they didn’t trust and employees didn’t like.

The stand-up thing would have been to fire Mr. Hurd on the altogether legitimate grounds that the directors didn’t have faith in his leadership. But of course Wall Street would have had a conniption if the board had taken such a step. So instead, it ginned up a tabloid-ready scandal that only serves to bring shame, once again, on the H.P. board.

He then followed up with a column which, again, had nothing to do with the decision to fire Hurd:

The Hewlett-Packard board is back to doing what it does best: shooting itself in the foot. By filing an embarrassing lawsuit against the company’s former chief executive, Mark V. Hurd, this week — a suit that unwittingly highlights the mistakes it made in the way it let Mr. Hurd go — the H.P. board can now lay claim, officially, to the title of the Most Inept Board in America. It’s going to take a yeoman effort to dethrone these guys.

Today, Nocera’s third column bashing the HP board very little to do with Hurd at all; instead, it criticizes them for their choice of Léo Apotheker as Hurd’s replacement.

It takes your breath away, really: the same board that viewed Mr. Hurd’s minor expense account shenanigans as intolerable has chosen as its new C.E.O. someone involved — however tangentially — with the most serious business crime you can commit.

If it were anybody besides the H.P. directors, the situation would be unbelievable. With these guys, though, it’s all too believable.

Which leaves Jack Welch. What did he say?

“The Hewlett-Packard board has committed sins over the last 10 years,” said Mr. Welch. “They have not done one of the primary jobs of a board, which is to prepare the next generation of leadership.”…

The tech giant is on its third CEO in about 11 years… Mr. Welch blamed the turnover on the board…

“They end up blowing up the CEO’s and don’t have anyone else in mind to come in. Where the hell was the leadership development? Who are these board members?”

Mr. Murray asked if Mr. Welch knows any of the board members.

“I wouldn’t admit it if I did,” said Mr. Welch.

In other words, it’s pretty clear why Horowitz didn’t link to the criticism from Nocera, or me, or Welch: we simply didn’t say what he likes to think that we said. So instead of responding to us, he comes up with bizarre arguments like this:

HP employs over 300,000 people. Every single one of HP’s employees is keenly interested in the qualities, skill sets, and behaviors that HP values most. Financial compensation and access to the CEO are the most important ways that HP communicates what it values to its employees. Jodie Fisher had more access to the CEO and was paid more than 99.9% of HP’s workforce, despite having no traditional qualifications.

It’s important to note that this was not Hurd paying for his personal extracurricular activity out of his own pocket. This was the Hewlett-Packard Corporation paying a softcore porn movie star with no relevant work experience more than it pays Harvard graduates with 20 years of industry experience.

This simply isn’t true. How much did HP pay Fisher? Let’s go to the tape:

Ms. Fisher worked at a dozen or so events including at least one in Europe and one in Asia, according to people familiar with the matter. Ms. Fisher was typically paid between $1,000 to $5,000 per event, these people said.

12 events at an average of $3,000 per event comes to a total of $36,000; I’m quite sure that HP pays Harvard graduates with 20 years of industry experience more than that.

And of course Horowitz completely fails to mention things like the fact that HP’s board has had no chairman for most of the past three months; it’s now chosen former Oracle president Ray Lane to fill the position, in a move which looks like some kind of attempted revenge for Oracle hiring Hurd. And then there’s the fact that the board’s front man, Hororwitz’s partner Marc Andreessen, owns essentially no stock in HP at all; this despite the fact that Horowitz and Andreessen sold their company, Opsware, to HP for $1.6 billion.

HP’s board is literally not invested in the company, and it shows. It’s weird that Horowitz, with all his conflicts, has stepped up to the plate to try to defend them; but it’s understandable that no one within the company has attempted a similar argument. Because this argument, at least, is weak, and it’s reliant upon the flimsiest of straw men for whatever little strength it has.

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Comments
10 comments so far

Jack Welch is hardly one to comment. He may have had a succession plan, which included when to leave just before the big problems hit the fan, leaving his successor to pick up the pieces. Then, he had the audacity to throw Immelt under the bus iive on CNBC, when numbers were missed, only to provide a left-handed apology later. The incredible shrinking man never saw a camera he didn’t like, and his narcissism is second to none – launching a book named Jack on the day of his retirement, without a mention of the mess he was leaving behind. Naming him CEO of the century is astounding by a prominent magazine makes that magazine less prominent.

Ask Jack how many times his company covered up problems with their engine division, risking the lives of thousands of passengers daily. Is that what the CEO of the century does, or someone who belongs behind bars?

As for the HP BOD, it’s been an atrocity for years. Carly Fiorina did a great job, and the evidence is the performance during the first few quarters after Hurd took over. That performance could not have been due to Hurd, because big companies do not turn around that quickly. Hurd’s timing was fortuitous.

Posted by netvet | Report as abusive

Jack Welch is hardly one to comment. He may have had a succession plan, which included when to leave just before the big problems hit the fan, leaving his successor to pick up the pieces. Then, he had the audacity to throw Immelt under the bus iive on CNBC, when numbers were missed, only to provide a left-handed apology later. The incredible shrinking man never saw a camera he didn’t like, and his narcissism is second to none – launching a book named Jack on the day of his retirement, without a mention of the mess he was leaving behind. Naming him CEO of the century is astounding by a prominent magazine makes that magazine less prominent.

Ask Jack how many times his company covered up problems with their engine division, risking the lives of thousands of passengers daily. Is that what the CEO of the century does, or someone who belongs behind bars?

As for the HP BOD, it’s been an atrocity for years. Carly Fiorina did a great job, and the evidence is the performance during the first few quarters after Hurd took over. That performance could not have been due to Hurd, because big companies do not turn around that quickly. Hurd’s timing was fortuitous.

Posted by netvet | Report as abusive

Whoa, whoa, whoa, netvet! Carly Fiorina did a great job? She almost single handedly destroyed the company. She demonstrated her proven lack of knowledge about technology (it sooo bugs me when she’s referred to as a former “tech CEO”) by cutting R&D (the essence of HP), and using lame marketing tactics to try to sell garbage. She was so cynical about the products HP sold, she didn’t believe it matters what they were, because she was going to use HP’s “brand” to sell the cheapest stuff they could build.

Fiorina valued form over function, and was followed by Hurd, who tried to manage by accounting (which you can’t do when you are in a business that is constantly evolving, like everything HP does). When you run a company where 80% of your product sales (or some other large percentage) are due to products introduced in the last two years, you cannot decimate your R&D budget. When your “brand” is dependent on being synonymous with technological leadership, you can’t cut investment to puff up your quarterly numbers as Hurd did (his sole advantage over Fiorina was his ability to manage costs beyond just cutting programs). And now the board has followed up both of these mistakes with yet another, hiring somebody with no experience is building or selling hardware, and who arrives with a resume as ethically tainted as the outgoing CEO.

I’m going with Nocera’s take on this mess, that HP’s board fired Hurd because he was weakening their long term ability to remain a factor, and were too chicken to use that excuse, but they are still incompetent fools. But why single out HP’s board? Most boards of publicly traded companies are rubber stamps for the CEO, comprised of CEOs of other companies who want the same hands-off treatment from their boards. It’s politics, just like the government (isn’t that what people want? A government run like business?)

Posted by OnTheTimes | Report as abusive

OnTheTimes: +1

Posted by crocodilechuck | Report as abusive

Next time please explain obscure acronyms like Siwoti.

You were wrong to leave it out, so I had to point it out.

Posted by Developer | Report as abusive

Felix… right on.

Horowitz sure comes up with a lot of nonsense, especially for a guy who has his own ethical problems of some substance. Just google “opsware and Weisel.”

I suspect Ben’s a puppet in this, having his strings pulled by Marc. But before he gets up on his own high horse again, he should be a little bit more honest about his own issues.

Posted by NoSpinZone | Report as abusive

Were I able to ask something of the HP board (though I don’t think anyone can at this point), I would ask: Two failed CEOs, no internal executive development or succession plan, the absolutely scary pretexting scandal that at least one board member should have gone to jail for; where is your oversight???

Posted by Curmudgeon | Report as abusive

Boy, oh boy, the Monday morning quarterbacks are alive and well and chiming in with their “great sense of importance” two cents.

Sure the HP board is incompetent, but that has been true since the Compaq merger. Boards generally get stacked with yes people and the good old boys and girls. so what is really expected.

There is so much more to the Hurd ouster than meets the eye. Negotiating a new, even more lucrative, having n inappropriate relationship with a woman not his wife and being totally despised by the employees is just the tip of the iceberg here. I am sure another soap opera book in in the works.

In the meantime, the employees continue to suffer, the company image continues to suffer and in the end, the shareholders will also suffer because HP will little to offer the IT world except ink and resold products. No innovation any longer.

You have to laugh at Horowitz who stayed at HP just long enough to get his golden parachute. the Poor guy must really be suffering.

Posted by atHP31 | Report as abusive

It’s been two months since HP showed Hurd the door and they are still coming up with reasons for doing so. Shouldn’t they get on with their own business? It’s like a guy who breaks up his girlfriend and then won’t stop talking about her.

Posted by jacksonrowland | Report as abusive

Shareholders need to start a rebellion. Every time someone at HP opens his mouth, the stock falls. Focus on the business, fellas.

Posted by samlevy1958 | Report as abusive
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