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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