Fiorina Quits HP As Board Questions Her Execution

by Timothy Prickett Morgan

Hewlett-Packard's board of directors has broken with chairman and CEO Carly Fiorina, and she has quit, effective immediately. Fiorina had a tumultuous five-and-a-half-year run at HP, trying to buy the IT unit of PricewaterhouseCoopers (now part of IBM) and failing, and succeeding to acquire rival Compaq after a bitter shareholder battle that pitted her against the Hewlett and Packard families. Fiorina may have succeeded in buying Compaq, but the Compaq merger can be hardly judged as a success.

HP's long-time CFO, Bob Wayman, a 36-year veteran of the company, has been named interim CEO and added to the board of directors. Patricia Dunn, who joined HP's board a year before Fiorina was named CEO, back in July 1999, has been named non-executive chairman of the board. Dunn is chairman and CEO of Barclays Global Investors, a position she has held since before joining the HP board in 1998. She was also a top executive at Wells Fargo Investment Advisors (which was purchased by Barclays) for two decades before that. She has been named as HP chairman "for the foreseeable future," she said in a conference call with Wall Street analysts.

Fiorina, who is 50, was a low-profile, top salesperson at network equipment maker Lucent Technologies and its former parent, AT&T, for two decades before she was tapped by HP to become its CEO in the summer of 1999 after an extensive executive search. She took the place of Lew Platt, an HP lifer who remained as chairman until Fiorina took over that position a year later. Fiorina is quick, bright, well-spoken, and authoritative, but, as her experience in running HP has shown, none of these qualities necessarily mean that she can get an $80 billion behemoth to move in the direction or at the speed that she believes is necessary.

When Platt left HP, the company's stock price was puttering along with modest growth after growing very fast (more than 20 percent a year for sales and profits) through the 1990s. HP was already in decline, as were many other IT players, such as Compaq and Sun Microsystems, and by the time the new millennium rolled around, the company's revenue and profits were growing at half that rate. (Platt was smart about a lot of things, including betting big on the Unix market and ending with getting out while the getting was good.) HP made another big bet on Fiorina, believing that a young executive would come in, shake things up, and get the company moving in the direction of innovation and profit. Then the dot-com bubble burst, and soon thereafter--in fact, only one day after Fiorina announced the merger with Compaq--the terrorist attacks hit in America, and the worldwide economy went into shock.

A lot of people who hate HP, or tech mergers in general, or anyone with a vision larger than making as much money as possible in the shortest amount of time, or women in power, are going to have a fun time gloating today. Everybody has the insight about what Fiorina should and should not have done, and perhaps the only people who do not have such clear opinions are those who have actually run a business and met a payroll. (Try it some time. It will humble you, and if it doesn't, you will last for a lot less time than Fiorina did at HP.)

All I know is that IBM was even more screwed up than HP when it ousted chairman and CEO John Akers and replaced him with an outsider, Louis Gerstner, on April Fools' Day 1993. One of the main differences (and perhaps the only difference that really matters) between Gerstner's run at IBM, until December 2002, and Fiorina's run at HP is that Gerstner came into a company that was approaching bankruptcy and fixed it with baling wire and duck tape just long enough for a recession to end and the dot-com and Y2K booms to begin. Those booms gave IBM time to fix itself, to create a very good software, services, and Unix server business. Neither HP nor Compaq had the luxury of time as the IT market started imploding in 2000. While one might argue--as founder's son Walter Hewlett did in contesting the HP-Compaq merger and selling off the family's stock after it went through--that HP was diluted by the Compaq merger, Compaq would have been dead by now without it. Hewlett, by the way, didn't have any better ideas about what to do, but eventually suggested that HP might want to spin out its printing and imaging unit, which profits from its vast consumables business, which currently accounts for three-quarters of HP's profits.

"Carly Fiorina came to HP to revitalize and reinvigorate the company," said Dunn in a statement announcing Fiorina's departure. "She had a strategic vision, and put in place a plan that has given HP the capabilities to compete and win. We thank Carly for her significant leadership over the past six years as we look forward to accelerating execution of the company's strategy." Fiorina's terse sentences in that statement seemed to indicate that the board's issue with her was not one of strategy, but one of execution of that strategy: "While I regret the board and I have differences about how to execute HP's strategy," she said, "I respect their decision. HP is a great company, and I wish all the people of HP much success in the future."

HP said that it will not make additional management or structural changes at HP, that Wayman will continue as CFO, that it will report its financial results on February 16, in line with Wall Street estimates, and that it will begin to look for a new CEO.

Wayman's job was to quell the fears of Wall Street and HP's employees, and in the conference call he was as calm as he always is and gave the impression, as did Dunn, that this was about Fiorina's execution of HP's strategy, not the strategy itself. "I look forward to stepping into the role of the CEO and leading HP through the next few months," he said. "I will be simply and clearly focused on executing against our established strategy until a new CEO is named. We continue to believe we have the right ingredients for success as a company in the marketplace. Together, with all of the members of the executive council and senior management, we will drive toward improved performance and consistency of operations."

When asked if Fiorina's ouster was triggered by strategies HP came up with in the aftermath of the Compaq merger, Dunn said it was not. "This is not a change related to strategy. It is a change related to the desire to accelerate that strategy." Dunn said that, in looking for a new CEO, adherence to HP's current strategy--which is not easily summed up in a single sentence, but which probably means staying in all of its current lines of business and not breaking the company up--would not be a condition of being hired. She also said that while Fiorina executed the merger "in a remarkable fashion," HP's board believed that, going forward, the CEO job would be "reliant on hands-on execution" and that "a new set of capabilities was called for."