Corporate Scandals: Why HP Had to Oust Mark Hurd

In congressional testimony almost four years ago, Mark Hurd, the CEO of computer and printer maker HP, told the House Energy and Commerce Committee that “if [company founders] Bill Hewlett and Dave Packard were alive today, they’d be appalled, they’d be embarrassed.” At the time, HP was under fire for spying on journalists and board members in order to determine the sources of leaks to the press. The embarrassing incident had forced Patricia Dunn, the company’s then chairwoman, to step down. She faced felony charges that were later dismissed.

If an espionage scandal would have shamed H and P then, how appalled would they be today? While Hurd escaped relatively unscathed from the spying affair — he claimed no knowledge of the seedier aspects of the company’s tactics — he’s causing consternation over a new issue. Hurd resigned on Aug. 6 as HP’s chairman and CEO amid charges that he sexually harassed Jodie Fisher, a former actress and reality-television personality who worked for HP as a marketing consultant. Hurd settled the sexual-harassment claim with Fisher for an undisclosed sum, and Fisher has denied having an “affair or intimate sexual relationship” with Hurd, who is married. Though HP says Hurd did not violate the company’s sexual-harassment policies, the company found that Hurd submitted inaccurate expense reports that concealed his personal relationship with Fisher. These expenses totaled about $20,000, according to reports. HP also says Fisher was at times paid for nonexistent work.

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Hurd’s abrupt departure stunned Silicon Valley. He took control of HP in April 2005, coming in as the staid, efficient antidote to ex-CEO Carly Fiorina, whose love of the limelight had worn thin on shareholders. (She engineered HP’s tumultuous $24 billion merger with former rival Compaq and is now running for a Senate seat in California.) The hiring of Hurd, a relatively obscure CEO of a Midwestern ATM manufacturer, failed to inspire many analysts and shareholders. But he quickly exceeded expectations by shedding expenses — he cut 15,200 jobs early in his tenure — and stabilizing the company. Under Hurd’s leadership, HP surpassed IBM as the world’s largest technology company. “It’s sad,” says Bruce Kogut, professor of leadership and ethics at Columbia Business School. “One of the best CEOs in the country lost his job.”

(See why HP cashiered Carly Fiorina.)

Did he have to get kicked out of the C-suite? In an era in which CEOs have cooked books, stolen from company coffers and behaved more egregiously than Hurd allegedly did, was the board’s action a disservice to shareholders and customers? The market seems to think so: the company’s stock dipped 8% on Monday, the first full day of trading since news of Hurd’s departure broke. “The HP board just made the worst personnel decision since the idiots on the Apple board fired Steve Jobs many years ago,” Oracle CEO Larry Ellison reportedly wrote in an e-mail to the New York Times.

Several leadership experts, however, believe Hurd’s punishment was justified. “Given these revelations, it was not a bad idea for him to go,” says E. Allan Lind, professor of leadership at Duke’s Fuqua School of Business. “People don’t like their leaders to have frailties. That’s just the way it works.”

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The $20,000 in expenses that Hurd allegedly fudged is spare change for a $115 billion company like HP. Plus, he has promised to pay that money back. But for a CEO, sometimes the severity of the mistake doesn’t matter. “The error in judgment may not seem very significant,” says Paul Hodgson, senior research associate at the Corporate Library, a governance-research firm. “But those errors can now potentially spill into other areas of a CEO’s daily life. Once that happens, you’ve lost that trust, and it’s extremely difficult to get back.”

Hurd’s indiscretion could also magnify within a company like HP, which possesses a strong corporate culture. The company, founded in 1939, has long espoused the guiding principle known as “the HP Way.” “We work together to create a culture of inclusion built on trust, respect and dignity for all,” according to a statement on the company’s website about HP’s corporate objectives, which “have guided the company in the conduct of its business since 1957, when first written by co-founders Bill Hewlett and Dave Packard.” The code also promises “uncompromising integrity.” Clearly, Hurd’s actions violated this tenet. If a midlevel manager had submitted $20,000 worth of bogus expenses, he or she would probably be ousted in an instant. Why should the CEO get away with such impropriety?

“HP has long believed very strongly that there’s a certain way to do things,” says David Costanza, professor of organizational sciences and psychology at George Washington University. “And how many companies have stuck around as long, and been as successful, as HP? The formula has worked. They had to fire him. The stock may take a short-term hit, but for the long-term success of the company, it’s a good thing. The move reinforces that strong culture.”

HP, however, is in danger of developing a culture of controversy. It’s been a tumultuous decade: first there was the Compaq merger, then Fiorina was forced out, then the spying scandal and now the Hurd mess. “It’s bizarre,” says Kogut. “What’s going to happen next?” Hurd’s ouster will cost the company some hard cash: the CEO will leave with a $12.2 million severance check and the potential to earn millions more in stock compensation. Plus, HP will have to fork over millions more to hire a new chief. “Sure, it’s a boot,” says Kogut of Hurd’s forced resignation. “But he’ll live well afterward.” Will HP?

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