‘A good Board can’t make a company, but a bad one will inevitably kill it.‘ Thus spake Barry Weinman, the Gentleman Capitalist, when I joined the VC brotherhood. He meant to tell me to watch out for co-investors on the Board of companies in our portfolio of investments. And he was right. We, Vulture Capitalists, are supposed to be ruthless, but, in fact, we’re toothless. We see trouble ahead, but we dither, we squabble and only make the hard decisions when the damage is done.
While early-stage companies are especially fragile, one would hope mature ones, having survived childhood diseases, are less vulnerable to the Bad Board malady. But no, for a large company, a dysfunctional Board of Directors can be just as toxic as a divided investor syndicate is for a startup. We have two Valley icons to prove it: Yahoo! and HP.
Last week, Yahoo! unceremoniously ejected its 3-year CEO, Carol Bartz, who promptly and publicly questioned its Chairman manhood and called the Board a bunch of doofuses. Wisely, Roy Bostock, the Chairman in question refused to take the bait. Bartz calmed down. And “not-for-sale” Yahoo! directors and temp CEO wrote the troops, urging them to keep up the good work -- while they’re caucusing with investment bankers for a sale. Whole, or one limb at a time.
Here’s a short sample of the message Yahoo! co-founders and Chairman hope will motivate the troops:
“What Yahoo! needs to do better — and we’ve talked about this — is accelerate innovation, reignite inspiration, and give our users what they want now…”
Gee, thanks. Let’s accelerate innovation, the troops repeat in unison. How come we didn’t think of it before. All Things D’s Kara Swisher gives the full and rightful savage treatment to the lame messages from the top.
Turning to HP, this week was their Board’s opportunity to solidify its reputation for incompetence and bad manners. They rose to the occasion. As recounted last year in August (Curious Summer), September (Redemption of More Insanity Ahead), and October (HP’s Board Gets No Respect) Monday Notes, this group of supposedly wise and experienced individuals managed to accumulate a sorry track record of boneheaded decisions. Admittedly, there’s a revolving boardroom door, directors have come and gone, but something in the coffee keeps addling their brains. To wit:
- In 1999, HP hires Carly Fiorina as CEO. She’s a Lucent Sales exec, with no qualification whatsoever to run a tech giant. Was there no one else to be found in the entire industry? Behind that bad decision, there is the Board’d failure in one of its most important missions: Succession Planning, grooming one or more standby CEO candidates.
- In 2002, after much internal strife, the Board proceeds with the hugely expensive Compaq acquisition: $25B, 36% of the combined entity to Compaq shareholders and an ugly proxy fight with Hewlett heirs.
- A rare moment of Board lucidity, or is it the relentless pounding of facts? In 2005, Carly gets the boot and is replaced by an experienced industry exec, Mark Hurd, who came with a record for turning NCR around.
- Members of the Board and execs get caught in unsavory pretexting shenanigans, spying on directors and employees. The Board Chair and the company’s General Counsel leave.
- Hurd delivers, some say by cutting too much: HP becomes the #1 tech company ahead of IBM. Shareholders love their new CEO.
- Five years later, in August 2010, after alleged but unproven allegations of misconduct of a sexual nature, and unclear but minor expense reporting problems, Hurd is shown the door. The decision is debatable, but what follows isn’t: At the Board’s behest, the company issues public statements disparaging Hurd, accusing him of ethics violations and lapses of judgement. And then, after pillorying him, the company inexplicably paid off the “disgraced” Hurd to the tune of $30M to $40M. HP shareholders sued the directors and the media roasted them.
- Hurd is promptly hired by Oracle’s Larry Ellison, who doesn’t miss the opportunity to mock HP’s Board. So does Joe Nocera in his NYT column: “The Hewlett-Packard board is back to doing what it does best: shooting itself in the foot.”
- Claiming he’ll “inevitably” misuse confidential HP information in his new Oracle job, the Board authorizes a suit against Hurd. Two weeks later, under the combined weight of ridicule and of the invalidity of non-compete clauses, HP settles.
- Having failed once again in its mission to develop CEO successors internally, HP’s Board hastily hires Léo Apotheker, an enterprise software industry veteran, ex-CEO of the industry giant SAP. Hastily? Yes: As the NYT tells in this “Voting to Hire a Chief Without Meeting Him” column, when the Board decided to hire Apotheker, “most board members had never met Mr. Apotheker”. How can these directors not fire themselves for such an egregious lapse of judgment, especially after their vicious verbal attacks against Hurd for his purported bad hidgment? What more important director duty than hiring and firing the CEO? Their excuse? “ But we were just too exhausted from all the infighting.” Firing Hurd was really hard on these fragile creatures.
- In September 2010, Léo Apotheker takes the helm and, understandably, remakes the Board, bringing 7 new directors, most notably Ray Lane, once President and COO of Oracle and Kleiner Perkins Managing Partner, and Meg Whitman, ex-CEO of eBay and expensively defeated candidate for the California Governor job.
- Last week, less than a year into the job, it’s Léo’s turn to be fired. He made controversial decisions: Getting out of the PC business and halting HP’s investment in WebOS devices after the TouchPad’s poor initial showing. Shareholders didn’t like the substance or form of these decisions and dumped the stock. And the Board dumped Léo. Nothing patently unfair, this is a normal CEO occupational hazard.
- But, within hours of Léo’s departure, sticking to its sick code of conduct, HP’s Board proceeds to malign their ex-CEO. After grabbing the Executive Chairman title, Ray Lane gives a long series of reasons why HP had to let Apotheker go. What Lane avoids to discuss is why the Board approved Léo’s decisions, and their public positioning.
- Léo, wisely, issues a sober farewell memo to HP employees.
And now, the grand finale: appointing Meg Whitman as CEO of one of the largest tech companies in the world. She has zero background in tech, hers is in consumer companies. At eBay, she managed to botch the Skype acquisition, failing to graft it onto the auction business and finally handing shareholders a $2.75B loss. And, in the Valley, people performing actual work at eBay, recount how divisive, disagreeable and detached she was.
This doesn’t deter Ray Lane from showering Whitman with praise, and from co-signing a memo to the troops. That missive is completely devoid of actionable content, filled with platitudes such as: “First let us say that we are true believers in the future of HP.” You don’t say.
Once again, the Board failed to look either inside or outside for a candidate with actual tech industry and large scale enterprise management credentials. To present Meg Whitman as ‘‘uniquely qualified” over candidates Spencer Stuart, or any number of high-level executive recruiters could find is an insult to HP shareholders and employees.
In the end, as some see it, this could be a none-too-subtle power grab by Ray Lane: note the joint signature at the bottom of the memo to the troops: Meg and Ray. As the newly appointed Executive Chairman, he gets to “assist” Meg. Why appoint a CEO who needs such assistance in the first place? And wouldn’t any normal, non-executive Chairman, or any director provide assistance anyway?
But wait, there is more than the Board’s failure to really look for the best CEO candidate. As Kara Swisher recounts in her “Whitman Talks to ATD About New Job at HP” post, Ray Lane himself admits he’s been talking to Meg about what amounts to a Boardroom coup for eight months:
“Lane said he approached Whitman for the job sometime after she joined the board eight months ago, because he felt she had the kind of leadership that HP needed and was lacking under now-ousted CEO Leo Apotheker.”
This a mere three or four months after showering Léo with effusive praise:
“I have known and admired Léo for almost 20 years. He is ideally suited to build on HP’s strong foundation, leverage its many assets and keep the company at the forefront of innovation.”
The very kind of acclaim he’s smothering Meg with…
I’m not isolated in my view of Lane’s move. See this from my favorite Twitterer:
Or read Dan Lyon’s piece, sarcastically but aptly titled “HP Chairman Ray Lane: A profile in courage”. It’s conclusion:
1. Watch your back, Meg Whitman.
2. Stay classy, Ray Lane.
Does this Board have no self-respect?
As for HP employees, and alumni such as yours truly, they wonder: What happened to Bill and Dave’s company, to the HP Way?