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Carly Fiorina quits

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Carly FiorinaCarly Fiorina has resigned as chairman and chief executive of HP, after losing the support of her board. Robert Wayman, HP's CFO, takes over as interim chief executive and will lead the search for Fiorina's replacement. He retains responsibility for finance. Patricia Dunn, an HP director since 1998, becomes non-executive chairman.

In her valedictory statement, Fiorina said: "While I regret the board and I have differences about how to execute HP's strategy, I respect their decision. HP is a great company and I wish all the people of HP much success in the future."

To add insult to injury HP shares rose 7.5 per cent on the news. Fiorina is eligible for severance pay, which may soften the blow somewhat.

Fiorina was a controversial figure at HP, partly because of the abrasive manner in which the takeover of Compaq was fought in 2001 and 2002. HP was regarded as a family firm - a bit slow and doddery but a caring and kind place to work. There was no universal welcome to the mega-merger with Compaq - rogue board member Walter Hewlett ran a long shareholder campaign to stop the deal.

Although the merger was not the disaster many predicted, HP has not reaped that much benefit. The company failed to persuade enterprise customers in any great numbers to love Itanium, its processor of choice to replace five server lines, many old (but still loved). Storage - a Compaq stronghold - is having more downs than ups. The HP-Compaq post-merger combo overtook Dell in PCs and servers, but soon enough again slipped behind its rival. Through Compaq, HP inherited a big, but low-rent, services division, but it is no closer than it was before the merger to becoming a major outsourcing / business processing play, competing toe-toe against IBM, Accenture and EDS. HP's printing division remains peerless, but this is a beast entirely of HP's creation. Fiorina's ousting will revive calls yet again for HP to spin off the printer division into a separate company.

And what of the cost to the workers of all this post-merger upheaval? Thousands of job cuts in several tranches and aggressive targets have put a huge dampener on staff morale, and HP's reputation as a good company to work for has plummeted. Fiorina's decision to get a corporate jet at the height of the pink slip showers ranks as her Marie Antoinette moment - but real, not legendary.

The HP Way to go

There are more jobs cuts to come at HP in the first half of this year, Waymen said today in a conference call to explain Fiorina's departure. He will supply more details at the company financial meeting next week.

During the call, Wayman was asked if Fiorina had been sacked, had resigned or retired, He replied: "The board asked Carly to step down and she agreed."

His boardroom colleague Pat Dunn added: "It was not a difference over strategy but over execution, the board feels execution is of primary importance going forward." She said the board constantly reviews performance and, after a series of meetings and deliberations with external advisers, it "felt change now was in the best interests of the company".

Last August, HP blamed poor execution by the enterprise group for costing it $400m in revenue and $275m in operating profit in one quarter. Tough pricing was blamed as one reason for these losses, along with poor sales of storage systems. It soon emerged that a botched SAP installation by an in-house team had a catastrophic effect on enterprise hardware sales, leaving a lot of disgruntled customers in its wake.

In a memo emailed to HP employees today, Wayman said that "in her six years as CEO, Carly has revitalized the company. She had a strategic vision that has given HP the capabilities to compete and win.

"Through her leadership and vision, HP has laid a solid foundation for success in the marketplace."

Sweet talking over, Wayman wrote that he is looking "forward to stepping into the role of CEO and leading HP through the next few months. I will be focused on accelerating our execution against our established strategy until a new CEO is named. We continue to believe we have the right ingredients for success. With all the members of the Executive Council, I'm focused on driving improved performance and consistency of operations...There's more work to be done, but I believe we have a dedicated team focused on executing our strategy and meeting customer needs."

HP reports Q1 earnings next week and expects to meet consensus analyst forecasts, after adjusting for last month's Intergraph patent settlement, he told staff.

Corporate governance

Fiorina's sudden departure follows rumours that HP's board of directors was unhappy with her patchy performance and was looking for ways to reduce her responsibilities. On January 26, the Wall Street Journal reported that HP was considering moving some of Fiorina's work to other executives - a claim denied by HP.

"Under the reorganization plan discussed by the board at San Francisco's Park Hyatt Hotel, three HP executives would gain more day-to-day control," the paper reported. "They are Vyomesh 'VJ' Joshi, who leads HP's printing and personal-computing division; Ann Livermore, head of services and enterprise computing; and Shane Robison, the chief technology and strategy officer, people familiar with the matter said. One person close to the situation said Ms. Fiorina initially had resisted the moves, but by the end of the session had agreed with directors and was on good terms with them."

HP said on Monday (7 Feb) that Sanford Litvack was leaving the board and would be replaced by Thomas Perkins, who was an HP director between 2002 and 2004. He left because he was, at 73, too old to sit on the board - HP policy says directors should not be over 70 years-old.

Quoted in the FT, Charles Elson, a corporate governance expert at the University of Delaware, said Monday's moves raised big questions about HP's future direction.

"Directors typically don't leave mid-term, unless they have a change in other responsibilities. Replacing them before a shareholder meeting is even more unusual," he said.

Talking about the decision to reappoint an old director, especially a man three years older than HP's official retirement age, Elson said: "It's a reason to ask questions. What does this signal?"

He was right... ®

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