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HP Needs a New Board of Directors

I can't put it any more bluntly. The current board of directors at {complink 2376|Hewlett-Packard Co.} needs to be replaced.

The board presided over a mess, fostered an atmosphere of executive incompetence at HP, and by its actions or omissions in leadership appointment and oversight helped drive one of the world's most innovative companies into a ditch. It has named Meg Whitman as CEO, even though she was previously on the board that sanctioned some bad investment and strategic decisions by her predecessor, Léo Apotheker.

If shareholders want to improve the odds of Whitman successfully turning around the company, they need to sweep out the current directors and appoint new ones that will provide the oversight she would need. In some ways, the board is already mostly new, but it is also compromised; many of the current directors, including Whitman, were appointed in the last year.

Lawrence Babbio, Jr., the longest-serving member, joined the board in 2002, followed by John Hammergren, a director since 2005, and then G. Kennedy Thompson and Sari Baldauf, both of whom were appointed in 2006. The other directors include Marc Andreessen (2009), Shumeet Banerji (2011), Rajiv Gupta (2009), Ann Livermore (2011), Gary Reiner (2011), Patricia Russo (2011), Dominique Senequier (2011), and Raymond Lane (HP's non-executive chairman from November 2010 to September 2011 and now executive chairman).

I am a huge fan of HP, which is why I am pleading with investors and CEO Whitman to let their current board of directors go. As I have written previously, the group has not, in my opinion, fulfilled its fiduciary duty to the company but instead, through its actions and omissions, both under-represented and under-served its shareholders. (See: HP Needs a Higher Bar for Whitman and Muddled Thinking Sinks HP.)

The new directors are equally compromised, despite their extensive knowledge. Most have executive experience and are either currently leading or have led major international companies. Yet, they inherited and adopted a system where the board has more or less become a rubber stamp authority, rather than an independent body that is supposed to closely scrutinize the decision of the CEO and provide critical guidance.

Under the board, HP became an example to the high-tech community of how not to manage the announcement of a major structural reorganization, the hiring and firing of a CEO and the building of shareholder value. Under its watch, HP's market value has dropped so low that computing and consumer electronics rival {complink 379|Apple Inc.} could add a 30 percent premium and still purchase the company with cash on hand. The board presided over the hiring of Apotheker, a software specialist who clearly had no idea how to transform the company for the 21st century.

Apotheker's replacement with Whitman, the former would-be governor of California and ex-CEO of eBay, was no less bewildering. Within weeks of assuming the role, Whitman and the directors had reversed the decision to spin off or sell HP's personal computer division — a position they supported during Apotheker's tenure — making me wonder if they just rubber-stamped the former CEO's proposal or actively debated the subject and conducted due diligence to make sure it was in the company's interest. HP said in a recent statement it decided after a strategic review it would keep the PC business as a part of its operations. The company said further:

The data-driven evaluation revealed the depth of the integration that has occurred across key operations such as supply chain, IT and procurement. It also detailed the significant extent to which PSG contributes to HP's solutions portfolio and overall brand value. Finally, it also showed that the cost recreate these in a standalone company outweighed any benefits of separation.

Really? Even without access to the “data” they reviewed, any analyst could have told the board it didn't make sense to hack off the PC business. Unlike {complink 2470|IBM Corp.}, which sold its consumer PC division to Lenovo, HP has not developed its consulting and software business enough, and the tight link between the PC unit and the higher-margin printer ink business clearly suggests a different strategy. Somehow, the board, which at the time included Whitman, missed this simple fact.

Turning around HP will require some tough decisions in the year ahead, but nobody should doubt that this is a company worth overhauling. Some data from the company's online “Fast Fact” page shows it as a diamond in the rough. The company, according to the site, ships “more than one million printers per week; 48 million PC units annually; one out of every three servers shipped worldwide and makes calls possible for more than 300 million mobile phone customers around the globe.”

With such an admirable record, it shouldn't be that difficult to tell the HP story, but today the company isn't wowing anyone anymore with its “Invent” slogan. If HP is serious about “Invent,” it should start at the very top of its organizational structure.

20 comments on “HP Needs a New Board of Directors

  1. AnalyzeThis
    November 3, 2011

    Bolaji, I agree that the board has done a terrible job. I don't like the Whitman move either. Their whole flip-flop regarding the PC business… just… depressingly bad how that was all handled, in short.

    But I'm unsure as to what realistically should be the plan moving forward. Cleaning house and rebooting sounds well and good, but who would they bring in that would really help?

    Any suggestions on people they should specifically look at bringing in?

    I also found it quite appropriate that you compared and contrasted HP to Apple, because Apple was also HP's complete opposite in terms of their top leadership situation, obviously.

    So anyhow, again, I'm really unsure as to go about fixing HP at this point. But I do know I'll be very impressed if they manage to dramatically turn things around in a reasonable period of time.

  2. FLYINGSCOT
    November 4, 2011

    Rescinding the decision to hive off the PC group might just be a sign that they are “holding fire” until a decent strategy emerges.  Let's hope that happens soon.

  3. t.alex
    November 4, 2011

    Now they are starting to have ARM servers. Another good bet?

  4. Houngbo_Hospice
    November 4, 2011

    @DennisQ:

    “Their whole flip-flop regarding the PC business… just… depressingly bad how that was all handled, in short.”

    I think it is not that bad for HP Board of Directors to change their mind about their PC business. I have recently seen people rushing into stores to buy HP's laptops that are offered at a relatively cheap price. They may have understood that people still love their products and might want to capitalize on that. 

  5. Houngbo_Hospice
    November 4, 2011

    @talex

    Now they are starting to have ARM servers. Another good bet?

    HP claims that the ARM server “can slash power and space requirements by as much as 90 percent for companies running certain Web-based applications “. If this is really the case, I think that the bet is a good one.

  6. DataCrunch
    November 4, 2011

    HP is company trying to re-invent itself in the fast and ever changing world of hi-tech.  Mobile devices are overtaking PCs and HP tired a number of times in this area without success, the printer business has become a commodity, and like Bolaji mentioned, HP has yet to build out their services group to the extent that IBM has.  Fortunately HP still has deep pockets and with the proper leadership and forward thinking, the company can right the ship.  

  7. Eldredge
    November 5, 2011

    Yes, and they need to begin by developing a good strategy and basing decisons based on that strategy and well researched information. They give the appearance of a lack of strategic direction.

  8. Parser
    November 5, 2011

    HP leadership looks bad. To me HP was an electronic lab company. They are still under good leadership and the name is Agilent Technology. I am curious who are the top investors in HP and what is their reaction to the HP board poor performance?

  9. Anand
    November 6, 2011

    Now they are starting to have ARM servers. Another good bet?

    @t.alex, this looks like a good bet to me. HP is doing one more smart thing. It is attracting webOS developers by promising a pair of $150 TouchPads.  This is a very good sign for webOS’ future because more develoers will come on-board.

  10. Anand
    November 6, 2011

    I think it is not that bad for HP Board of Directors to change their mind about their PC business.

    @Hospice_Houngbo, I agree with you. It was a very good decision by HP to roll back its decision to sell its PC business.  PC business is still growing, and Intel's quarterly results prove this trend. I really hope they will release new tablet which can compete with Android/iPad.

  11. Eldredge
    November 6, 2011

    I also think it is a good decsion for HP not to exit the PC business. It just looks bad from a PR perspective to have so many apparent missteps occurring over a short period. If they make good business decisions and execute them well going forward, those missteps will fade quickly.

  12. Anna Young
    November 7, 2011

    “Turning around HP will require some tough decisions in the year ahead, but nobody should doubt that this is a company worth overhauling”

    I agree the company will benefit from a clear direction and a strong leadership. However, replacing all the directors is a tough call. I think HP needs to go back to the drawing board to rethink it's strategy, evaluate performance, get a grip and come up with a strategy that will reinvent and elevate the organisation in the right footings. It can be done!

  13. mfbertozzi
    November 8, 2011

    I share similar vision Anna, in addition I am wondering why, at the time of similar situations, corporations in general try to look for new board outside (and spend much money for their compensation) instead of trying to analyze internally right people to promote and support. I am convinced inside HP there are talented people.

  14. dadtyler
    November 8, 2011

    Not all board members are created equal.  The newer members (2011 appointees) may not carry a big enough stick to question proposals which have support from my powerful board members.  Before we throw out all the board, it would be worthwhile to investigate who supported the previous bad decisions and who did not.  It might be very difficult for a junior board member to express a contrarian opinion regarding proposed changes especially if those changes are pet projects of the powers that be.  Would HP not be better served by examining the credentials of their board members with regard to HP specific markets (not generic hi-tech)?

  15. stochastic excursion
    November 8, 2011

    Unless there is a real howler of a bad decision, or an ambitious activist with financial connections, it's likely things won't change at the top for HP.  With an institution like HP, close scrutiny is something top investors are not looking for a board of directors to provide.  With a company of this scale and an economy this troubled, it seems lackluster performance is solid performance.

  16. bolaji ojo
    November 8, 2011

    @dadtyler, Your observation is very correct. Board members do not wield equal clout and a band within the group may be even more powerful than any individual director. In the end, it is up to the investors and shareholders to decide who they want on the board and determine their effectiveness.

  17. Anna Young
    November 8, 2011

    @mfbertozzi, Yes you're right absolutely right. There is the possibility of raising talents within the organization who has the right tools or knowledge to transform and take the company to another height.

  18. t.alex
    November 11, 2011

    I doubt ARM servers will be able to make it. What is the better strength as comparedmto Intel?

  19. itguyphil
    November 23, 2011

    In recent years, HP has not reliazed any real innovative and cost effective products. The creators of this age, their printers have gone silent. In order to change this scenerio, HP needs to take quicker actions or it may lose its place in its market more sooner than later.

  20. Kunmi
    November 24, 2011

    My friend, I think HP is fast loosing its crown in the electronic world. HP is washing off its hand from laptop, printers are not as reliable as it was, No new innovation to sweep the market as before. I want to believe that everything has its own ERA. May be we are moving into generation 21

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