September 23, 2011 12:08 am

HP’s internal choice will fuel controversy

The decision by Hewlett-Packard’s board to choose its new chief executive and chairman from among its own members is only likely to fuel the controversy that has dogged the company for years.

Instead of announcing a new search and perhaps an interim chief executive late on Thursday, the board picked director Meg Whitman as chief executive and moved Ray Lane from non-executive chairman to full-time executive chairman.

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While many investors applauded the dismissal of Leo Apotheker as chief executive, they also showed concern about Ms Whitman’s lack of experience in running a computer company. Even more, they worried that the same board that had chosen the wrong leader last year could easily make another mistake in its haste to install new leadership.

“To some people, it appears hasty and premature,” Toni Sacconaghi, an analyst at Bernstein Research – whose parent firm is a big stockholder – said in a conference call with the new leaders. “It appears investor confidence in the board is very low.”

Mr Lane gave a vigorous defence, arguing that the board had gradually come to the conclusion that it needed to replace Mr Apotheker and that, from the search a year ago, it knew which candidates were available from within and outside the company.

In an interview with the Financial Times, Ms Whitman said she wanted the job because she thought her skills – including leadership, execution and communications – fitted well with what HP needs now.

“This company has been through a lot, it really has,” she said.

For his part, Mr Lane said that taking an executive title was an honest recognition that he would be distant enough to fairly evaluate Ms Whitman, whom he had championed for the job and known for more than a decade, since the time he sold Oracle software to Ebay.

“I’m going to help Meg, so I can’t be objective,” Mr Lane told the FT.

Mr Lane could run the company himself, said Yale management professor Jeffrey Sonnenfeld, adding that the pair could be extremely effective as a team with his added knowledge.

On the conference call, Mr Lane stressed that a majority of the directors had been in place for less than a year. “This was not the HP board that was around for pretexting,” Mr Lane said, referring to the 2006 scandal in which the then chairwoman approved an invasive investigation of fellow directors suspected of speaking to the press. “This was not the board that fired Mark Hurd,” who dramatically increased HP’s size and proftability during his time as chief executive.

Mr Lane, who joined HP last autumn at about the same time as Mr Apotheker, later interviewed the pre-existing directors and asked some to step down. He named five replacements in January, including Ms Whitman.

Mr Lane said the present configuration, which includes more chief executives, will stand, though the board will pick a new, lead independent director now that Mr Lane is an executive.

Governance experts were surprised by the moves, and some criticised both the choices of fresh directors to manage and the split executive role.

“Directors are supposed to be monitors. You are not supposed to be managers, that’s concerning,” said Charles Elson of the University of Delaware. “If he is executive chairman and she is CEO, it sounds a lot like shared CEO. Co-CEOs rarely work”.

But Mr Sonnenfeld cited some exceptions to the rule, including periods at Disney and Coca-Cola.

“Sometimes you get the right one-two punch,” said Mr Sonnenfeld. He also said that the new HP board, members of which he knows well, was far more united than in the fractious days when it split over what to do with Mr Hurd.

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