How do you explain the Hewlett-Packard mess?
First, by observing that organizational crises often seem to make smart and sensible people do foolish things, like panic and point fingers. That said, who did what wrong at HP still remains unknown; perhaps as the fog of war lifts, people will eventually understand which individuals ultimately own the blame in this unfortunate episode.
Lost in all the current intrigue, though, is the fact that the HP mess once again confirms (for us, that is) that governance “experts” have it wrong when it comes to one of their favorite causes, the separation of CEO and chairman. Indeed, some self-designated watchdog groups that rate corporate boards assign multiple goodie points for such a split. And yet, despite the high-minded proselytizing about why the roles should be distinct, HP proves how damaging it can be when they are.
The reason is that all companies, no matter what their size or industry, operate best with managerial clarity—when people know which way the company is going and who is leading the charge. At HP, employees should have had one boss in CEO Mark Hurd. A respected industry veteran, Hurd had his strategic goals and a team motivated to deliver them.
But there was another boss, too, who was reaching out to some employees with her own agenda and deploying company resources. That meant HP was being run by two leaders, a dynamic which can easily lead to confusion, or worse, to employees shopping around for the answer they like best. Ironically, while all this was going on in early 2006, a respected national rating service awarded HP one of the best governance scores in the high-tech industry, and Dunn herself was asked to give a keynote speech at a major conference about governance best practices.
But the situation at HP was untenable. A board’s job is not to micromanage a company; they just don’t have the time to know enough. Yes, a board should have a lead director, to pull the members together and create an independent voice. But a lead director is not an alternative CEO. Instead, the board, united by the lead director, has one main role: It should use its collective wisdom, judgment, and common sense to pick the CEO and provide that person with constructive challenge, insight, and support. The board must debate and buy into company direction, and, more importantly, monitor that direction with trips alone—without the CEO—to determine whether what it is hearing in the boardroom matches the reality of what people in the field are feeling. The board has to decide whether the CEO is delivering results and doing it the right way. If so, the board needs to redouble its support, and if not, it must make the tough choice for change.
At HP, little of this appears to have been going on; the board operated like a rogue cell, both meddling and forming factions, and in doing so, it undermined the company that it should have been bolstering. If there had been one boss in charge, in the person of CEO and chairman, coupled with a good lead director, chances are it wouldn’t have happened. And perhaps it is time for companies and the governance police—with their misguided point systems—to confront that reality.
This question and answer originally appeared in Business Week magazine on November 06, 2006.
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