Newly appointed Hewlett-Packard executive chairman Ray Lane vigorously defended the company’s decision to oust CEO Leo Apotheker and replace him with board member and former eBay head Meg Whitman.
The decision to fire Apotheker, who held the job less than a year, was “one the board took very, very seriously,” and made only after much contemplation, Lane said during a conference call Thursday after the announcement.
When they hired Apotheker after the departure of former CEO Mark Hurd, HP was performing well, but with a caveat, Lane said. “For years, the company had cut costs at the sacrifice of innovation. Leo was tasked with developing the vision for HP. We credit him for making important contributions on that dimension.”
“At the same time, the board began to observe weaknesses in parts of the business” of late, and it became clear that new leadership for HP was required, Lane added.
“There were three or four areas we had concerns about” with regard to Apotheker’s performance, Lane said. “One, this is a big, big company that requires an executive team to be on the same page. We didn’t see an executive team that was working on the same page or working together.”
“Probably the biggest reason was operational execution: the ability to get down deep in the businesses and understand the dynamics,” he added.
The third problem was communications. Board members were “embarrassed” by the way Apotheker’s team handled the announcements in August of the PC spinoff, a US$10.3 billion deal to buy infrastructure vendor Autonomy, and the decision to stop making WebOS devices, Lane said.
Whitman has the skills in all three areas to right HP’s ship, according to Lane.
“I know that HP has disappointed investors in recent quarters and we’re not happy about it,” Whitman said during the conference call.
The company will take the necessary actions to get its financial performance back on track, she said. “That isn’t something that can happen overnight … but I know we have the tools and people to achieve our goals.”
Apotheker’s “sudden removal,” however, could lead to further fallout for HP’s board, which has faced withering criticism from some circles during the past year, Bernstein Research Analyst Toni Sacconaghi, Jr., wrote in an analyst note released before HP announced Apotheker’s firing.
“The potential sudden removal of Apotheker as CEO — and the fact that such Board discussions were once again leaked to the press — are likely to further undermine the Board’s already fragile credibility,” his report states. “Our conversations with major shareholders also indicate that they have been disgruntled with the Board, given it has made and approved a series of decisions (Hurd’s firing; Leo’s hiring; approval of the Autonomy acquisition; the premature announcement of the exit of the PC business) that many shareholders believe were poor decisions and misaligned with their interests.”
HP also should have conducted a proper executive search, Sacconaghi argued.
“We would view any decision not to conduct a comprehensive search of internal and external candidates for a permanent CEO role as unsatisfactory and unnecessarily hasty,” the note states. “We also believe that shareholder reaction to Whitman as a permanent CEO would be mixed.”
HP decided against conducting an outside search for a new CEO for a number of reasons, according to Lane. “We knew we had outside options, but we had fairly recent data from a search conducted last year. There are good people out there.”
“We looked at inside candidates who are not ready,” and Lane himself “looked at an interim role,” he added. But from the beginning, Lane expected Whitman to emerge as the top candidate, and the only question was whether she’d commit, he said. “If we thought there was a better choice on the outside, we would have conducted the search.”
Lane also fired back against critics of HP’s board.
“This is not the board that fired Mark Hurd,” he said. In addition, “this board did not select Leo,” Lane said. “More than half are new” since Apotheker’s arrival.
To that end, Lane responded with some sarcasm to past speculation that Apotheker stacked the board with allies. “I remember having to answer the question, ‘is this a bunch of his buddies?’ Remember all those reports?”
Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris’s e-mail address is Chris_Kanaracus@idg.com