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The real reason HP’s CEO got the boot?

posted by Laurie Bassi

The recent forced resignation of Mark Hurd, the (ex) CEO of Hewlett-Packard, came as a shock to many.   The stated reasons didn’t quite add up: some expense account irregularities and an alleged (but unproven) allegation of sexual harassment by an HP contractor.  Hurd was widely viewed as a highly effective CEO, especially by Wall Street, because of his legendary focus on cost cutting and revenue growth. 

Given this apparently stellar performance, many questioned the wisdom of the board’s decision to oust Hurd.  For example, on August 9, the New York Times reported that Oracle CEO Larry Ellison submitted an “impassioned e-mail” to the Times in which he “chided HP’s board for what he said was a grave mistake.”

But subsequently, Joe Nocera’s August 13 NYT column speculates that  Hurd was actually removed for a variety of other reasons, which Nocera sums up as “putting up dazzling short-term numbers that have the effect of enriching himself while robbing HP’s future.”  The column explores in detail employees’ intense dislike of Hurd; how he decimated HP’s legendary investments in R& D in exchange for short-term gain, and Hurd’s likely involvement in HP’s shameful spying on both its board members and journalists.   One former employee is quoted as saying that Hurd was “wrecking our image, personally demeaning us, and chopping our future.”

The analysis we’ve been compiling for Good Company: The New Economics of People, Profit and Planet, is consistent with this image of Hurd - and Nocera’s explanation for his departure.  As a part of our research, we have been using data available through Glassdoor.com to explore the relationship between employees’ ratings of their CEO’s (along with broader measures of being a “good employer”) and stock performance. 

Here’s what we wrote in our draft of Chapter 6 of Good Company (dated May 14, 2010):

“One of the notable names that employees rate in the bottom one-eighth of employers [on Glassdoor.com] is Hewlett-Packard, a company that has a long and proud tradition of being an enlightened and forward-thinking employer.  But under the leadership of its most recent CEO, Mark Hurd, big changes have been made.

One interpretation of Hewlett-Packard’s low employee rating is that its employees had long been coddled, and that by putting an end to that, Hurd has put the firm on a path to sustainable long-term profitability.  (This is a view that tends to be favored by Wall-Street-analyst-types.)  Or it may be that by hacking away at employee perks and privileges, Hurd has weakened Hewlett-Packard’s ability to sustain itself in the future.  Only time will tell.  But what can be said with certainty is that employees’ rating of Hewlett-Packard puts it at the bottom of the distribution on Glassdoor.com, and the firm’s long tradition of relying on its employees as a major source of sustainable advantage has been called into question. 

Here’s something else that can be said with certainty.  The employee-provided ratings available on Glassdoor.com are highly correlated with firms’ stock performance.   When we compared Fortune 100 firms within the same industry, and controlled for other factors (through multiple regression analysis), the most consistent factor associated with higher stock performance over 3 years and 5 years is Glassdoor.com ratings.  Put another way, the higher the Glassdoor.com rating, the higher the stock performance over 3 years and 5 years, controlling for all other factors.”

The situation helps to confirm what we at McBassi & Company have long known to be true—that there is a great deal of wisdom in the workforce, and sites like Glassdoor provide a window into that wisdom.  Boards of directors and Wall Street analysts would be well served by tapping into that wisdom with much greater frequency.

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Tagged Hewlett-Packard