Are HP’s Board and CEO Headed in Right Direction?


Updated Sept. 6, 2015 –

Hewlett-Packard’s quarterly earnings beat analysts’ forecasts but sales are stagnant – falling 8 percent from a year ago.  The company is splitting into two companies on Nov. 1. HP Inc. will sell personal systems and printers. HP Enterprise will target small and large businesses.

That’s partially true. But the real problem is that HP needs stronger innovation and products. For a comparison, consider Blackberry’s turnaround strategies.

Ironically, 2014 and 2013 were a lot kinder to HP. Earnings were sky high, and it won a $3.5 billion contract to run the U.S. Navy’s communication system. But what about HP’s long-term sustainability because of its decline in the computer-producing sector?

KROMKRATHOG business planOne reason profits were up is because HP laid off 27,000 workers.

There are other common-sense questions, such as a CEO worth $15.4 million when the company loses $12.65 billion?

H-P reported a net loss of $12.65 billion for the year ending Oct. 31, 2012, but CEO Meg Whitman was given compensation totaling $15.36 million. A filing with the Securities and Exchange Commission showed her compensation included $7.04 million in stock awards and $6.41 million in options.

HP’s 2011 profit was $7.07 billion when her compensation was $16.52 million.

She announced in May 2012 that she planned to lay off 27,000 employees by the end of fiscal year 2014.

More nightmares for HP as its long-term credit rating on senior unsecured debt was slashed by Moody’s Investors Service from A3 Baa1.

HP’s being hammered by competitors’ hand-held devices and deteriorating profits. But HP has been the cause of many of its own challenges.

Not to be gauche, but it wouldn’t be surprising if Harry S. Truman were perplexed by the judgment and performance of the board of directors at the world’s biggest-selling tech company. That being the HP board of directors over the past decade.

Indeed, many people might be wondering if the company might be better-served if the board adopted the former president’s famous mantra, “The buck stops here.” Because the question is, have they acted like it?

It’s unfortunate – the tech company has a rich heritage. That’s not to conclude that the board has ruined the company, because in 2010 it had an enviable $126 billion in sales. It employs 326,000 workers.

But HP had lost more than half its market value. Meantime, the board didn’t appear to understand the Link between Financial Performance and Succession Planning.

Questions had risen over the board decisions and strategies, while many analysts approved of recent developments.  The storied company plans to continue with its strategy of cloud-based services and enterprise software solutions.

“One of the biggest responsibilities of management is to look after the corporate DNA.”

– Andrew Rolfe

Based on past developments, HP fans, and I’m one of them, might wonder about HP’s long-term strategic planning.

Consider:

  1. The board hired Carly Fiorina as CEO in 1999. Her performance proved to be unsuccessful, as she apparently didn’t understand a basic principle about mergers (If Mergers & Acquisitions Tempt You, Consult HR Pros). She persuaded the board to force a merger with Compaq – despite all kinds of red flags. At the time, as a media columnist for Belo Web sites, I wrote it would never work because the cultures of the two companies were vastly dissimilar. My predictions proved to be accurate. The merger resulted in the layoff of 17,000 talented people and HP’s financial picture worsened. She was fired in 2005.
  2. Soon, the board’s chair, Patricia Dunn, hired firms that used illegal methods to try to stop leaks of proprietary HP information to reporters. 
  3. Mark Hurd was hired to run the company. While he did have some success, many analysts believed HP suffered from his lack of vision and poor judgment leading to his forced resignation – over sexual harassment of a marketing consultant, who was actually an actress, and his inconsistent expense-account reports. 
  4. They hired a CEO, Léo Apotheker, who made his own controversial decisions, including plans to change the company’s mission – from world-class hardware to software and cloud computing. Some board members voted to hire him without even meeting him. Mr. Apotheker’s actions prompted declining shares and a shareholder lawsuit. 
  5. The board hurriedly hired a new CEO, Meg Whitman, who had joined the board after she lost to Jerry Brown, Jr. in running for California governor. As head of eBay, she was successful but known for questionable acquisitions. You might recall her 2005 purchase of Skype for $4.1 billion, but eBay ultimately sold it for $2.75 billion four years later. 
  6. Ms. Whitman recently said she supports Mr. Apotheker’s decisions, including the proposed$10.3 billion purchase of commercial software-maker Autonomy, but she will not forego HP’s hardware business. The latter is ostensibly is one the most logical public decisions to come from her office. 
  7. Ms. Whitman’s first announcement that her priority will be to get HP strong financially. But again, HP’s finances were hampered by negative Wall Street reactions to Mr. Apotheker’s actions, which she mostly supports. So how can she achieve such goals, especially since she doesn’t have any enterprise experience?

HP’s biggest customers balked at buying PCs until they got clarity on HP’s plans. Savvy consumers were probably hesitant, too. That was my thought when I spotted some flashy HP notebook computers in recent visits to retail stores. Fortunately, HP decided to stay in the notebook computer business.

Following weak sales, Ms. Whitman’s predecessor stopped marketing smartphones and tablets with webOS software, an HP product. She also needs to waive her magic wand in combating the popularity of iPads and smartphones to use the Internet.

Meantime, HP has other complicated matters to solve, including what to do about its services business, its slim profit margins in servers, and slower sales in printers. The latter two might very well be approaching the end of their product life cycle.

Ms. Whitman also promised to get more teamwork and cohesiveness out of her management team. That’d be a good move, too.

Ms. Whitman has needed to conduct an in-depth SWOT analysis – of strengths, weaknesses, opportunities and threats – followed by a strategic action plan to anticipate emerging trends and capitalize on them. A sophisticated look to the future is prescribed here.

But has she?

Let’s hope Ms. Whitman comes up with better strategies and communication than she did in her failed gubernatorial campaign and questionable acquisitions at eBay. She also has to be successful working with a board that’s made so many anemic decisions.

HP is a fine company and deserves a better future than its performance of the last decade.

From the Coach’s Corner, here is a related link: Leadership, HR, Marketing Lessons from HP’s Executive Turmoil.

“One of the biggest responsibilities of management is to look after the corporate DNA.”

– Andrew Rolfe

 __________

Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry. 

Photo courtesy of KROMKRATHOG at www.freedigitalphotos.net


Home-Grown Succession Planning Helps Financial Performance



Companies that promote their chief executives from inside vis-à-vis recruiting from the outside have a much higher financial-success rate.

In other words, successful companies identify and nurture their intellectual capital.

It’s not just my experience. It’s been confirmed by a global human resources study.

men meetingThe report comprised an analysis of 500 S&P non-financial companies from 1988 to 2007. “Homegrown CEO: The Key to Superior Long-Term Financial Performance is Leadership Succession,” was conducted by Indiana University and the international consulting firm, A.T. Kearney.

Its conclusions will work for both the public and private sectors.

From 25 industries, 36 companies were singled out.

They include these global brands: Abbott Laboratories, Caterpillar, Colgate-Palmolive, DuPont, Exxon, FedEx, Honda, Johnson Controls, McDonald’s, Microsoft, Nike and United Technologies.

The study’s salient conclusion: Businesses that promoted CEOs as part of succession plan were more successful and their chief executives lasted on the job much longer.

“Moreover, the study found that no non-financial S&P 500 company with externally recruited CEOs generated 20-year performance numbers that surpassed or even equaled those of the top 36 in all of the study metrics,” according to A.T. Kearney’s Web site.

The results were based on metrics:

  • Return on assets
  • Equity and investment
  • revenue and earnings growth
  • Earnings per share (EPS) growth
  • Stock-price appreciation

Ironically, CEOs recruited from the outside proved to be more costly in other ways. The salary, bonus and equity incentives were 65 percent higher for such candidates. Additionally, 40 percent of them only lasted two years or less. More than 60 percent failed to last four years.

This means succession planning is crucial. Naturally, the promoted executive knows the firm’s culture, and must have a good track record with a positive leadership style developed over a number of years within the company.

The study’s four recommendations:

  1. Make certain the board is heavily involved in the process.
  2. The screening process must start early in the potential CEO’s career.
  3. The company should install a nominating committee, and should not abdicate its responsibilities to the incumbent CEO.
  4. Get buy-in from the incumbent CEO about the concept.

Further, my sense is that you’ll need a plan for a series of lateral moves so the talent gets intimately aware of all your company’s processes.

The person will grow if provided development and training programs, as well as placed in various leadership roles and special projects.

It’s best to identify and nurture the growth of all future leaders.

This is also good for overall teamwork and morale. Other employees will notice and will appreciate you more as an employer.

By the way, if properly implemented, your company won’t suffer if a person gets an attractive offer and leaves prematurely.

To use a baseball metaphor, you’ll barely even notice the vacancy – because you’ll have a great bench from which to draw.

So, if you want a longtime foundation for financial success, strategically establish succession planning as a policy. You’ll be happy you did.

From the Coach’s Corner, here are related resource links:

Management — Big Banks Provide Lessons in Succession Planning — The worldwide global downturn exposed major management lessons starting in 2009. Firstly, it was Bank of America. Secondly, it was HSBC. Both showed dubious succession planning, and investor and customer relations, according to published reports.

HR Management: Which Employees Are Most-Likely to Quit?If you need help in retaining talent, an HR study contends there is a way to determine how to anticipate which employees are likely to leave.

Human Resources – Profit By Not Letting Your Stars Become Free AgentsLike baseball, it’s important to identify talented performers and then take care of them. Follow these steps – you’ll be rewarded with a grand slam.

Are You Successful In Keeping Female Talent? Here’s How and Why You Should — If you want to be successful in attracting female customers, enhance your odds by making your company a great place for women to work. Here’s a salient step to take.

If Mergers & Acquisitions Tempt You, Consult HR ProsIf you’re contemplating a merger, be very careful about your human capital – whether you’re in the public sector, a small business or a global company.

Let our advance worrying become advance thinking and planning.”

-Winston Churchill


 __________

Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry. 




Management — Big Banks Provide Lessons in Succession Planning



The worldwide global downturn exposed major management lessons starting in 2009. Firstly, it was Bank of America. Secondly, it was HSBC. Both showed dubious succession planning, and investor and customer relations, according to published reports.

You might recall HSBC CEO Michael Geoghegan threatened to quit  if he wasn’t named chairman. His widely publicized threat didn’t work. Instead, HSBC named Stuart Gulliver CEO, replacing Mr. Geoghegan, who retired at the end of 2010. Mr. Gulliver had been in charge of HSBC’s investment banking operations.

Bank of America’s situation was different.  From the stakeholders’ point-of-view, B of A took an exasperating long time to name a new CEO. The delay suggested that the B of A board and outgoing CEO Ken Lewis bungled by not succession planning.

It wasn’t surprising that critics pointed out the significance of the job and why it’s important for a new CEO to get a running start.

Brian Moynihan walked into his new position facing a barrage of problems: B of A’s acquisition of Merrill Lynch ended with the bank paying a $2.43 billion settle with investors, friction with regulators, opponents in Congress who have questioned his leadership, and cultural issues within the company.

Succession planning should be an ongoing strategic process. It’s vital for identifying talent and building a reserve bench for development. There’s a link between financial performance and succession planning.

Delays are costly

However, delays in succession planning result in a perceived lack of competence – image problems in the marketplace, among shareholders and internally with employees.

To empower shareholders as a policy matter, the Securities and Exchange Commission issued a nonbinding legal bulletin calling for transparency in management succession.

So it isn’t surprising that activist shareholders went after the likes of B of A, American Express and Whole Foods regarding their succession plans. That included the 500,000 member Laborers’ International Union of North America. The union targeted 14 companies and asked them to disclose their succession plans in detail.

More than 1,ooo executives admit their problems with succession planning, according to a study by search firm Egon Zehnder.

None of the responding executives believed they’re good at succession planning. Forty-seven percent admitted being mediocre in the process of succession planning and 53 percent disclosed their ineffectiveness.

“The global financial crisis has resulted in high CEO turnover. This fact combined with the recent SEC announcement that would allow shareholders to challenge the Board to disclose more information about plans for CEO succession, makes developing a succession plan even more critical,” says George L. Davis, Jr., an executive at Egon Zehnder.

Responding were 1,092 senior executives in every business sector from a total of nine nations.

While the situation was untenable in the U.S., it was worse overseas. Seventy-one percent of UK responders believed they’re just so-so in succession planning while 80 percent of French executives said they are unsuccessful.

But it isn’t bleak everywhere abroad. Fifty-seven percent in India believed they’re doing well and 70 percent in Germany said they were successful.

Small business complications

For small family businesses, succession planning is complicated by the federal estate tax. Also derisively called the death tax; 45 percent after a $3.5 million threshold on heirs of family estates.

Not to mention the time-consuming preparation for a business owner who is advanced in age, the estate tax is a nightmare for family businesses with considerable land, such as farms, or manufacturing equipment.

The tax jeopardizes the business. Because of cash flow, many heirs have to sell company assets to pay the tax.

Yes, some business owners incrementally transfer assets before their passing to avoid the harsh tax. But often some find they lose control of the business to their heirs while they’re still alive.

Will vs. succession planning

Some small business owners erroneously believe a will constitutes a succession plan. Not true. They’re not the same thing.

New businesses don’t need a succession plan. They should start thinking about a succession plan when the business starts to grow in value. Professional guidance should be obtained.

Every case is different but here some basic elements to consider:

  1. If children are involved, first learn if it’s feasible for them to be involved in the family business.
  2. Get a sense from every family member regarding the business’ future.
  3. Give summer jobs to children that will expose them to all areas of the business. Not all kids are interested in eventually taking over. That’s disappointing to parents, but the sooner they know the better.
  4. If you have a partnership, you’ll need to draft a buy/sell document that includes an agreement on the business’ value so one partner can buy from the other. A shareholder agreement is customary for corporations.
  5. A vision for the business will be needed in case of death. To be decided – what should happen to the business and who will own the firm whether it’s a family member or partner. If the heir is not a relative but there are family members involved, an instrument should be devised in case the partner will buy out the shares of the surviving family members.
  6. After developing an agreement on the succession plan, then decide on insurance matters for liquidity purposes.
  7. Review the succession plan on a regular basis and update it as needed.

Finally, a word of caution: More than 90 percent of family businesses typically don’t succeed past the second generation.

Weak management is often the reason why inherited businesses do not succeed. And unless the children invest or buy the business from their parents, it usually doesn’t work. It’s often better if they don’t receive the business as a gift.

Not to be cruel, but the heirs simply don’t have the passion or ability to manage a business founded by their parents.

From the Coach’s Corner, here are related resources on management:

21 Quick Tips to Avoid the Dark Side of Management — News headlines from Seattle to New York are cause for some serious head slapping. The U.S. Equal Employment Opportunity Commission (EEOC) continues to be inundated with worker complaints. Even the U.S. State Department issued a critical report of an ambassador, a Seattle businesswoman who was a prolific fundraiser for the first Obama election campaign.

Human Resources – Slow Motion Gets You There Faster — Hoagy Carmichael is credited with coining the phrase, “Slow motion gets you there faster.” He, of course, was a famous American composer, pianist, and actor. Born in Indiana in 1899, he composed hundreds of songs and is best known for his songs “Stardust,” “Georgia on My Mind,” and “Heart and Soul” – some of the most highly regarded American pop standards.

“Management must manage!”

-Harold S. Geneen

__________

Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

Seattle business consultant Terry Corbell provides high-performance management services and strategies.