Are HP’s Board and New CEO Headed in Right Direction?
Updated – Dec. 31, 2011
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 Hewlett-Packard 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 has lost more than half its market value. Meantime, the board doesn’t appear to understand the Link between Financial Performance and Succession Planning.
Questions have once again recently risen over the board decisions and strategies, while many analysts approve of recent developments. The storied company plans to continue with its strategy of cloud-based services and enterprise software solutions.
Based on past developments, HP fans, and I’m one of them, might wonder about HP’s long-term strategic planning.
Consider:
- 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.
- Soon, the board’s chair, Patricia Dunn, hired firms that used illegal methods to try to stop leaks of proprietary HP information to reporters.
- 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.
- 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.
- 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.
- 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.
- 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?
Ms. Whitman knows she has to make some strategic decisions about hardware, as the company initially indicated it might jettison its PC division. 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 promises to get more teamwork and cohesiveness out of her management team. That’d be a good move, too.
Before making any rash irreversible decisions, Ms. Whitman needs 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.
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
Columnist Terry Corbell is also a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complementary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?
Link between Financial Performance and Succession Planning
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.
The 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 including 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 these 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:
- Make certain the board is heavily involved in the process.
- The screening process must start early in the potential CEO’s career.
- The company should install a nominating committee, and should not abdicate its responsibilities to the incumbent CEO.
- 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. For all the study’s details, see: “Home-Grown” CEO.
From the Coach’s Corner, here are related Biz Coach resource links:
Management — Why It’s a Mistake to Overlook Succession Planning
HR Management: Which Employees Are Most-Likely to Quit?
Human Resources – Profit By Not Letting Your Stars Become Free Agents
Are You Successful In Keeping Female Talent?
If Mergers & Acquisitions Tempt You, Consult HR Pros
“Let our advance worrying become advance thinking and planning.”
-Winston Churchill
__________
Terry Corbell is a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complimentary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?
Management — Why It’s a Mistake to Overlook Succession Planning
Updated May 22, 2011
First, it was Bank of America. Then, a second major financial institution exhibited questionable management. Both are examples of dubious succession planning, and investor and customer relations.
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. But it also is among many businesses teaching us valuable lessons about management. 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.
Critics point out the significance of the job and why it’s important for a new CEO to get a running start.
But Brian Moynihan walked into his new position facing a barrage of problems: The investigation into B of A’s acquisition of Merrill Lynch, friction with regulators, opponents in Congress who have questioned his leadership, and cultural issues within the company. He was able to created favorable buzz with small business.
Succession planning should be an ongoing strategic process. It’s vital for identifying talent and building a reserve bench for development. 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 are going after the likes of B of A, American Express and Whole Foods regarding their succession plans. That includes the 500,000 member Laborers’ International Union of North America. The union is targeting 14 companies and asking 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 International. It showed none of the responding executives believe they’re good at succession planning. Forty-seven percent admit being mediocre in the process of succession planning and 53 percent disclose 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 International.
Responding were 1,092 senior executives in every business sector from a total of nine nations.
While the situation is untenable in the U.S., it’s worse overseas. Seventy-one percent of UK responders believe they’re just so-so in succession planning while 80 percent of French executives say they are unsuccessful.
But it isn’t bleak everywhere abroad. Fifty-seven percent in India believe they’re doing well. Seventy percent in Germany say they’re successful.
For small family businesses, succession planning is complicated by the federal estate tax. Also derisively called the death tax, it’s 45 percent after a $3.5 million threshold on heirs of family estates. The tax wasn’t imposed in 2010, but was scheduled to return in 2011.
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.
So don’t emulate B of A. You can do better in succession planning. And yes, it’s important in the public sector and nonprofits.
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.
Not to oversimplify, every case is different but here some basic elements to consider:
- If children are involved, first learn if it’s feasible for them to be involved in the family business.
- Get a sense from every family member regarding the business’ future.
- 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.
- 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.
- 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.
- After developing an agreement on the succession plan, then decide on insurance matters for liquidity purposes.
- 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
Human Resources – Slow Motion Gets You There Faster
“Management must manage!”
-Harold S. Geneen
__________
Terry Corbell is a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complementary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?
Human Resources: How to Fine-Tune Management of your Staff
To achieve higher profits, you can become more strategic about managing your marketplace challenges. But the marketplace only represents 50 percent of an entrepreneur’s headaches.
Internal factors within your company also contribute to entrepreneur insomnia. Such factors include dilemmas over how to control costs, performance and quality.
Here are 17 strategies:
1. Have a job description for every position, no matter how little skill is needed. Regularly appraise workers. Keep your most promising workers. If the others can’t improve then replace them.
2. Keep in mind what every employee is entitled to know the answers to their three questions
- What’s expected of me?
- How am I doing?
- What’s in it for me?
3. Constantly network to find the best employees. Ask your best workers for employee referrals, use trade publications, and advertise in economical local newspapers. Although tempting, free online ads won’t generate the most productive workers. Check references thoroughly using open-ended questions for comprehensive answers.
4. Screen for common sense, creativity and education. Einstein’s theory about imagination being more important than knowledge often works in HR.
5. Target employees who possess the three A’s: Attitude, appearance, and ability.
6. Note the priority of attributes. Attitude is everything in showing empathy to other employees and customers. Both you and your customers will be pleased. While job knowledge or hard skills are important, so are soft skills in communication and teamwork. Coachable workers who aren’t afraid to work on their strengths and weaknesses, and set goals will make you money.
7. Family and friends will work fine as workers in tight economic times. Don’t forget temporary help firms for short-term projects or for hiring on a temp-to-perm basis.
8. Create a favorable first impression with a gracious welcome of new workers and encourage a buddy system.
9. Improve morale by developing an inspiring communications program. Whether or not your company is undergoing dramatic change, communication is key. Use formal and informal ways to dialogue with workers about priorities, celebrate success stories and encourage feedback. Survey your workers about their priorities. Accommodate employees when feasible.
10. Don’t cut corners in training and development. Encourage continuous self-improvement. Invest in training, mentoring and education.
11. Treat workers equally and regularly enforce your company’s procedures. Make certain everyone knows sexual harassment is taboo. (I’ve had unsolicited calls from law firms seeking court-ordered training for their clients who were sued in federal courts. I appreciated the business but it was preventable from the perspective of the companies.)
12. Focus on succession planning. Retain and attract leaders for your firm, and develop a strategy to help your most talented employees ascend to senior levels.
13. In talent development, help your managers to evaluate your company’s HR strengths and weaknesses. Eliminate any gaps in your workforce and establish a harmonious environment for company growth.
14. Promote diversity. It’s good business to consider and implement policies to recruit workers who are from other cultures. Add disabled applicants, and part-timers – such as stay-at-home parents and retirement-age workers.
15. In compensation and benefits, no boss wants to over-pay employees, but if you do your best to provide for employees, they’ll deliver stronger performances and take better care of your company’s assets.
16. Encourage exercise and recreation.
17. Use exit interviews as opportunities for growth and to learn from mistakes. The good workers might return or refer outstanding candidates to you, if you’re seen as a caring employer.
If these tips are properly implemented, you’ll see strong results.
From the Coach’s Corner, here’s a footnote on getting more productivity:
If any employees seem to be chronically tired, sleep apnea could be the culprit. Encourage your workers to participate in a sleep study.
The National Center on Sleep Disorders Research, www.nhlbi.nih.gov/about/ncsdr/index.htm, reported 12 to 18 million people have life-threatening sleep apnea. That’s a condition where people stop breathing several times each hour and they don’t even know it.
