
How Bad Boards Kill Companies: HP - alexandros
http://www.mondaynote.com/2011/09/25/how-bad-boards-kill-companies-hp/
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_delirium
Boards are really not set up to do any sort of serious monitoring of a complex
multinational corporation, _especially_ if they're supposed to be doing it
independently of the executives they immediately supervise (CEO/CTO/COO/etc.).

Nearly every major company's board is full of people who have more-than-full-
time day jobs, _plus_ sit on 3-5 other boards. There is really no way they can
do a proper job in that situation; in practice, they devote one day a month to
doing the bare minimum to fulfill the responsibilities of each board position
they hold, if that.

For example, after a story about Cisco acting badly
(<http://news.ycombinator.com/item?id=2789540>), I was motivated to look at
who was on Cisco's board who might exercise some oversight. What I found
didn't seem likely to be a group of people spending much time on the matter.
One of the board members is the President of Stanford University, which I
assume is a pretty busy job to begin with. Another is the now-former CEO of
Yahoo mentioned in this piece. One more is the CEO of Mercer, the world's
largest H.R. consulting firm. How much time do you think these people each
take out of their day jobs to _really_ understand how Cisco operates? I would
wager very close to zero.

So this seems (to me) much more of a structural problem with how large
companies are run, than an HP-specific problem. They may have gotten
particularly unlucky roll of the dice, but this style of corporate governance
isn't set up to favor good outcomes.

~~~
russell
Pop Quiz: Why do CEOs get such outrageous compensation?

Answer: They are all on each other's boards, so when it comes time for their
own compensation review, they trust that the other board members will remember
their generosity.

~~~
ryanwaggoner
HP last year had revenue of something around $125 billion from running a
complex global supply chain spanning every continent except for Antarctica
(who knows, maybe there as well). The company employs more than 300,000 people
across dozens of countries, not to mention thousands of suppliers and
subcontractors. They make money from selling consumer products, enterprise
products, and services. Depending on the source, there are only about 55
_countries_ in the world with GDP more than HP's annual revenue.

How many people in the world can run an organization of that size and scope?
Not many at all. And surprise, surprise: those people are in high demand. Very
high demand. Do you seriously believe that a guy getting paid $50 million a
year at a Fortune 500 company had no other offers or alternatives, and so the
board could have hired him at $5m instead? Right or wrong, they offered $50m
because they thought that this individual could move the needle enough to make
it worth it. Which is probably true, by the way: a 1% increase in HP's revenue
is enough to cover the CEO's jumbo salary 20 times over.

~~~
danssig
This is a myth. What about the employees? We are _also_ getting vastly more
done with vastly less. Why is it only the CEO's that are seeing the benefit of
scale here.

The reason the salary increase has been concentrated on the top and nearly
ignoring everyone else is exactly what the parent said: these people are on
each other's boards.

~~~
hessenwolf
I would argue the difference between a great CEO and a mid-level manager is
closer to negligble by far than their salaries.

I wonder more recently if we should force more re-distribution, through tax or
otherwise. Not because I am hippy (or not going to be a squillionaire myself),
but because I doubt the capacity of the top CEO to allocate his capital
wisely.

------
linuxhansl
A friend of mine works in the publishing business. He equated the previous few
CEOs of his (large) company to locusts.

They move through, cut cost by laying of people. That leads to great profit
increases for a quarter or two, after which the lack of qualified employees
shows its toll.

By the time that problems become apparent the CEO collected a huge bonus and
moved on, leaving the mess for somebody else to cleanup.

~~~
masklinn
> He equated the previous few CEOs of his (large) company to locusts.

I'm not sure locusts is correct, but mercenaries definitely is: in this day
and age, short-tenure CEOs are brought in specifically to raise stock prices
over the short term (or in rarer situations, to take the knocks coming with a
change of direction leading to short-term raises of stock prices with the next
mercenary), regardless of the long-term outlook of the company.

Their outlook is generally under 24 months, and their job is to do everything
they can to artificially inflate stock price in that time-span. This leads to
scorched eath strategies instead of long-term planning and sustainability,
since they won't be there when trouble hits the door. It's basically the
tragedy of the commons all over again.

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ilamont
The author is correct to blast the board, but the claim that Whitman "has zero
background in tech" suggests that she comes to the HP job as an old-school
industrialist. Starting in 1998, she spent 10 years growing eBay, which
required an understanding of market dynamics and making some smart technology
hires and acquisitions (including PayPal) along the way.

~~~
jeffreymcmanus
She didn't actually do much with the technology when she was at eBay; she left
that to lieutenants.

She also fostered a culture where people on the "business side" (mostly
Harvard MBAs, like her) would sit in one building while software engineers
would toil away in another building. The idea was to maximize worker
flexibility and prevent businesspeople from getting too attached to
engineering resources, but in practice it really felt more like you were
outsourcing projects to teams located 300 yards away.

~~~
sliverstorm
_She didn't actually do much with the technology when she was at eBay; she
left that to lieutenants._

That could be a blessing in disguise

~~~
jeffreymcmanus
Not if the rationale for hiring her as the CEO of HP was because she allegedly
has "big-company technology experience"

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crag
The board is not suppose to run the company. The "board" represents the
shareholders (usually), overseas the CEO and sometimes runs PR. The CEO (and
his exec's) are suppose to run the company.

Now usually there's a nice co-existence between the board and it's top execs
since both depend on each other.

In HP's case the board IS trying to run the company. And worse, it's not
supporting it's chosen CEO. Big mistake.

There's a lot of value in HP. Which is why after all the stupid shit the board
has done the company is still alive.

We'll see if Whitman can cut through the board and get it all right. She has
to pretty much force out those board members who aren't behind her. Not easy
to do in any envionment.

~~~
VladRussian
>She has to pretty much force out those board members who aren't behind her.
Not easy to do in any envionment.

well, she managed to force out the previous, just recently hired, CEO. Seems
like she has already excelled at the politics of this board.

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ShawnJG
this is a perfect example of when checks and balances go wrong. While CEOs and
boards may not see eye to eye on every decision they sometimes forget that
they are not enemies. They should be working together toward common productive
goals. Even though these are billion-dollar companies, they cannot afford to
continue to destroy themselves from within, sooner or later profits will
dwindle and they will be no more. Mistakes are bound to happen. But according
to this article, HP doesn't seem to learn from theirs. They are thoroughly
living the definition of insanity as if it were a religion!

I hate to bring politics into this, but regardless of whatever side you're on
Congress and the president seem to be doing the same thing. Although they're
supposed to watch each other. They forgotten that they're on the same side. It
should be working together to get things done. Internal fighting and derision
can kill governments, as well as companies.

~~~
maxxxxx
The comparison with politics is a good one! Working together but still keeping
some distance is out of fashion. It seems most of America's leadership is too
busy serving their egos instead of working on the things they have been hired
to do.

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rsanchez1
They really should have promoted Todd Bradley to CEO. They had the chance to
do it twice, but messed up both times. Oh well, he's probably glad they made
the decision to spin off the Personal Systems Group. He can be the CEO of the
PSG and finally escape the HP Board of Directors.

