/ 7 August 2010

HP CEO resigns after sex harassment probe

Hewlett-Packard CEO Mark Hurd resigned on Friday after an investigation found that he had falsified expense reports to conceal a “close personal relationship” with a female contractor.

The shocking announcement from the world’s top personal computer maker sent its shares plunging 10%, as Hurd is one of the most admired executives in Silicon Valley, credited with reviving HP after the tumultuous reign of Carly Fiorina.

The unnamed contractor, who did marketing for HP from late 2007 to fall 2009, contacted the firm’s board in June this year and alleged that Hurd had sexually harassed her, HP said.

The board ordered an investigation and found that the married 53-year-old Hurd did not violate HP’s sexual harassment policy. But he had a “close personal relationship” with the woman that was never disclosed to the board, HP said.

“The board investigation found that Mark demonstrated a profound lack of judgement that seriously undermined his credibility and damaged his effectiveness in leading HP and Mark agreed,” HP general counsel Mike Holston said, adding that the board’s decision to replace Hurd was unanimous.

Gloria Allred, a Los Angeles-based attorney who has represented numerous high-profile clients including Tiger Woods’ alleged mistresses, said late on Friday she is representing the woman who made the sexual harassment claim.

She said her client did not have sex with Hurd, but declined to identify the woman or comment further.

According to HP, Hurd filed “numerous inaccurate expense reports” that concealed his relationship with the contractor, who also received compensation and expense reimbursements without legitimate business reasons.

Hurd, who was also chairperson of HP and had a reputation for rigid cost discipline, said the decision to step aside was a “painful” one.

“I realised there were instances in which I did not live up to the standards and principles of trust, respect and integrity that I have espoused at HP,” Hurd said in a statement.

A source familiar with Hurd’s account of the situation described his relationship with the contractor as “business acquaintances” who had dined together about a dozen times. The source said the expense issues stretched over two years, were related to travel, meals and lodging, and totalled up to $20 000.

Another source familiar with the situation described the woman as a “low-level contractor” who would assist at marketing events. This person said Hurd submitted falsified expense reports that said he dined alone or with a bodyguard when he had dined with her.

Search for CEO
The revelation immediately triggered speculation on who would succeed Hurd, who during his five years at the helm engineered transformative acquisitions, from smartphone pioneer Palm to technology services giant EDS.

Chief financial officer Cathie Lesjak will take over on an interim basis, though she has taken herself out of consideration as the permanent CEO, HP said.

Analysts said there was no shortage of tech veterans who would be eager to lead HP, which also has a deep bench of internal candidates like PC chief Todd Bradley or corporate strategy head Shane Robison.

“They probably have their pick. HP is one of the showcase companies that people would be interested in running,” said Mark Kelleher, an analyst at Brigantine Advisers.

Analysts said Hurd’s departure should alter neither its strategic direction nor its performance record.

In a bid to reassure investors, HP raised its outlook for full-year profit forecast to $4,49 to $4,51 per share excluding items, from $4,45 to $4,50. The average EPS forecast from analysts was $4,49, according to Thomson Reuters I/B/E/S.

HP’s forecast of revenue of $125,3-billion to $125,5-billion also surpassed the average estimate of $124,5-billion.

The HP way
News of Hurd’s departure stunned the technology world. HP is the world’s largest technology company by revenue, and it is a major player in personal computers, servers, services and printers.

“Shock and puzzlement, that’s how it’s going to go down,” said Russell Hancock, president and chief executive of Joint Venture Silicon Valley, an area business group. “There wasn’t anybody who criticised his handling of the company.”

HP, a Silicon Valley icon founded in a Palo Alto garage in 1939, has experienced a fair amount of turmoil in recent years. That has hurt a firm that has prided itself on building trust with employees, a mantra often referred to as “the HP way”.

In 2006, former HP chairperson Patricia Dunn resigned after reports surfaced that HP had hired private investigators to spy on board members and journalists to plug media leaks.

The buttoned-down Hurd, who took over as CEO after Fiorina resigned in February 2005 in the wake of a controversial deal to acquire PC maker Compaq, brought stability to HP.

HP shares have more than doubled since Hurd, former CEO of NCR, took the helm five years ago. He cut costs and expanded HP’s footprint in the services market.

Hurd was known as a serial acquirer, unafraid of making bold moves to take on competitors like IBM, Apple and Research in Motion.

“Mark Hurd was extremely instrumental in turning this company around,” said Susquehanna Financial Group analyst Jeffrey Fidacaro. “There’s going to be a serious gap in leadership at the top of this company.”

Hurd will be well compensated as he departs HP, receiving a severance payment of $12,2-million. His 2009 total compensation was $30,3-million, according to a filing. His total compensation in the last three years was about $97,8-million.

HP said its board of directors has formed a search committee to find a new chief executive and board chair.

“It’s a negative because the positive leadership that HP has had under Hurd is identified with his name,” Nehal Chokshi, an analyst with Technology Insights Research-Southridge Research Group, said of Friday’s news.

HP, which was scheduled to report quarterly earnings later this month, also pre-reported its results.

Shares of Palo Alto, California-based HP closed at $46,30 on the New York Stock Exchange and fell to $41,50 in extended trading. – Reuters