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John Baldoni
Leadership author

John Baldoni

John Baldoni is a leadership consultant, coach, and regular contributor to the Harvard Business Review online. His most recent book is Lead Your Boss: The Subtle Art of Managing Up.

HP resignation: A breach of trust

Q: In forcing out its successful chief executive, Mark Hurd, did Hewlett-Packard directors over-react to what, given his overall compensation, appears to be a modest abuse of his expense account? Or did the board under-react by allowing Hurd to resign with his full contracted severance package rather than firing him for cause?

The system works!

H-P's board was correct in asking for its CEO Mark Hurd to resign over issues raised by his relationship with an independent contractor. If news reports are to be believed, what got Hurd in trouble was his failure to abide by H-P's code of conduct, including falsifying his expense reports. While the amount fudged was small to a man who makes millions, the real problem in the eyes of the board was breach of trust.

Getting rid of a CEO is never easy and it is especially difficult when the CEO is doing a great job. Hurd took over the company in the wake of another scandal: allegations of improper wiretapping that felled the previous CEO, Patricia Dunn. His tenure was by all accounts a success. HP is performing well and has recently become the number one PC maker, knocking Dell from that spot. The New York Times even reported that prior to these allegations Hurd was in negotiations with HP for a $100 million contract extension.

Some are reporting that HP employees will be disappointed by Hurd's exit. No doubt, but in my experience most employees don't give two hoots who the CEO is. They are more concerned with day-to-day operations and have little to do with those at the very top. What they do notice, however, is a double standard. Recent employee surveys show that the trust gap between front line employees and senior management is widening.

A key reason is perceived lack of accountability. For example, if the company does poorly, employees are laid off; rarely do senior managers lose their jobs. And as we have seen in the financial crisis, many under-performing companies rewarded their top executives with lavish bonuses despite financial losses.

Accountability too is taken for granted; it is printed in mission and values statements but sadly is seldom taken seriously. Yet employees know that when they make a mistake, they will be held responsible and accountable. That's a given. At the same time, they know that if senior executive makes a mistake the standards are a bit more elastic. That is why HP's principled stand versus Hurd is so refreshing. It runs counter to the perception that many employees feel.

Words are cheap. Clever public relations professionals can fashion prose that makes their companies seem not only prosperous and profitable but also as pure as the driven snow. While there may seem little harm in such statements, the problem is that so few of us, either inside or outside the company, believe it. Therefore we assume that the company is less than the sum of its statements. And that's unfair, too. Many companies are doing the right thing; they do live by the creed of doing well by doing good. One of them is HP.

HP's stand, while tough for the company to take in the short run, sends a strong and clear message that no employee, not even the CEO, is about the standards and practices the company holds dear. That lesson is worth more than the $100 million it saved in future contracts with Mark Hurd; it contributes to its reputation as the company that can and will make the tough choices even when it hurts.


"He who lives in harmony with himself lives in harmony with the universe."

By John Baldoni

 |  August 9, 2010; 3:45 PM ET
Category:  CEOs , Corporate leadership Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
Previous: Dr. Maya Rockeymoore: 'Be a student of yourself' | Next: HP needs a leader who is a role model

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As a former HP employee, from the days of Bill and Dave, I recall their strong and sincere commitment to the highest ethical standards. That commitment flowed through to the quality of the products they produced. Cheating on an expense report undermines the entire corporate culture. Any of Hurd's subordinates would have been fired for a similar offense, and he should have been setting an example, not breaking the rules. He made enough that he could have paid the illegitimate expenses from his own pocket, and absent actual sexual harassment, no one would have complained. He chose, instead, to engage in what, for him, amounted to petty theft. HP is well rid of him.

Posted by: wtyler | August 10, 2010 7:53 PM
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HP's board made the right decision in protecting their brand's integrity. Brand integrity is built on many things but trust is core to all of them. This decision should result in a strengthening of employees' perceptions of their company's brand - and that will serve to create great value in the future. Based on the board's actions, I'm buying HP's stock.

Posted by: ronstrauss | August 10, 2010 9:14 AM
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It seems Mr. Baldoni may be of the opinion that Mr. Hurd is not in Harmony with either the Universe & or Himself.

The initial sexual harassment charge, according to reports about the HP internal investigations, were not only not so, but were 'FALSE'. Or, in other words - a 'FABRICATION'.

So, the reason for asking for his resignation, is based on a 'Charge' that he, Mr. Hurd. somehow cooked the 'Books', with some false expense account entries.

Since the matter has been so publicized, I guess particularly as HP is now the largest Computer Company in the World, Mr. Baldoni I assume has knowledge that these 'False' expense account items, were in fact the doing of Mr. Hurd, for purposes of misleading his Company. I will post my 'initial' comment, at another publication, The NYT, BELOW:

"It seems to me that the HP board succumbed to the PC evaluation given them by their PR folk.

The agonizing over the disclosure of the 'Sexual Harassment' charge, which was discovered to be, 'FALSE', is the type of thing that can cause Shareholders & other Interested parties, to seriously lose confidence in HP, & perhaps also spotlight Mr. Hurd's role in the Company, in a much more 'Effective Light, than he had in fact could take Credit.

This, won't matter however, because the I am sure the Board, as presently constituted, will most likely soon Implode.

This is such a 'Sick Show', that one wonders if the 'Board' is more guided by the TV personalities, like those on 'The View', & or the CNN, Nancy Grace, EXPOSE'S.

As a Business Decision, it lacks everything, that could 'Term It' as such.

I am sure that Mr. Hurd's resignation, will affect the Company's future, in a very real way

Posted by: buntyp | August 10, 2010 9:02 AM
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