Carly Fiorina’s H-P Tenure: A Disputed Legacy The GOP hopeful says her time as tech CEO shows business savvy, but shares fell 55% By Robert McMillan
http://www.wsj.com/articles/fiorinas-h-p-tenure-a-disputed-legacy-1444179445
“I can’t believe I’m on stage with this woman,” said Ms. Stefani, who was introduced by Ms. Fiorina as H-P ’s “hippest product engineer” for the singer’s help designing the camera’s case and accessories.
Ms. Fiorina wasn’t around long enough to see the camera ship to stores. She was fired a month later by the H-P board of directors.
As Ms. Fiorina campaigns for the Republican Party nomination, she presents her tenure at H-P from July 1999 to February 2005 as evidence of a business-based competence she would bring to the White House.
Interviews with former employees and board members, as well as an examination of H-P’s financial performance during that period—which included a $25 billion deal to acquire Compaq Computer Corp.—suggest Ms. Fiorina’s vision and marketing talent overshadowed her ability to deliver results.
“Carly is a brilliant sales person, and she did an exquisitely good job of selling the Compaq merger to a cynical market,” said George Keyworth, a former H-P board member. “But what she could not do was execute.”
H-P’s stock price fell 55% on Ms. Fiorina’s watch, more than peers in the technology industry, even those hammered by the 2001 downturn. Dell Inc.’s stock dropped 5% over the same period; Cisco Systems Inc. ’s fell 45%; IBM dropped 31%. The Nasdaq Composite Index fell by 27%.
Ms. Fiorina declined to be interviewed for this article. Her press secretary, Anna Epstein, said Ms. Fiorina’s tenure coincided with an economic downturn that hurt many companies: “As of Oct. 31, 2001—after the height of the dot-com bust—H-P had over 86,000 employees world-wide. Carly’s leadership saved H-P, and those jobs, during the worst technology recession in the last 25 years.”
Ms. Fiorina indeed saved jobs by keeping H-P afloat, but had to trim the company’s workforce by about 30,000. Dell, about a third the size of H-P in 2005, cut roughly 1,700 jobs during the same period, according to people familiar with the matter.
H-P’s workforce grew from 84,400 to 150,000 during her tenure, taking into account Compaq and other acquisitions.
Compaq deal
The September 2001 Compaq deal was central to Ms. Fiorina’s strategy as she tried to resurrect the Silicon Valley icon by restoring its reputation for innovation. Her pitch: The deal would increase computer sales and gain enough market heft to steer software development to H-P platforms.
After an acrimonious battle that alienated Ms. Fiorina from the founders’ family, the vote was 838 million shares in favor, 793 million opposed.
Ms. Fiorina’s supporters, who include former H-P chief financial officer Bob Wayman, said the acquisition gave the company an advantage over its fastest-charging rival at the time, Dell, and set up H-P to survive the tech carnage of the early 2000s. “If Carly had survived another six-to-nine months, I think she wouldn’t have been fired,” he said.
The board ousted Ms. Fiorina as the deal was about to bear fruit, according to Mr. Wayman and other supporters. Among those who have since been persuaded to that view is Tom Perkins, a venture capitalist who had retired from the H-P board while Ms. Fiorina was CEO but returned to vote for her ouster.
ENLARGE Others say the acquisition doomed H-P to low margins that plague it still. Jeffrey Sonnenfeld, a professor at Yale School of Management, is one of Ms. Fiorina’s biggest critics. In 2005, he rated her among CEOs as “the worst because of her ruthless attack on the essence of this great company.”
Whatever the merits of the Compaq acquisition, Ms. Fiorina failed to fulfill the promises she used to persuade directors and shareholders to back the deal. She predicted H-P would boost profit margins from 4.5% in 2001 to 8.6% in 2003 with the efficiencies of scale Compaq would bring.
Instead, margins were 6.2% in 2003. A year later, they were 6.3%.
Ms. Fiorina’s successor, Mark Hurd, eventually achieved the profitability she promised, but it took some work. “H-P needed to start growing revenue and market share,” Mr. Hurd said. “That required a significant amount of realignment and a lot of attention on the day-to-day operations.”
While Ms. Fiorina was chief executive, for example, the company had a bloated product inventory, much of which wasn’t generating much revenue, according to people familiar with the matter. Mr. Hurd cut the product lines in half. Also, more staffers were working in IT than in sales, and technology spending dwarfed research and development. Mr. Hurd doubled the sales staff and focused R&D spending on higher-margin product lines, increasing the company’s research and development yield.
Before her arrival at H-P, Ms. Fiorina had cemented a reputation as a world-class salesperson during a 15-year career at AT&T and its networking equipment spinoff, Lucent. She headed sales during a period of highflying growth: Lucent’s revenue grew 20% her last year.
Ms. Fiorina, however, had a gap in her résumé. “I managed all of our sales and services resources but none of the product development or manufacturing,” she wrote in “Tough Choices,” Ms. Fiorina’s autobiography.
“She was not prepared to take on the job as CEO of Hewlett-Packard,” said Bill George, a former CEO of Medtronic Inc., now a professor of management practice at Harvard Business School, who has written extensively about H-P. “It was one of the great corporations of the world at the time, and she’d had a limited amount of germane management experience.”
After Ms. Fiorina joined H-P, she began a yearslong process to reinvent the company. In her book, she described how the company before her arrival had missed nine consecutive earnings targets and flubbed the Internet boom. H-P in 1999 was broken into 83 separate business units. “When I first arrived at HP, I’d asked how I could communicate with all our employees at once,” she wrote. “I was met with dumbfounded silence.”
Over the next two years, Ms. Fiorina became a celebrated CEO, a woman with Stanford degrees in philosophy and medieval history who made headlines saying, for example, “The glass ceiling doesn’t exist.” Ms. Fiorina was the first tech CEO to be known by her first name.
ENLARGE Female employees bought versions of the “Carly suit,” a business pantsuit in bold colors instead of conventional black. “This was exciting,” said Amy Stroud, a 16-year H-P manager who recalled buying a green ensemble for work.
“When Carly came in, she publicly stated that she wanted to reinvent H-P, which was interpreted as an expression of dissatisfaction with employee behavior,” said Ms. Stroud, who went on to write a business school analysis of how H-P alienated its workforce.
In one TV commercial, Ms. Fiorina appeared to appropriate the iconic Palo Alto garage where H-P was founded in 1939 by Stanford engineering grads William Hewlett and David Packard. Before long, her approach irritated some H-P engineers whose idea of a public performance was a singalong at the pianos scattered across the company’s Palo Alto campus.
As Ms. Fiorina steered the company deeper into hardware, H-P software engineer Peter Hagelund said he and colleagues in the middleware division—which created software allowing servers to communicate—spent idle months churning out hundreds of ideas for a company innovation program.
In early 2002, for example, Mr. Hagelund said he came up with chopsticks that dispensed soy sauce. The company program paid $100 for every idea, requiring only that they be approved by another H-P employee of any rank.
The chopsticks were perhaps the most far-fetched idea cooked up by the engineers, who submitted hundreds of proposals and shared the proceeds. Mr. Hagelund, who changed his last name from Petersen, said he netted thousands of dollars by the time he left the company that year. He later worked at IBM, where he earned several patents.
“If I had put forward the chopsticks idea at IBM, they would have laughed at me or walked me out the door,” Mr. Hagelund said, adding that at H-P, the idea helped pay for a red Jeep Liberty.
A miscalculation
As late as 2004, two years before the launch of Amazon.com ’s cloud-computing business and three years before Apple Inc. kicked off the mobile computing boom, Ms. Fiorina believed the tech industry had entered a time of slow growth and consolidation.
Critics say this miscalculation allowed IBM, rather than H-P, to acquire high-margin businesses in information-technology services from PricewaterhouseCoopers. While H-P struggled to digest the Compaq acquisition, IBM expanded its software business, buying such companies as database vendor Informix Corp. and Rational Software Corp., a seller of software development tools.
H-P missed its earnings guidance in 2003 and 2004, and by early 2005, with H-P’s stock flatlining, the board of directors were about done with Ms. Fiorina. “It was so bad that experts were advising us that we were potentially a target for private-equity takeover,” recalled a former board member.
The board’s discontent led to a standoff that Ms. Fiorina lost.
In 1999, H-P had been a highly decentralized company with dozens of autonomous entities, each responsible for their own profit and loss statements. By 2005, Ms. Fiorina had centered power in the CEO’s office.
ENLARGE The board wanted her to give some of it back: Shane Robison, the company’s chief technology officer, would head up a business technology group. Printer chief Vyomesh Joshi would be given more control as head of a PC and printer group, as would Anne Livermore, head of the company’s services division. Neither Mr. Robison nor Mr. Joshi responded to requests for comment. Ms. Livermore, now a director with H-P, declined to be interviewed.
Ms. Fiorina put her foot down. “The board decided that if she wouldn’t yield on these things, she would have to go,” said Mr. Perkins, the former H-P board member. “But Carly demanded that she be fired.”
Since voting to fire Ms. Fiorina, Mr. Perkins has transformed into a supporter, contributing $25,000 to the Carly for America super PAC and planning to host a fundraiser for her presidential bid at his San Francisco penthouse. He now blames H-P’s board for the company’s troubles, and said Ms. Fiorina deserved credit for improvements that Mr. Hurd achieved as CEO.
“He did a very good job of implementing the structure that Carly had put in place,” Mr. Perkins said. “He was more acceptable to the mass of Hewlett-Packard employees than Carly was. I mean, Carly was a glamour figure.”
Write to Robert McMillan at Robert.Mcmillan@wsj.com
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