Expert Perspective by Grahall’s OmniMedia Editorial Board
AP technology writers Jordan Robertson and Rachel Metz, penned an article on August 7, 2010 (Disgraced HP CEO to get about $28m in cash, stock) about Mark Hurd, the once acclaimed CEO of HP who while negotiating a $100 million three year contract with HP proved to be much less ‘smarter than the average bear’ by falsifying “… expense reports and other documents to conceal a relationship with a contractor.” It is hard to imagine that a company with a squeaky clean image like HP would tolerate such a blatant dishonesty, even if the guy may be worth upwards of $10 billion in market value to the company. (HP’s franchise value of about $100 billion, as measured by market capitalization, dropped 10% on the news of Hurd’s abrupt departure. According to the article “HP’s shares, which closed Friday on the New York Stock Exchange at $46.30, tumbled 9.7 percent after hours to $41.85 as investors reacted to the news released after the close of markets.” The stock price has not recovered as of August 10, 2010.)
We applaud the Board for their swift action in securing the resignation of Hurd. Although the stock price was impacted, we expect this to be a short term issue provided that a competent successor takes the reins quickly. In fact, in our research we have found that the most profitable companies have one thing in common, the belief by employees that they trust what management tells them. The more trust they have that management is truthful, the more profitable the company (and vice versa). The market might be aghast at Hurd’s departure, but we expect if he were to stay the long term prospects for HP would be diminished.
Perhaps in the days or weeks ahead we will be able to get more perspective, but here is what we just don’t understand: if Hurd falsified expense report, wasn’t this akin to (or even actual) fraud? And if so, why was he given a severance payment of some $28 million? Grahall’s Garry Rogers states that Hurd’s behavior would almost assuredly constitute grounds for termination for “Cause”, provided he had an appropriate provision in his employment agreement. Maybe the board was thinking that, under the circumstances, a “mere” $28 million in severance was in some “alternative universe” way of thinking actually punitive – but we’re scratching our heads over this one.
In our experience developing employment contracts for CEO’s, we encourage management to include provisions for no payment if an executive is terminated for Cause. In reality, terminations for Cause are extremely rare; however, if inappropriately funneling corporate funds to a woman whose “favors” you are hoping to capture isn’t malfeasance, exactly what is? If HP’s Board doesn’t have these provisions in their employment agreements, we encourage them to seek sound advice on restructuring their executive agreements for any similar situations that might arise.
Contact Garry Rogers at firstname.lastname@example.org
Contact Grahall’s OmniMedia Editorial Board at email@example.com