Carly Fiorina and HP - Why Effective Governance and Ownership Matters

February 2005 offered some riveting corporate drama with the seemingly abrupt dismissal of Carly Fiorinia, Hewlett Packard's high-profile CEO. Read on to get Professor Randel Carlock's take on governance structures and practice that could and should have helped avoid this. Carlock is the Berghmans Lhoist Chaired Professor in Entrepreneurial Leadership and Director of the Wendel International Centre for Family Enterprise at INSEAD.

by Randel Carlock
Last Updated: 23 Jul 2013

The HP-Compaq merger in 2001 was a knock-down-drag-out fight to the end, with Carly Fiorina and her vision of a new HP emerging as victor -- at least until early February 2005, when HP's board of directors fired her. The struggle for the heart and soul of this Silicon Valley icon gave journalists a lot to write about. Headlines screamed of foul play, dirty dealings and broken promises.

Those who took the side of Walter Hewlett, the son of founder William Hewlett and a fervent opponent of the merger, foretold the death of 'The HP Way'. Those siding with CEO Carly Fiorina saw the merger as a necessary step forward, taking the company from a fading legacy to an innovative future. What really happened in the HP boardroom will always be subject to speculation, but the more important question is, what can we learn from the HP experience about effective governance structures and processes?

Three years ago when Elizabeth Florent-Treacy and I first began to research the HP-Compaq merger (this research can be accessed through the 'HP Research' link at the right of this screen), we realized that the critical issue was not which strategy HP should pursue but rather what governance structures support sound decision-making about strategy.

We saw a classic struggle among a diverse group of stakeholders facing the difficult transition from entrepreneurial control by owner-founders to governance by hired executives and a board of directors. Even though Hewlett and Packard had not been formally involved with HP for many years their influence strongly affected all aspects of the firm. The appointment of Fiorina as CEO was the first major HP decision in over 60 years that the founders did not influence.

After the CEO's firing I analyzed the merger and subsequent events to offer some possible conclusions about what went wrong and more importantly what actions could have improved HP's decision-making and long-term performance. This case clearly demonstrates the importance of effective governance in addressing the often-conflicting demands of different stakeholders about how best to optimize a firm's resources and capabilities.

The lack of effective governance at HP is clearly demonstrated in the operating results and the significant loss of shareholder value during the 1990s; the Compaq decision that precipitated a costly takeover battle and lawsuit; the failure to successfully implement the acquisition strategy; and finally the firing of Carly Fiorina. A well-governed firm aligns its stakeholders, management and strategy to create value-at HP this has not happened.

Click on 'See Full Text' at the right hand top corner of this screen to read the full article by Professor Randel Carlock.

INSEAD 2005

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