SAN FRANCISCO (AP) — Hewlett-Packard Co.'s decision to fire CEO Leo Apotheker after just 11 months and replace him with former eBay chief Meg Whitman is another dizzying turn of the executive merry-go-round at a company whose leadership issues are tearing it apart.
Swapping Apotheker, who has now been ousted from two high-profile CEO jobs in two years, with Whitman, a billionaire who is best known for the decade she spent building eBay and her run for California governor, is a decision designed to stem investor fury over a series of questionable strategy moves.
Whitman's star-power could be an asset for a company that struggled to gain credibility under Apotheker, who was previously little-known outside of the business software world. HP is no stranger to celebrity CEOs. But Carly Fiorina's run as leading lady, from 1999 to 2005, ended in shambles.
Despite Whitman's success at eBay, she is untested when it comes to running a sprawling company such as HP.
"She built up a one-trick pony, an online auction site, and she oversaw the growth of the company, but we are talking about a situation where someone needs to come in who has a technological background, an engineering and scientific background," said Steve Diamond, an associate professor at Santa Clara University School of Law. "And that is way outside of her skill set."
Diamond said the decision to change CEOs so soon points to continued disarray on HP's board, long a target of critics for the chaos it's caused at one of Silicon Valley's oldest and largest companies. Infighting and ego-driven drama has long plagued the board, from revelations in 2006 that HP had spied on directors and journalists to ferret out the source of leaks, to last year's dismissal of CEO Mark Hurd in an ethics scandal.
"There's no question the board is off the rails — they need a smaller, tighter board that's committed to the idea of what the company does," Diamond said. "But they have a lot of people on the board from different industries. The tough job will be getting the board on board."
Whitman's appointment Thursday was Silicon Valley's worst-kept secret. Deliberations leaked out a day earlier to the delight of investors, who drove up HP's stock and apparently gave HP's board the push it needed to oust Apotheker.
HP's board met Thursday to finalize the change, having decided that Apotheker had lost the board's confidence in his ability to lead HP long-term, a person familiar with the matter told The Associated Press. This person was not authorized to speak on behalf of HP and spoke on the condition of anonymity. This person emphasized that Apotheker wasn't forced out because of any particular policy decision, adding that Whitman's appointment was influenced by the relative derth of candidates with experience running a large technology company and a strong record of execution.
Apotheker is resigning from HP's board.
The Wall Street Journal and AllThingsD websites had earlier reported HP's decision.
In a statement, HP's chairman Ray Lane said that HP is "fortunate to have someone of Meg Whitman's caliber and experience step up to lead HP."
"We are at a critical moment and we need renewed leadership to successfully implement our strategy and take advantage of the market opportunities ahead," Lane said. "Meg is a technology visionary with a proven track record of execution. She is a strong communicator who is customer focused with deep leadership capabilities. Furthermore, as a member of HP's board of directors for the past eight months, Meg has a solid understanding of our products and markets."
HP's stock price has been nearly cut in half under Apotheker's watch. The decline was fueled by a mixture of shareholder resentment over repeated earnings disappointments and disappointment of Apotheker's fumbling of key announcements, particularly his decision to try and sell or spin off HP's personal computer business. In announcing the auction before a buyer was found, he created enormous uncertainty for buyers of the machines, substantially devaluing the business, analysts said. Apotheker's assertion that HP might keep the business after all was seen as a sign of tone-deafness.
Investors applauded the change. But it's not likely to quiet critics.
HP's stock fell $1.18, or 4.9 percent, to close at $22.80 on Thursday because of uncertainties about the company's future. The declines were worse than the overall market. The Dow Jones industrial average plunged 391 points, or 3.5 percent, on worries that the global economy is headed for another recession.
A key question is Whitman's ability to wrangle a company in disarray. EBay, when she inherited it, was a star on the rise. HP is struggling with bloat that hasn't decided on a direction as it tries to be more like IBM Corp. Business experts say managing a startup through a period of growth is markedly different from running an established company that's fallen on hard times.
Whitman touted her business credentials on the campaign trail in her unsuccessful California gubernatorial bid. She spent more than any candidate for a statewide office in U.S. history on the campaign —at least $174 million, most of it her own money. Whitman became a respected executive for her work at eBay, transforming it from a website with a few dozen employees and less than $100 million in revenue into an industry heavyweight with thousands of workers and billions in sales.
But her record as CEO also includes a lesser-known episode in her earlier years that paints a different picture of her abilities to quell a company in disarray. Whitman's time at FTD, the iconic flower-delivery company, in the 1990s was perhaps her most high-profile turnaround attempt. It did not end well.
Whitman has rarely spoken about her time at FTD. It's an imperfect comparison to HP, but Whitman was brought in to the company in 1995 by her former colleagues at investment firm, Bain & Co., to spearhead a major transformation. She was supposed to stay five years, but ended up quitting after two, citing investors' unrealistic goals.
"This company is not fixable, at least not by me," Whitman wrote in her book, "The Power of Many." She calls her tenure there "probably the most frustrating and, ultimately, least successful executive experience of my career."
Corporate governance experts have also raised concerns about Whitman.
Whitman was named to HP's board this year as part of a sweeping overhaul under Apotheker and new chairman Ray Lane, who were hired in the wake of Hurd's exit. They were supposed to be steadying hands. But almost immediately, corporate governance experts began crying foul. Concerning Whitman in particular, they took issue with the fact her hiring by esteemed venture capital firm Kleiner Perkins Caufield & Byers, where Lane works, was announced a week after she was formally elected to HP's board.
Then there were several unflattering incidents that helped scuttle her gubernatorial campaign. She was revealed to have shoved an eBay employee during a disagreement, which led to a six-figure settlement. Whitman said the altercation was an anomaly and taught her to always be professional. It was also revealed that her former housekeeper of nine years was an illegal immigrant.
To complicate matters further, Whitman was a board member at Goldman Sachs when it allegedly engaged in the now-illegal practice called "spinning," in which wealthy clients and CEOs whose companies did business with Goldman received early access to IPO shares, which they flipped quickly for large profits. Whitman said she forfeited the $1.8 million she made from the deals in a lawsuit she settled with eBay shareholders.
"I don't think there's a lot of evidence that this is her particular forte," said Eleanor Bloxham, a governance expert and founder of The Value Alliance and Corporate Governance Alliance. "At HP what we have is people being chosen based on who they know, rather than the best skill sets to solve the problems of the company. This has been disastrous really for all the stakeholders of HP."
Bloxham pointed out that as a board member of HP this year, she bears some responsibility as well for the recent decisions that have displeased investors, such as the way the proposed PC-division separation was handled.
"Her appointment is not going to help solve the problem — unless she repudiates what she already signed off on, there's really no change here," said Bloxham, who called the quick CEO change a "recipe for disaster." ''The past doesn't always predict the future, but the signposts aren't great."
Not everyone agrees.
Michael Holt, a senior equity analyst at Morningstar, said a change was needed, despite the concerns about Whitman's experience leading a broad company such as HP. He called her a "surprising candidate."
One of HP's biggest challenges over the past few years has been its ability to clearly articulate its vision. Whitman would need to do quickly to reassure investors, he said.
"They need to reestablish their credibility," Holt said. "They've got to set goals that they can meet."
Associated Press writer Juliet Williams contributed to this story from Sacramento and AP Business Writer Chip Cutter contributed from New York.
- Leo Apotheker
- Meg Whitman
- Meg Whitman