Ex-CEO built HP into tech behemoth, now another will lead integration of acquisition spree

HP CEO ouster leaves leadership hole

SAN FRANCISCO — The ouster of Hewlett-Packard Co.’s CEO leaves a hole in the world’s largest technology company.

Mark Hurd engineered a stunning turnaround of the Silicon Valley stalwart. Under Hurd, HP has spent more than $20 billion on acquisitions to transform itself from a computer and printer maker dependent on ink sales for profits to a well-rounded seller of hardware and lucrative business services. HP’s market value nearly doubled during his five years.

The company is suddenly leaderless as it stands at a turning point to integrate some of those acquisitions, the most recent of which was the purchase of smart phone maker Palm Inc. for $1.4 billion in June.

Hurd was forced to resign Friday after HP’s board of directors said Hurd falsified expenses to hide numerous private dinners with a woman who was paid up to $5,000 per event to greet people and make introductions among executives attending HP events that she helped organize.

The expenses were scrutinized when the woman recently accused Hurd of sexual harassment. The nature of the complaint could not be learned. Hurd and a lawyer representing the woman, whose identity could not be learned, all said the relationship was not sexual.

Hurd insists they were legitimate business expenses. Hurd doesn’t know the total value of expenses being disputed or have a full accounting of them, a person briefed on the situation said.

Hurd’s departure leaves it to another leader to keep HP on the course he mapped out.

HP’s stock fell nearly 10 percent to $41.85 in after-hours trading, when the news was released after the close of markets Friday.

The company has a deep bench in management and the stock drop was reactive and doesn’t reflect the company’s prospects, an analyst said.

“I don’t view his departure as catastrophic,” said Dinesh Moorjani, an analyst with Gleacher & Co. “The strategy is working fine. The level of uncertainty for me is relatively low just given the circumstances. This wasn’t a one-man company.”

Hurd, who spent 25 years at ATM maker NCR Corp. before coming to HP in April 2005, became a Wall Street darling. The $13.9 billion acquisition of Electronic Data Systems made HP a major player in technology services, challenging archrival IBM Corp.

HP also now offers computer networking, helped by the $2.7 billion takeover of 3Com Corp., racheting up the rivalry with Cisco Systems Inc. The Palm acquisition catapulted the company into the fast-growing smart phone business.

The additions also broadened the pool of people who could replace Hurd. It’s a deep bench, and internal candidates could have an edge, given that Hurd and predecessor Carly Fiorina — who got the boot in 2005 over concern about her management style and her decision to buy Compaq Computer — both came from outside HP.

Inside candidates could include Todd Bradley, who oversees personal computers and mobile devices at HP; Vyomesh Joshi, who leads the printer division; Ann Livermore, in charge of servers, services, software and storage; and Shane Robison, leader of HP’s corporate strategy and marketing. Chief Financial Officer Cathie Lesjak, now interim CEO, took herself out of the running for the permanent job.

In recent weeks, Hurd had started talks for a three-year contract that could have been worth $100 million, a person close to the case told The Associated Press. Those went off track when the woman accused him and HP of sexual harassment, this person said.

The company determined Hurd didn’t violated its sexual harassment policy but broke its rules of conduct.

The woman’s lawyer, celebrity attorney Gloria Allred, declined to describe the harassment. Allred would not identify her client or make her available for an interview.

Hurd will get about $28 million in cash and stock just to walk away. The person said Hurd realized he could no longer lead HP in part because at least two board members were convinced he had had a sexual relationship with the woman and was trying to cover it up.

Hurd is accused of listing other people as his dinner partners on expense reports when he’d been out with the woman. HP also claimed Hurd arranged for her to be paid for work she didn’t do.

There was only one instance in which that occurred, the person close to the case said, but it was for an event that was canceled at the last minute and the woman’s contract required that she would be paid unless an event was canceled 30 days in advance.

Hurd says the errors in the reports may have been entered unwittingly by an assistant, according to the person close to the case, who requested anonymity because of not being authorized to speak publicly about it. Hurd hasn’t gotten a full accounting from HP of the expenses he is alleged to have falsified or a total, though he has agreed to refund the company, this person said.

This person said Hurd met the woman, who is in her 40s, when interviewing her in 2007 for a job greeting and introducing executives at corporate events that she also helped organize.

They talked at a luxury hotel and met for a second time in Denver when she was flown in for a final interview at an HP event Hurd was attending, according to this person. Hurd approved the hire then, the person said.

Hurd and the woman often shared dinner after events she was hired for, said the person, who described the relationship as an acquaintance that became friendly.

Hurd’s ouster is the third in five years at HP’s top echelon. First was Fiorina’s in 2005, then former Chairwoman Patricia Dunn was ousted in 2006 amid a boardroom spying scandal that involved spying on reporters’ and directors’ phone records to suss out the source of leaks to the media.

“It says they’re off track in some fundamental way,” said Stephen Diamond, associate professor at Santa Clara University School of Law and an expert on business law.

“The first thing is, they have to find the right kind of CEO,” he added. “And I think what that CEO needs to do is come in and say, ‘How many board members were here during the last two scandals? If you were, please resign now.”