Thursday, September 22, 2011

Mr. Apotheker would be H-P's third CEO to depart under fire in six years


Hewlett-Packard Co.'s board met Wednesday to consider ousting Chief Executive Leo Apotheker, according to people briefed on the matter, after a turbulent 11-month tenure in which the market value of the technology giant was cut nearly in half.
H-P's board is meeting today to consider ousting CEO Leo Apotheker, just 10 months after he took over the tech giant and shortly after endorsing his plan to spinoff or sell its PC business. Don Clark and Mark Veverka discuss on The News Hub.
H-P's share price has fallen more than 45% since Leo Apotheker took over at the helm in November of last year, following the resignation of Mark Hurd, but should the company's woes be blamed on the board as well as its CEO's? ATD's Kara Swisher and WSJ's Marcelo Prince discuss on digits.
The board of Hewlett-Packard is considering ousting Leo Apotheker as chief executive, according to the Wall Street Journal. AllThingsD reports that former eBay CEO Meg Whitman is being considered as a possible replacement. Spencer Ante and Rolfe Winkler discuss on Digits.
An ouster would be the latest setback for a company that has been buffeted by a decade of board acrimony, abrupt CEO departures and strategic drift. The stakes are even higher this time. A departure would leave the company without a leader at a time when many of its key businesses are under assault.
Just last month, Mr. Apotheker, with the blessing of the board, announced a dramatic plan to revamp H-P by splitting off or selling its personal-computer business and spending $10.3 billion to acquire U.K. software company Autonomy Corp. Board members publicly supported Mr. Apotheker and his strategy even as many investors criticized the moves and H-P's stock price took a major hit. Indeed, shares soared as much as 11.7% Wednesday on news that Mr. Apotheker might be out.
Who might replace Mr. Apotheker isn't clear. Meg Whitman, the former eBay Inc. chief who joined H-P's board earlier this year, is a candidate to be named interim CEO, according to some of the people briefed, though she may not be interested in the position. Reached Wednesday, Ms. Whitman declined comment. Another person familiar with the matter said no decision on a successor has been reached.
Board members began talking in the last week about replacing Mr. Apotheker, with the situation coming to a head at the regularly scheduled board meeting Wednesday, these people said. H-P is likely facing another poor quarter and potential earnings miss, one of the people said.
In the last week, the relationship between Mr. Apotheker and H-P's independent chairman, Ray Lane, also has appeared strained, according to two people who know the men.
An H-P spokeswoman said the company doesn't comment on rumors and speculation.
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If he is forced out, Mr. Apotheker could walk away with $35 million in compensation and severance for his 11 months at H-P, according to calculations by The Wall Street Journal.
A departure of Mr. Apotheker, 58 years old, would be the latest comedown for a company that 13 months ago had been considered by Wall Street to be one of the better-run tech behemoths. Since the former software executive joined H-P in November as CEO, the company's share price has dropped more than 40%, compared with a 1.6% gain in the tech-heavy Nasdaq Composite Index over the same period. On Wednesday, shares of H-P gained 6.7% to $23.98 at 4 p.m. on the New York Stock Exchange.
An ouster would raise further questions about the governance of H-P. Its board came under some criticism for the way in which Mr. Apotheker's predecessor, Mark Hurd, was dismissed following an internal investigation into his relationship with a contractor. Mr. Apotheker overhauled the board after joining H-P, naming six new members this year.
H-P's board also drew criticism for its dismissal of former CEO Carly Fiorina in 2005 and an unrelated spying scandal in which private investigators it hired improperly accessed phone records and other information about some board members and reporters.
Among the gaffes Mr. Apotheker committed since becoming H-P CEO was a leaked memo in which he urged top executives to pinch pennies. He also oversaw three reductions of the company's financial outlook.
But the situation came to a boil last month when he sparked investor outrage by agreeing to pay a lofty premium for Autonomy. At the same time, Mr. Apotheker disclosed plans to potentially spin out the company's $40-billion-a-year PC business. He also canceled H-P's line of tablets and smartphones after about six weeks on the market.

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"Many of us lost confidence in management and also in the board," said Pat Becker Jr., a fund manager at Becker Capital Management in Portland, Ore., which held about 1.2 million H-P shares as of June. "They need to be decisive at correcting the situation, whether that's management changes or strategy changes."
If Mr. Apotheker is fired, it's unclear whether H-P will reverse course on some of the CEO's strategic decisions. It seems unlikely that directors can undo the Autonomy deal. Toni Sacconaghi, an analyst at Bernstein Research, wrote recently that the company is contractually obligated to go through with the deal unless there is a "material adverse change" in Autonomy's position. Courts in the U.K. have made it all but impossible to walk away from merger deals.
When Mr. Apotheker's hiring was announced almost a year ago, it was a surprise. Mr. Apotheker had been fired as chief executive at software company SAP AG in early 2010, less than a year after he assumed the sole CEO role. He had no experience managing a hardware business like some of H-P's biggest units.
Almost immediately, Mr. Apotheker was accused by Oracle CEO Larry Ellison of masterminding a massive intellectual-property theft ring while at SAP. Mr. Apotheker stayed out of public view while a trial was under way between Oracle and SAP over the issue in November 2010; Oracle said that it had hired private detectives to serve Mr. Apotheker with a subpoena but weren't able to find him. Mr. Apotheker never testified; Oracle won the lawsuit, but a judge recently ordered a new trial.
Mr. Apotheker didn't immediately publicly discuss a strategy for H-P and how it might grow, leading to angst on Wall Street. In February, H-P unveiled a tablet and smartphones built with the webOS operating system that H-P had earlier acquired along with Palm Inc.
In March, Mr. Apotheker unveiled his vision for H-P that focused on software and computing services delivered over the Internet. But his inability to execute on that vision has been a source of investor frustration.
In May, right before announcing another lower financial outlook for the company, Mr. Apotheker sent an email to top H-P executives warning of a "tough quarter" and the need to "watch every penny," which was leaked to the public. H-P had to hastily rearrange its May earnings call.
In the wake of that incident, Mr. Apotheker in an interview blamed Mr. Hurd for not investing in H-P's services and software businesses. "We talked strategy, we just failed to execute in the past," Mr. Apotheker said at the time.
Investors were spooked last month by the amount H-P was paying for Autonomy; H-P's shares plunged 20% in the aftermath of the announcements. While Mr. Apotheker and other top H-P executives visited investors to reassure them, many investors said they remained unconvinced.
"It feels as though there's a lack of real thoughtful direction and that has damaged the stock," said Tim Ghriskey, co-founder of $2 billion fund Solaris Group, which held H-P shares for less than a month in the summer. He said he is willing to consider re-adding H-P to his portfolio, but not until the company has become more stable.
0921apotheker
Reuters
Leo Apotheker, CEO of Hewlett-Packard
Last week, Mr. Apotheker canceled a scheduled appearance at a Dana Point, Calif., conference for corporate technology executives. H-P sent Mr. Lane in his place.
Mr. Apotheker would be H-P's third CEO to depart under fire in six years.
"This board has some real issues. It seems to attract misery,'' observed Charles Elson, head of the Weinberg Center for Corporate Governance at University of Delaware's business school. "I give them credit for terminations" of three flawed CEOs, he continued. But "I question the wisdom of their hiring decisions."
News of the board discussions was earlier reported by All Things D, a website owned by News Corp., and Bloomberg News. News Corp. also owns The Journal.
—Ian Sherr and Don Clark contributed to this article.
Write to Ben Worthen at ben.worthen@wsj.com and Joann S. Lublin at joann.lublin@wsj.com


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