MARK HURD CASE

The Mark Hurd Hewlett-Packard Case

Michael Slafsky

Bryant University 3/31/2011

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Abstract

Mark Hurd was forced to resign by the board of directors at Hewlett Packard after allegations of sexual harassment. Though the allegations were unfounded, his improper accounting for personal expenses led to his departure from the company. Within a month, Hurd had moved to fellow computer company Oracle. Hewlett-Packard filed a lawsuit to stop him from working at his new company. After an out of court settlement, Hurd was able to continue his career working at Oracle. The legal and human resource ramifications from this case range from the importance of a non-compete clause to the transfer of knowledge workers from one corporation to another and its impact on the company, the employees, and the shareholders. After research, it is determined that ethical behavior and proper preparation for the resignation or termination of a high level executive can save a company eliminate monetary costs as well as negative media coverage.

MARK HURD CASE

Summary

Mark Hurd, the former chief executive officer of Hewlett-Packard, resigned last summer in the face of allegations of sexual harassment and numerous irregularities regarding paperwork within the transactions involving the alleged victim. Hurd had a relationship with a contractor that went beyond the walls of professionalism with an outside contractor. This contractor was hired by the office of the CEO, and there were several issues of reimbursement conflict that might not have been in the best business interest of Hewlett Packard. Mark also submitted inaccurate expense reports to conceal his relationship with the contractor, violating HP's standards of business conduct. Jodie Fisher was a lawyer who was at the center of the controversy. Fisher contacted the company charging sexual harassment in August of 2010. Fisher was hired by the office of the CEO as an independent marketing consultant and had attended events and other HP meetings in various places. It was later determined that many of the expenses that Hurd had recorded as company expenses were personal or were in relation to Fisher and their relationship. Several of these expenses were from private dinners and between Hurd and Fisher. Both sides publicly stated there was no personal relationship between the head of HP and their lawyer-consultant. However, the board of directors of the company believed that his decisions were not in the best interest of the company. , Hurd demonstrated a profound lack of judgment that seriously undermined his credibility and damaged his effectiveness in leading HP, General Counsel Michael Holston said. (Guglielmo, King, & Ricadela, 2010) Though Hurd

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was not in violation of the companys sexual-harassment policy, he was still asked to submit his resignation. Cathie Lesjak, who was the CFO at the time, was appointed to be the CEO in an interim basis while the board of directors looked to replace Mark Hurd for years to come. Mark Hurd came under fire for his actions for many reasons. Mainly, he was confronted because of his unethical decisions. But there was another reason Hurd was put in such a bright spotlight. Years earlier, in 2006, Hurd had been public about his support of HPs code of conduct, which had been called into play following a scandal involving members of the corporations executives. It appears that Hurd could not follow the same regulations he had championed years earlier. Hurd had submitted several expense forms to Hewlett Packard, ranging from $1,000 to $20,000, which were from meals and traveling over several years. The expenses should have been labeled and recorded to Hurds personal account, but were instead charged to the company. Hurd recorded these expenses unethically to cover up his personal relationship with Fisher. Mr. Hurd did receive a hefty severance package as a result of his resignation. Hurd will get a severance payment of $12.2 million, plus other benefits that include a prorated vesting settlement of 330,177 restricted HP shares. He received $30.3 million in compensation in 2009 and $42.4 million the year before. (Guglielmo, King, & Ricadela, 2010) The expenses that were covered up were done so in order to hide Hurds relationship with Fisher. He was trying to avoid controversy by keeping the improper relationship under wraps. Hurd knew that his actions would not look good for HP, especially since he had been involved with Fisher at Hewlett Packard sponsored events. Mark Hurd agreed to pay back all improper

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benefits he had received during his time with Fisher. The total amount is unknown but it is several thousand dollars. After Mark Hurd resigned from HP, he was contacted by friend and Oracle CEO Larry Ellison. In September of 2010, Mark took the position of co-President of Oracle, much to the chagrin of HP. Hewlett Packard, arguing he would divulge their secrets, filed a lawsuit against him. The lawsuit tried to keep Hurd from working at Oracle. After a few weeks, Hurd and HP settled the lawsuit for $14 million dollar in Hewlett Packard stocks he was awarded in the severance package. On top of that, Oracle paid HP a sum of money in order to quickly put an end to the legalities keeping Hurd from successfully doing his job. The end of Hurds tenure at HP and the beginning of his work at Oracle was a messy transition but in the end, everyone came away with something. Hurd had a new position at a major software company. Oracle had brought on a new executive that would help them move to a new hardware projects. Finally, HP received a sum of money and the knowledge that they did the right thing by sticking to the morals and code of conduct of the company.

Analysis and Evaluation

It is interesting to note that in the end, Mark Hurd was forced to resign because of financial discrepancies, not sexual harassment. Some people believe that HP may have used the events as a scapegoat to get Hurd out the door. The company may have been looking for a reason

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to move in a new direction. While no one would consider Hurds actions acceptable, they may not have warranted a resignation. Hewlett-Packard made the risky decision to force Hurds resignation. While it followed company code of conduct, it may not have led to success for the organization. Immediately, the stock price dropped as the public believed Hurd was a valuable asset to HP. Mark Hurd can be considered a knowledge worker. His responsibilities at HP went beyond the physical execution of the work and included planning, decision making, and problem-solving. (Bohlander & Snell, 2009) Generally, knowledge workers are very valuable to a corporation as they bring more to the company that is more than tangible goods. Their thoughts, ideas and work ethic can be the difference in a company. Additionally, this is not something that will remain with a company if the employee moves on. Thus, the training and development of the employee is wasted. This situation brings up a lot of thoughts about employee retention. Though Hurd was forced to resign, it cost HP more than just one worker. They also lose all of his ideas and nontangible goods he brings to the table. The cost of any training he had gone through with the company was also lost. Finally, the cost of his severance package, before the lawsuit, was another cost that Hewlett-Packard had to endure in losing their CEO. The case brings to mind a similar case involving computer technology companies and their executives. in 2005, Kai-Fu Lee, the Vice President of Interactive Service at Microsoft Corporation, left for a position at computer giant Google. Lee had signed a non-compete agreement in 2000 when he took a job at Microsoft. (Fried, 2005)

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Microsoft sued Lee, alleging his move to a new, competing company within a year of leaving Microsoft was in violation of the agreement he signed. Lee moved to Google because of his desire to work on a project that would focus on his home country of China. Microsoft issued a lawsuit in an effort to keep Lee from moving to Google and taking all of his skills with him. He was such a great asset to Microsoft that losing him to a competitor created a huge risk for the company. Their only option was to pursue legal action. One of the major issues at the heart of the Lee case was his extensive work with Microsoft on their MSN search engine. Microsoft and Lee had been working on the search engine for a long period of time and he moved to the search engine powerhouse, Google, violating his non-compete. After a lengthy legal process, the two sides settled out of court and Lee was able to begin his new position. The similarities between the two companies are evident, however there is a difference. Microsoft had an upper hand in their legal proceedings because of the agreement Lee had signed when he took his position. Hurd had no such agreement, a gating mistake made by HewlettPackard.

Recommendations

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Unfortunately, people make mistakes. Not every job or workplace will be perfect and situations will arise that will test a companys code of conduct. In preparation for such an instance, a strong and substantial set of rules should be in place as the company is formed. Without a doubt, it is one of the most important documents a company can have. When a new employee is hired, the code of conduct should be discussed in training and a contract, requiring the new employee to abide by the set of rules, should be formed. The code of conduct should be part of the overall company atmosphere. All employees should feel that the company culture is one that focuses on good judgment and strong values. The culture of a company is something that a company should base its hiring around. They should find applicants who want to work in the welcoming environment and use it as a tool to lure more perspective candidates. The best way for a company to avoid any issues with employees making unethical decisions is to hire workers who will avoid these mistakes. That job falls back on the selection function of the human resources manager. One recommendation for any company is to hire applicants who will succeed the organization, or are organization-fit. An organization that has a strong set of morals and ethical guidelines should be looking for people who share the same characteristics. These types of people will find opportunities to do well and thrive without having to face a moral or ethical dilemma. A company should consider a clause in the contract for non-competition. This would mean that if or when an employee leaves, they would not be able to move to a competitor within a certain amount of time. These can protect the original company in several ways. Firstly, they

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do not have to worry about an employee simply taking the job as a stepping stone to another job. The lower turnover of executives gives employees the feeling that the company is moving in the right direction and is a good place to work. Additionally, companies do not have to worry about losing ideas and other non-tangible assets to a competing company, saving the company money and making them more successful. The non-compete agreement is something all corporations should consider for employees for the protection of the company.

Conclusion

There are several aspects with the Mark Hurd case that can be analyzed. First, was his forced resignation necessary and why? Secondly, what are the legal ramifications of his quick transition to a competing computer company? Finally, who won and lost in this case? The resignation was a necessity for Mark Hurd and Hewlett-Packard. After failing to live up to the standards of which a CEO at a Fortune 1000 company should live up to, it was best to have the two part ways. Mr. Hurd should have properly disclosed all expenses in the correct fashion while maintaining a professional relationship with all colleagues. By failing to do this, Mark Hurd paved his own road out of town. The legal ramifications of his Hurds quick move to Oracle is something that other companies will take note of. Hurd had not signed a non-compete agreement that would prohibit him from moving to a competing company within a set period of time. Legally, he was in the clear, though a lawsuit held up the process to a point. He opted to pay compensation to HP out of

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court rather than deal with a lengthy court trial. There is no excuse for a corporation with as much resources and assets as HP to not have their high level executives signing agreements not to move to other companies. HP has too much to lose in that sense. Technology moves quickly. Ideas are imitated and replicated all the time. However, a successful company is the one that comes up with the idea or can manufacture it first. The movement of people can lead to the movement of ideas and the loss of the race to produce high quality technology. It appears that Oracle had the most to win in this situation. They were able to gain a reputable, successful high level executive and everything that he brought with him. His track record proved to be doing well and he would bring the positive results to Oracle. Mark Hurd was somewhere in middle in this case. He faced ridicule and his record is a bit tarnished after the allegations of sexual harassment and his improper use of company funds. He didnt come out looking as highly regarded as he had been before, though he was still able to move to a highly successful computer company. His reputation will always be about his tumultuous departure from HP and his quick turnaround at Oracle. HP comes out a loser in this situation. They can be partially blamed for losing their highly touted CEO to a competitor because of their failure to implement a non-compete agreement and inability to create an ethical corporate culture. Also losing from the Mark Hurd departure was the shareholders. Seeing the departure as a negative sign for the company, the value of the shares dropped immediately after the incident. The shares would continue to fluctuate and the shareholders would suffer the economic consequences of it.

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There are a lot of winners and loser and a lot to be learned from Mark Hurd and HewlettPackard. His resignation and HPs reaction to his actions is something that every human resources manager should pay attention to. The mistakes made are easily avoidable and can save a company financially and in the court of public opinion.

References Bohlander, G., & Snell, S. (2009). Managing Human Resources (15 ed.). Cengage Learning. Fried, I. (2005, July 19). Microsoft sues over Google hire. Retrieved March 28, 2011, from CNET News: http://news.cnet.com/Microsoft-sues-over-Google-hire/2100-1014_35795051.html Guglielmo, C., King, I., & Ricadela, A. (2010, August 10). Bloomberg Businessweek. Retrieved March 28, 2011, from Businessweek.com: http://www.businessweek.com/news/2010-08-07/hpchief-executive-

Steinberg, R. M. (2010). Did Mark Hurd Deserve to Be Fired by HP? Yes. Compliance Week, 7(81), 50-51. Retrieved from EBSCOhost.hurd-resigns-after-sexual-harassment-probe.html

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Valentino-DeVries, J. (2010, September 7). Analysis: the H-P Suit Against Mark Hurd. Retrieved March 2011, 28, from The Wall Street Journal: http://blogs.wsj.com/digits/2010/09/07/analysis-the-h-p-suit-against-mark-hurd/