On Friday, the stock market shook with the news of the announced resignation of Mark Hurd, CEO of Hewlett Packard. The man credited with reinvigorating Hewlett Packard resigned as chief executive of the technology giant after an investigation of his relationship with a female contractor. That investigation revealed that he violated the company’s business standards.
On Friday, HP expanded that Mr. Hurd, 53 years old, didn’t violate the company’s policy regarding sexual harassment. He had however, submitted inaccurate expense reports intended to conceal what the company said was a “close personal relationship” with a female consultant. See H-P Chief Quits in Scandal
In a memo to all HP employees, acting CEO Cathie Lesjak provided more detail:
“Mark had failed to disclose a close personal relationship he had with the contractor that constituted a conflict of interest, failed to maintain accurate expense reports, and misused company assets.” See H-P’s Hurd Reaches Settlement with Contractor
The Wall Street Journal later learned that Mr. Hurd and the contractor reached a settlement on the sex harassment claim.
Some Thoughts on Corporate Culture
A mystique surrounds CEOs of large, publicly traded corporations. The CEO of such a corporation is as close to a feudal lord as one can get in 21st century America. A CEO is surrounded by a myth making machine. A VP of Public Affairs burnishes the image of the CEO as powerful and successful, minimizes setbacks and trumpets the smallest of victories. The CEO can access airplanes and limousines, play golf at the best clubs, dine and stay where he or she chooses with little or no oversight. Backed by corporate political action committee contribution funds, he or she has instant access to Senators, Congressmen and even the White House. A fawning and largely uncritical cadre of financial media pundits and Wall Street analysts clamor for opportunities to meet and interview a CEO.
Since corporations are a hierarchy and a CEO sits atop the organizational pyramid, subordinates are generally fawning. Fearing unemployment, few want to tell the CEO (the emperor?) he or she is wearing no clothes, or should be staying clothed at critical moments.
Absolute Power Corrupts
“Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men.” Lord Acton
With few to hold up a critical mirror, CEOs eventually start to believe their own press clippings and may even succumb to believing in their own infallibility. Forgetting that it is often the office and rank that is being saluted, not necessarily the occupant, the tendency is for the CEO to believe they can do no wrong.
Blind spots eventually develop. As with CEO’s, we have seen it with our more notorious Congressmen who believe that the tax laws do not apply to them, it is alright to have sex with subordinates, or obtain below rate mortgages. Eventually comes the belief that the “rules do not apply to me.” To their dismay, they find out often publicly and harshly that rules do apply.
Some Final Thoughts
I am always amazed when stories like Mr. Hurd’s reach headline status:
- Why do CEOs risk so much for so little? Mr. Hurd made $24.2 million dollars in 2009 and was slated to make $100m over the next three years. How much could the dinners and trips have cost Mr. Hurd if he had paid from his own pocket?
- Companies have strict policies on sex harassment and expense reporting. Numerous high level executives have been publicly disgraced and lost their positions for such violations. Mr. Hurd is a very smart man. Why did he not learn from others’ experience?
- I have lectured on the EEOC Sex Harassment Guidelines. The best defense in the workplace is to avoid dating any subordinate or contractor. Once any personal relationship develops and then breaks off, it is difficult to prove that no harassment occurred in this unequal power relationship.
- Why did HP’s internal audit function not find the expense report abuses and report them? Why did it take the complaint of the contractor for the Board to order an investigation?
- Why did Mr. Hurd receive over $12m in severance pay when the Board found expense reporting improprieties? Isn’t that behavior a “for cause” termination? (Note –if Mr. Hurd had a contractual right to severance regardless of this behavior, that itself is problematic.)
Not all CEOs behave like Mr. Hurd. Certainly, and in my experience, many are ethical and hardworking. But unfortunately, Mr. Hurd’s tale occurs far too frequently in corporate America.
Outside corporate governance groups have mindlessly over focused on pay practices, staggered voting and other relatively minor issues. Focus should be on close corporate Board of Director supervision of CEO and senior executive behavior. Aside from all the logical and obvious reasons for eliminating this behavior is the other external one as well: the market generally reacts swiftly to this chicanery. On Friday, HP stock was down a significant 9.7 %. Following the Hurd can be quite costly.
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Tags: EEOC Guidelines, Hewlett Packard, Mark Hurd, sex harassment
