Case Study Analysis: HP’s
Boardroom Drama and Divorce
The
primary goal of a corporation is to create a significant return on capital to
shareholders, but there’s an underlying expectation that a set of
organizational ethics, governing body, and social responsibility is applied and
upheld. The board of directors and the CEO are at the helm of ensuring these
are established and adhered in fact; they have a legal duty to act in the
interest of the shareholders. Unfortunately, the many ethical breaches and
lack of oversight over the past ten years are indications of a severe lack of
consideration and respect of the rules of ethics in place at HP since its inception,
known as the HP Way. HP’s corporate leadership has not held up their fiduciary
responsibility to their shareholders. Example
after example will demonstrate how the board and CEO have failed to carry out most
of the obligations entrusted in them. It becomes clear that the organization
needs a major change that will shape up their unethical actions and a governing
body that will provide accountability and oversight of ethical compliance
within the organization. This is what is
suggested for HP to adopt in the proposed solution as well as what benefits it
would provide to the organization if implemented.
Background
The
blame for the destruction of HP’s reputation as one of the world’s most
successful technology companies, its stellar corporate culture, and it’s
shareholder value can be pinpointed first and foremost to the board of
directors, followed by its CEO’s. These
strategic leaders must perform their roles with a high degree of importance on
the economic, legal, ethical, and philanthropic responsibilities they have to
their stakeholders. These corporate
social responsibilities help strategic leaders to recognize and address these
expectations. A firm’s shareholder value
is at stake when one or all of these responsibilities are ignored as has been
the case at HP for over a decade with continual breaches in their own set of
core values known as the HP Way. Ethical
responsibilities require strategic leaders like the board of directors and CEO
to go beyond what is required by the law, embodying the full spectrum of duties,
values, expectations, and norms of its stakeholders, and to do what is fair and
just (Rothaermel, 2019). It’s near
impossible to adhere to corporate social responsibilities and ensure
stakeholder value creation without leaders who are dedicated to a durable set
of values.
The
company was once admired for its corporate social culture and core values known
as The HP Way. HP upheld these values
and conducted business with integrity, trust, and respect for one another since
its inception in 1938. The HP Way
consists of five core values (Apollo, B., 2011):
- Trust and respect for individuals
- Focus on a high level of achievement
and contribution
- Conduct business with uncompromising
integrity
- Achieve common objectives through
teamwork
- Encourage flexibility and innovation
These
core values haven’t been taken seriously by corporate strategic leaders over
the last ten years. Consider the
turbulence in the top executive office at HP, first in 2006 when a source
leaked sensitive information to CNET.
The board chair Patricia Dunn launched a covert, illegal investigation
on all board members and their families, resulting in the dismissal of 6
managers and two board members. Although
the company was not affected financially due to Herd’s success as CEO
(Rothaermel, 2011), Dun’s actions created distrust within the company. Her
actions disregard the very first of the HP Way values of having trust and
respect for individuals. Dunn also breached
the third value of conducting business with uncompromising integrity. This particular value clearly states the HP
people are to “be open and honest in their dealings to earn the trust and
loyalty of others, and people at all levels are expected to adhere to the highest
standards of business ethics and anything less is unacceptable” (Apollo, B.,
2011). The trouble in the office of the CEO was just getting started.
Again,
there was turbulence in the corporate leadership in 2010 when a sexual
harassment lawsuit against CEO Mark Hurd forced his resignation. The fiasco uncovered his dealings with a
former adult movie actress (Rothaermel, 2011). This conduct also violated the
third core value of the HP Way of conducting business with uncompromising
integrity. The particular reference here
is where it says people at every level are expected to adhere to the highest
standards of business ethics (Apollo, B., 2011). This wasn’t the last of the troubles in the
highest corporate offices at HP.
Again
in the fall of 2011 HP appointed Ray Lane as board chair, and Leo Apotheker as
CEO, based on the boards' influence of
groupthink without having ever met the two, and based on the suggestion of an
outside recruiting firm. During
Apotheker’s 11 months as CEO, the HP share prices dropped about 50%, which was
because he acquired British Software Co Autonomy for $11 billion even though
analysts warned was overpriced. The
warning was ignored, and HP lost $9 billion based on accounting
irregularities. Also, the board didn’t
heed to warnings of the Deloitte auditor (Rothaermel, 2011). This particular CEO debacle compromises three
of the companies HP Way values, including focusing on a high level of
achievement and contribution. I cite
this value because embedded within it calls for HP products/services to be the
highest quality and provide lasting value.
Neither the board or the CEO looked into the claims of the software
company being overpriced or the accounting irregularities. The second compromised value of conducting
business with uncompromising integrity was breeched because it sets the
expectation for people at every level to adhere to the highest standards of
business ethics. Knowingly putting the
company at risk and ignoring warnings about a bad business deal is not
operating with the highest standards of business ethics. The third vale,
achieving common objectives through teamwork was breached based on the team
being divided in the decision on the acquisition. But that’s not all; there’s more.
In
2011 Meg Whitman, a board director was appointed CEO because the board was “too
exhausted” from fighting to find a proper candidate for CEO. Whitman was a director during the failed
Autonomy acquisition (Rothaermel, 2019).
The board’s decision to appoint Whitman does not fit in line with its
value of focusing on a high level of achievement and contribution. Being “too exhausted” to follow the necessary
steps to select the candidate for CEO does not align with the “enthusiasm and
extra effort” that is called for when focusing on a high level of achievement
and contribution.
From
these several examples, we can ascertain that HP’s
corporate leadership has not held up their fiduciary responsibility to their
shareholders. Directors have a legal
duty to act in the interest of the shareholders. The board has failed to carry out several of
the functions entrusted on them. Overall, they have not ensured compliance with
the law and regulations, conducted thorough risk assessments and proposed
options to mitigate risks, provided guidance to the CEO in the selection,
evaluating, and approving significant strategic initiatives such as large
corporate acquisitions, selected and assessed the CEO (Rothaermel, 2019). They
need a governing body, an accountability mechanism that will guide them in
adhering to the HP Way.
Alternatives
When considering alternative actions
for how HP could’ve prevented the several ethics breaches, and how they can
avoid such damaging activities going forward, only one thing stands out above
all else, and that is, if organizations value and expect ethical behavior, then
employees are more likely to act ethically.
The ethical culture of an organization says a lot about what a company
values. Ethics codes like the HP Way are one way of articulating the values and
serve as a guide to attain an ethical culture. However, and unfortunately, many
organizations pay mere lip-service to these written codes. The code of ethics
does not guide behaviors or spell out how violators will be penalized (Mintz, S., 2017), which would explain why time and again
HP submitted to unethical behavior at the corporate level. Organizations are under scrutinization at all
times and are expected to adhere to ethical standards; otherwise, they cannot
expect employees to behave ethically. Unethical behavior can destroy the
reputation of the CEO as it has at HP.
To foster a culture of ethics in the organization, the board of
directors must have clear ethical expectations and must create a culture,
structure, and a system of controlling, encouraging, and protecting the values
and holding employees at every level accountable to them. The formal and
informal cultures need to be aligned for this to work (Rothaermel, 2019). When employees respect the rules of conduct
and feel fairly treated by leadership, they trust leaders and adopt the
company’s values as their own. Once that happens, ethics becomes embedded in
the workplace culture (Mintz, S., 2017). To facilitate this, a corporate governance mechanism should be in place that
monitors, controls, and provides incentives to strategic leaders, and should be
backed by a robust code of ethics, which ensures leaders and employees “walk
the talk,” and lead by example (Rothaermel, 2019).
Possible
Option and Proposed Solution
The
option I propose if for HP to create a separate ethics department, a governing body that will provide oversight of ethical
compliance within the organization.
Based on mounting evidence that the CEO or the board do not take the
purpose of the HP Way seriously, I recommend the company establish within or
source an agency to act as a constabulary to ensure strict adherence. A study on corporate ethics found that if
leaders don’t create a culture where everyone is motivated and able to speak up
about small things, they are not likely to speak up about abhorrent things. Corporate cultures that lack accountability
are a breeding ground for problems. Also, when leaders deliberately facilitate
a norm where employees address regular ethics concerns with peers, leaders,
direct reports and other departments, the organization wins. Performance improves, and the organization
protects itself from corruption (Grenny, J., 2014). The ethics department I am proposing would
serve as role models of the HP Way and be visible throughout the
organization. It would be even more porous
into the organization and effective to select ambassadors from every department
in the organization to be a member of this team. The ethics department would communicate
ethical expectations of the HP Way via word, actions, posters, the web site,
employee SharePoint, and ensure the ethics message is resounding and ubiquitous
around the workplace. The department will offer ethics training such as
workshops, seminars, and conferences that reinforce the HP Way. The ethics department will visibly reward
ethical actions and punish unethical ones.
They will also provide protective mechanisms for employees to discuss
ethical dilemmas, and report ethics breeches without the fear of admonishment (Mintz,
S., 2017). This proposed solution seems
the only viable option for HP to implement if they want to discontinue the
trend they’ve been on and renew their reputation. They could potentially once again be admired
for their corporate culture and become a success story.
Recommendations
and Conclusion
The general lessons
in terms of corporate governance and business ethics that can be drawn from
this case are the importance of accountability when it comes to creating an
ethical culture within an organization, and the disintegration that can happen
to shareholder value and the company reputation when a corporate governance
mechanism is not in place. Although HP
has a well-written set of ethics; the HP Way, that the company was once admired
for, the words have gone largely ignored for over a decade to the detriment of
the good name of the company and shareholder value. The principal goal of a
corporation is to create a return on capital to shareholders with the
underlying expectation that a corporate culture establishes organizational
ethics and social responsibility. The board of directors and the CEO are responsible
for ensuring these are implemented and adhered. As the ultimate guardians of
the firm’s human, financial, and reputational capital, corporate leaders need to
raise the bar and swap reactive approaches to misconduct with a proactive
approach ensuring integrity (Bagley, C. E., Cova, B., &
Augsburger, L. D., 2017). HP can make this happen by establishing a corporate
governance mechanism or business unit that oversees business ethics. One that monitors, controls, and provides
incentives to strategic leaders, and backed by a robust code of ethics.
References
Apollo, B. (2011).
5 timeless principles: Revisiting the HP way. Retrieved Apr 10, 2019, from
Bagley,
C. E., Cova, B., & Augsburger, L. D. (2017).
How boards can reduce corporate
misbehavior. Harvard Business Review, Retrieved from https://hbr.org/2017/12/how-boards-can-reduce-corporate-misbehavior
Grenny, J. (2014).
Why accountability is key to maintaining an ethical workplace. Message
to-maintaining-an-ethical-workplace/
Rothäermel, F. T.
(2019). Strategic management (Fourth edition, international student edition
ed.).
New York, NY: McGraw-Hill Education.
Mintz, S., (2017).
The role of management in establishing an ethical culture. Retrieved Apr 11,
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