Thursday, August 12, 2010

Oldtimers think Carly is when HP went over the cliff -- and certainly her Public Relations engine was in overdrive. But most folk we talk to think she started the corporate raiding of the till. The Proxy Statements on file show a different story.

There are two meaningful comparison sets of years. 2000 was the height of the boom; 2001 the bottom. 2008 (before the Lehman collapse) was the "best year", 2009 a disaster. I left out imputed stock option values, since those are remarkably hard to understand, thanks to your Federal Government's arcane FASB rules. I figured CASH PAID OUT is a good comparable.

In the 'good year comparison', Hurd and team made 700%, 266%, 1790%, and 1920% more money for CEO, CFO, PC Chief, and Services Chief than the Fiorina team. The next year for each, all took 'cuts' on both teams -- but for 2009, Hurd and team made 1400%, 368%, 970% and 1011% more than the comparable Fiorina team. The employees didn't fare nearly as well.

The Board did better too, averaging 320% more in 2009 per director than in 2001. Each full-time director, for a few meetings per year, made on average $328,000. Pretty good hourly rate.

To the best that I can figure, Mark Hurd's severance pay, for a "profound lack of judgment" that caused IMMEDIATE RESIGNATION, exceeded John Young's lifetime earnings. Young, CEO for fourteen years, gave 32 years to HP, and never had, so far as we know, any sexual harassment suits filed against him. He grew the company by a factor of sixty from his first organizational impact time until he retired WITHOUT ACQUISITIONS of consequence; Hurd grew it by a factor of 1.4, buying all of the growth in acquisitions, and the amount that he added in profit was less than the amount of R and D that he took away. The amount of debt that he added, to a company that never had any, is hard to calculate on a percentage basis.

But he did take away something akin to $150 Million in personal earnings (what some of the current HP employees have called "theft") in the past three years. WHEW. What has this Board been doing? What IS this Board doing?


Steve said...

Chuck, thank you for the grounding. Like one of your previous posters mentioned: Members of this board chose Carly & Mark--what can we expect different in the next CEO? What with past performance being an indicator and all, probably more of the same. I wonder if Al "Chainsaw" Dunlap is available? His book, "Mean Business" may go into reprint.
I and many HP'rs are crossing our fingers, but we're still papering the Valley with resumes. Just in case.

Dillon said...

The board must have turned a blind eye after their modestly big increases

niv06290 said...

Chuck - would love to know who would be the best choice for the CEO role - and the Chairman position, for that matter. Thanks

chuck said...

Those are probably the questions of the hour over at HP. Shareholders voting for insiders seem to favor Bradley and Donatelli; employees seem to favor Livermore and maybe VJ (Viomesh Joshi). All seem to fall short in most discussion I've heard.
I don't buy the idea that HP cannot afford another outsider; I think there are many well-qualified folk who would be sympatico with "the HP Way" and with solid business acumen and leadership. The "big names" though often are the egos, or already sufficiently employed. Recall the Cookie Guy at IBM -- he was a surprise pick, but a very solid one.

Andrew said...

Correct me if I am wrong, but Hurd reduced R&D spend by 700Mn (-20%) over his 5 years, increased net income from 2.5Bn to 7.6Bn (+300%). Where did you get your stats? If you are claiming organic growth then I would would love to see th breakdown, please post that for us all to see. One other point, he increased shareholder value by 140%....and he does work for the shareholder, right?

chuck said...

Andrew, thanks very much for a thoughtful and pertinent post! This is one of those cases where it is "perspective" that gives us a different view. Your numbers, at the primary level used by most analysts, are correct, and my analysis is "inferred". In fact, your analysis is the ONLY way that I've ever seen it in print, which is why I feel so strongly that we need to 'complete the picture'

The reasoning for the R&D statement as well as "shareholder value" are carried in later posts; the basic points are as follows:

My calculations re the swap of R&D vs profit dollars use the 2004 fiscal year data as the base year, since that was the last data that Fiorina should be measured against (she was bagged 2/7/05). That data is $3.50B profit, 4.4% net, with R&D 4.5%. You appear to be using the 2005 data, which really was Hurd's year, not Carly's.

So the way I figured it, Hurd did 2.2% R&D for first half 2010, and 6.7% net profit, a sum that totals 8.9% of revenue. Carly did 4.4 and 4.5, which totals 8.9% of revenue. So, I say Hurd got 100% of his profit gains by robbing R&D.

I left out the fact that he sold off most of the "owned" real estate to gain cash, then mortgaged the future by tripling the long-term debt and shifting the balance sheet considerably. He incurred an additional $9.3B ($10.6B if you use the 2005/2009 numbers) in long-term debt (for a company that never ever had any debt, a legacy from Bill and Dave's extremely frugal fiscal upbringing).

With respect to "boosting Shareholder value" -- all of the "boost" was finished thirty-nine months before he was deposed. Granted, the 2008 financial meltdown happened afterward, but his 'boost' all came from erasing the Carly ill will and the market-perceived 'win' against Dell that was well underway (and Dell's financial shenanigans weren't yet public). Apple, with innovations, did fine through the same period. Cisco, Intel, Oracle, Microsoft, and IBM all did better during the same 39 month period that Hurd supposedly 'did great'. Dell did not.
But fundamentally, I think that Wall Street and Milton Friedman sold us a bill of goods. Business has to be about more than shareholder value, it must (and increasingly has ignored) stakeholder value. See for example Andy Grove's trenchant article in BizWeek this summer about American businesses selling out American jobs in search of profits, and Grove's admission that he too did it without considering the impact on a country. Triple bottom line concerns are another phrase now gaining some currency. Not to be a fullblown environmentalist, it is clear even to some conservatives that extractive companies ultimately build ill will and economic distress, however much the short-term gain. And that was Hurd's uniquely anti-HP thesis -- boost profits now at the expense of tomorrow. Shortsighted, narrowminded, and hugely popular on Wall Street. It makes it harder for the "next guy" to put the train back on the tracks, never mind posting "improving numbers".