The Boardroom

Ray Lane's Intrigue at Hewlett-Packard


Hewlett-Packard–the technology giant that has given the business media more boardroom drama than any other–has dismissed yet another chief executive officer. The firing of Leo Apotheker is hardly questionable. One cannot argue with the ouster of a CEO who destroyed nearly half the company’s market value. The choice of Meg Whitman as his successor, however, merits some controversy. Whitman’s lack of experience, both in the hardware sector and in running a company of the size and complexity of HP (HPQ), has made her choice as HP’s new leader a surprising one.

Governance critics insist that the board blew it by naming Whitman as the permanent replacement for Apotheker, rather than appointing an interim chief executive and taking the time necessary to conduct a proper CEO search. However, the HP board’s departure from “best practice” might be justifiable in the circumstances for three reasons:

1. An interim CEO appointment often creates uncertainty and politics within executive ranks–a huge distraction in a troubled company.

2. The board went through a formal CEO search process after firing Mark Hurd and is unlikely to unearth a different slate of candidates than those shortlisted the last time.

3. The term “permanent CEO” is almost an oxymoron at Hewlett Packard, a company whose board has fired three CEOs in six years.

Why Isn’t Lane Running Things?

What strikes me as perhaps more curious than Whitman’s appointment are some of the decisions that HP chairman Ray Lane made–and did not make–about his own role in company leadership as the Apotheker drama unfolded. Specifically, why didn’t Lane himself take over as CEO? It’s not unheard of for a nonexecutive chair to take the helm in the aftermath of a chief executive firing or resignation. The appointment at General Motors (GM) of Ed Whitacre to replace CEO Fritz Henderson after he resigned in December 2009 is one such example.

After all, Lane’s qualifications to serve as CEO are far more compelling than Whitman’s. Critics now bewailing HP’s lack of a “proper search” for Apotheker’s replacement would have been silenced: What better candidate could exist than a former chief operating officer of Oracle (ORCL) who spent the past year as Hewlett-Packard’s chairman?

So what, then, is Ray Lane seeking to accomplish by eschewing the CEO position while at the same time changing his title from nonexecutive chair to executive chair?

The difference between a nonexecutive and executive chair typically relates to the individual’s independence. Until now, Lane has been the quintessential nonexecutive chair at HP, an outside director who has never played any role in company management. Executive chairs, by contrast, are typically on the payroll and involved in running the company. They are most commonly found in two scenarios: family-controlled companies (Bill Ford at Ford Motor (F)) and situations in which a former chief executive remains on the board as chairman following a CEO transition (Eric Schmidt at Google (GOOG)). In both such instances, the executive chairman is essentially an “inside” director–namely, part of the management team. A lead or presiding director is typically appointed from among the outside, independent directors so that the board has independent leadership.

 

Executive Chair Raises Questions

Is this what Lane intends? To lose his status as an independent chairman and essentially go “inside” as executive chair, playing a more hands-on role in corporate strategy and other leadership issues, while stopping short of serving as CEO himself? If so, his approach gives rise to two interesting issues.

The first involves the choice of CEO to work with Lane in his role as HP’s executive chair. Not all chief executives can handle a hands-on chairman. But Meg Whitman has a history of working in exactly this type of leadership model: Throughout her tenure as CEO of EBay (EBAY), she worked with company founder Pierre Omidyar, who served as executive chair. This may be one of the factors that played heavily into the board’s choice of Whitman.

The second involves the appointment of a lead or presiding director, which HP confirms it is planning to announce now that Lane is becoming executive chair and will no longer be considered independent of management. Industry watchers wonder: Among the outside, independent directors serving on HP’s board, which would be strong enough to stand up to Lane and Whitman in the event that HP’s downward spiral continues?

For all the media attention focused on Whitman’s appointment as chief executive, it is Lane’s decision not to serve as CEO–and to transform his role into that of executive chair–that may yet become the most interesting factor in HP’s continuing boardroom drama.

Bev_behan
Beverly Behan has worked with more than 100 boards of directors over the past decade on issues including CEO succession planning, board engagement in strategy, board and director evaluation and general consulting to boards and CEOs on maximizing board effectiveness. She can be reached through her website: www.boardadvisor.net.

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