By Ben Elgin By the end of 2004, the pressure in Hewlett-Packard's corner office
was almost unbearable. With Chief Executive Carleton S. Fiorina's
efforts to fix the $80 billion computing colossus stalled and tensions
building with the board, one of high tech's most powerful executives
began mulling an exit plan, BusinessWeek has learned.
Around the holidays, Fiorina held separate meetings with at least four
high-profile chief executives to glean advice on making a "graceful
exit" from HP (HPQ), according to industry sources.
These industry luminaries, approached by Fiorina at yearend business
conferences, included Cisco (CSCO) Chief Executive
John T. Chambers and Intel (INTC) President Paul
S. Otellini. During the conversations, Fiorina told the CEOs she was
feeling some pressure from HP's board and inquired about face-saving
ways to leave the company should she decide it was in the best
interest of shareholders, according to the sources. Chambers and Otellini didn't return requests for comment. A spokeswoman for Fiorina says it is "complete and utter fiction" that she talked to Chambers and Otellini about leaving and adds that Fiorina never contemplated leaving HP.
OVER AND OUT. It was a decision she didn't get a chance to make. On the evening of Sunday, Feb. 6, HP's board hunkered down with Fiorina in an emergency meeting held at Chicago's O'Hare Hyatt Hotel. As a light rain drizzled outside, the directors stewed over their star CEO's failure to execute
her ambitious plan for the company. In addition, directors were
concerned about the "board's inability to work constructively with
[Fiorina]," according to an HP insider. The next day, they asked
Fiorina to step down. And on Wednesday, Feb. 9, at 5 a.m. Pacific
time, HP stunned the world, announcing Fiorina's dismissal, ending her
five-and-a-half year stint atop one of the legends of Silicon Valley.
Despite the surprise announcement, the board's concerns about its
chief had been mounting for nearly a year. Sure, she had dazzled
directors and many investors with her passionate work in pushing
through the controversial merger with Compaq Computer in 2002. And the
immediate integration of the two companies bested expectations,
silencing even her fiercest critics. But by late 2003, investors began
shifting their focus from the Compaq deal to HP's ebbing position
against key competitors IBM and Dell. They bored in on the ragged
financial performance that led to the swooning stock price.
"[Fiorina's] good with marketing. She's a good speaker for the
company," says a former HP executive. "But this is a company that
doesn't need a statesman. It needs a hands-on operations person."
GROWING DOUBTS. The tide really began turning against Fiorina following HP's massive
profit shortfall in the third quarter of last year. That marked HP's
second miss in five quarters and further damaged the company's
credibility on Wall Street -- a major issue, since HP's stock has long
traded at multiples well below those of its competitors. Although
Fiorina fired three top sales executives for the miss, the board's
doubts about its CEO grew. At the same time, the board's proddings of
Fiorina to bolster HP's operations talent went largely unheeded.
As HP struggled to nail down its operations, some directors were
chagrined that Fiorina didn't move more quickly to strengthen HP's
position against Dell and IBM. For instance, although HP has gradually
built up its direct-sales efforts to better compete with
ultra-efficient Dell, some directors felt the company wasn't moving
fast enough, according to the HP insider.
In addition, HP balked at a major acquisition to bolster its
money-losing software business. In 2004, HP had considered acquiring
Veritas Software but didn't move quickly enough, according to current
and former HP execs. In December, Symantec (SYMC) gobbled up the profitable software company -- leaving some HP directors unhappy. "Things needed to make us more competitive in certain segments weren't being done," says the insider.
HEAVY BLOW. By November of 2004, HP's directors began holding periodic conference
calls -- without Fiorina -- to discuss their CEO's performance. And by the time of the board's January meeting in San Francisco, it enlisted
three directors to meet with Fiorina to discuss its concerns with her
performance. The trio produced a document indicating their concerns
represented the consensus of the entire board.
The ensuing board meeting, which was supposed to be an annual strategy
review, became focused on the performance of Fiorina and HP. And
during the meeting, directors pushed forward a plan to distribute some
of Fiorina's operating responsibilities to her key lieutenants.
Sources familiar with the reorganization plans say they're on hold
because of the management shakeup.
It was a heavy blow to Fiorina's credibility as the company's leader.
Just weeks later, she was out. It had become increasingly clear that
HP's need for a nuts-and-bolts operations whiz far outweighed the
benefits of a high-profile CEO. Elgin is a correspondent in BusinessWeek's Silicon Valley bureau