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2008 The Rise and Fall of : An Ethical Case Study Craig E. Johnson George Fox University, [email protected]

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This Article is brought to you for free and open access by the School of Business at Digital Commons @ George Fox University. It has been accepted for inclusion in Faculty Publications - School of Business by an authorized administrator of Digital Commons @ George Fox University. For more information, please contact [email protected]. The Rise and Fall of Carly Fiorina

An Ethical Case Study

Craig Johnson George Fox Univeniity. Newberg, Oregon

This study examines the controversial tenure of former Hewlett-Packard (HP) CEO Carly Fiorina using the ethical leadership constrnct. Fiorina rose quickly through the ranks at AT&T and Technologies to become the most powerful businesswoman in the United States when she took the helm at HP in 1999. She prevailed in a bitter over the firm's merger with . However, she was abruptly fired in 2005. Both the CEO and members of the HP board failed as moral persons and as moral managers, leading to Fiorina's ouster and the subse· quent HP spying scandal. HP went from one of the world's most admired companies to the target of criminal inves­ cigations and publ.ic criticism. Implications for leadership ethics are drawn fromthe experience of HP. and limitations of the ethical leadership construct are identified.

Keywords: CarlyFiorina: celebrityCEOs; ethical culture; ethical leadership construct; Hewlett-Packard;pre-texting scandal

1:u-leton (Carly) Fio1ina was the most powerfulbusi� factors, in this article, I argue thather failurecan also be C nesswoman in the United States at the tum of the explained from an ethical vantage point. Fionna has millennium (Nocera, 2006; Sellers, 1998). fn 1999, she never been charged with a crime, as were many of her was hired as the CEO of technology giant Hewlett­ CEO contemporaries likeJohn Rigas. Hank Greenberg, Packard (HP), becoming the first woman to head a Dow Dennis Kowslowski, and Mrutha StewartYet. the story 30 company. She statTed in company commercials and of Carly Fiorina is a cautionary tale, revealing ethical joined with entertainment stars like Matt Damon, Ben shortcomings not only on Fionna's part but also on the Affleck, and to promote HP products at part of HP boardmembers. electronicsshows (Stone. 2005). Her imageappeared on the covers of business magazines and she was a regular at the World Economic Fomm in Davos, Switzerland. A Meteoric Rise and Fall She became known by her first name only, like Michael Jordan and Mrutha Stewart. To HP employees and out­ Few could have predicted that Carleton Fiorina siders alike,there was only one "Carly." would become one of the most visible and int1uential In 2005, the HP fired Fiorina. corporate leaders in America (Burrows. 2003). The Yet, both Carly and HP continued in the national daughter of a law professor, Fiorina attended Stanford spotlight. Fiorina published a memoir, Tough University, majoring in medieval history and philoso­ Choices, and appeared on 60 Minutes and on college phy. She was a serious student who showed little of campuses to defend her perfom1ance at HP. Fiorina's the dynamism that would later make her a charismatic successor as board chair, Patricia Dunn, was accused leadet� She abandoned her plans to become a lawyer of ordering investigations into board leaks that vio­ after one semester at UCLA Law School and earned lated state and federal law (Robertson, 2007a). an MBA at the University of Marylandinstead. Once What accounts for Cfu-ly's fall from the heights of she settled into a business career, she quickly became corporate America? A number of explanations have a superstar. Fiorina entered AT&T as a low-level sales been offered, including Fionna's lack of operational manager and soon drew the attention of top manage­ skills, mru·ket conditions, recalcitrant employees. and ment. She took on tough assignments and rapidly gender bias. Although all of these may be contributing became "one of the great salespeople of her industry" (p. 95), rising to become president of North American outsider to lead the company (Anders, 2003). Soon, sales. Fiorina played a key role in AT&T's spin-off of Carly Fiorina emerged as the leading candidate. Lucent Technologiesand was named to head Lucent's Unlike Lew Platt, a quiet individual who largely sales and marketing group. The firm's revenue and shunned attention,Fiorina was media savvy. She epit­ stockvalue rose dramatically during hertime there. In omized the "celebrity CEO." Celebrity CEOS are 1998, she was firstnamed as Fortunemagazine's most bigger-than-life figures often called upon to rescue powerful femaleAmerican executive. She continued organizations. They enjoy the limelight, acting more to top this list throughout her tenure at HP (Loomis & like rock stars than traditional business executives Ryan, 2005). (Khurana, 2002; Sloan, 200 1; Varchaver, 2004). At the same time Lucent stock was soaring, HP Fiorina had never run a corporation and came out of was losing some of its luster. The company, founded a different industry. Her expertise was in sales and by and in 1939 , was one marketing, not in operations. of the first to offersuch benefitsas profitsharing, flex To lure Carly to HP, the board offered a compensa­ time, catastrophic insurance, and tuition assistance to tion package thatincluded $65 million in stock options employees. Founders Bill and Dave believed that the and restricted stock, a $3 million signing bonus, and company made money because they were good to a $I milJion annual salary with a $1.25 million to their people. The company's strong culture was based $3.75 million annual bonus. She also received more on a set of values known as the "HP Way." These than $36,000 for mortgage assistance, a relocation principles included treating everyone with respect, allowance, and a contract that not only allowed her to sound finances, trust in employees, technical excel­ use company planes for personal use but encouraged lence, teamwork, thrift, humility, and hard work. her to do so (Burrows, 2003). This package dwrufed Following these principles paid off handsomely. anything offered to her predecessors. LewPlatt stayed According to journalistPeter Burrows (2003). on as an advisor to ease the transition and Richard Hagbom, founder of HP's printer business, agreed to HP had been wildly successful. It had never suffered act as board chair. Hagborn's strengths-his knowl­ so much as one annual loss in 63 years. But what edge of HP and operational skills-were to help com­ made HP a management icon was how it achieved pensate forFionna's weaknesses. those results. Fordecades, the company had balanced The new CEO's arrival generated a great deal of stellar financial performance with unquestioned excitement in the media and among employees at HP. integrity, fromhow it kept the books to how it treated After her hiring was announced at a major press con­ its employees and customers. It had plowed millions ference, Carly conducted a whirlwind tour of HP into the communities in which it did business, not only out of charity but out of a progressive self-inter­ facilitiesto introduceherself. Business writers wrote est in keeping them strong. Put simply, it seemed HP of the new energy she brought to the moribund com­ had figured out the magic formula for how to run a pany and how she was going to take the firm in a company. Everyone won-investors, customers, badly needed new direction (Burrows & Elstrom, managers, and employees. (p. 14) 1999; Hardy, 1999). To many employees, Carly sig­ naled a welcome change, and a number of women By the late 1990s. critics both inside and outside the looked to her as a role model. company believed that HP had Jost the magic fom1u1a Fiorina believed that the HP Way was a major described by Burrows, Employees expected regular cause of the company's mediocre performance. She bonuses whatever their level of effort. HP was no longer treated workers who clung to the HP Way as the a technical leader but had evolved into a huge bureau­ opposition. Their devotion to the past put the fim1 at cracy resistant to change (Anders, 2003). It periodically risk. For the company to move forward, those who missed earnings projections and its stock price lagged resisted change would have to be removed. "If one­ behind high-tech rivalslike and . quarter of the people in HP don't want to make the Concerned that the company was becoming unwieldy, journey or can't take the pace," she told a repo1ter, board membersspun off the test and measurementbusi­ "that's the way it has to be" (Malone, 2007, p. 378). nesses into a new firm called . Fiorina instituted three changes, in particular, that CEO Lew Platt agreed to step aside. had a major effect on HP's culture. First, she shifted There was no clear internal successor to Platt. so priority from nurturing employees to financial perfor­ the board hired an executive search fim1 to locate an mance. Financial results (sales and revenue growth, stock price) became the primary value under her lead­ betrayed (HP manager, personal communication, July ership. In one of her firstmeetings with her top man­ 15, 2007). How the layoffs we.rehandled also under­ agers, Fiorina interrupted a presentation to say, "Let mined Fiorina's credibility. Previously, frontline me make something very clear. You will make your managers decided which employees to cut. This set of numbers. There will be no excuses. And if you can't reductions came from the top of the organization make your numbers, I. will find someone who can" instead and seemed to have no relationship with per­ (Burrows,2003, p. 141). She was more concernedwith formance. Cms were across the board and involved revenue growth and earnings than wereher predeces­ both high and low producers. Managersgot scripts to sors. Under previous leaders, reporting quarterly earn­ read to those who were affected. Laid-offemployees ings was routine. Not so under Carly. She and a team only had a short time to clear out and say their good­ of advisors pored over the numbers, tryingto put them byes. This may have been common practice at other in the best light. Whereasthe company's founders were companies, but not at HP (Anders, 2003). conservative, believing it better to underpromise m1d A survey of 8,000 employees revealed widespread overdeliver, Fiorina continued to promise double-digit unhappiness about poor communication and poorly sales and revenueincreases evenin the faceof the eco­ implemented decisions. This was a complete reversal nomic downturnof2 000-2001(Nee,2001). of earlier surveys, which found that HP had some of Carly's second majorchange initiative alteredHP's the highest employee satisfaction scores in corporate reward metrics. The CEO replaced HP's profit-sharing America (Burrows, 2003; Malone, 2007). Some plan with an incentive program that would provide workers booed the CEO at company meetings. The a bonus to all employees if the company hit its finan­ company electronic bulletin board was shut down cial targets. Salespeople, who had been salaried, now after employees used this forum to attack Fiorina. earned commissions based on individual sales. Employee dissatisfaction took the fom1 of active Commissions were handed out twice a year to keep the resistance in 2002. Carly launched merger talks wid1 sales force from "coasting" until the last quarter Compaq, a move that would add 65,000employees and (Burrows,2001 ). increasethe company's presence in the computer mar­ Fiorina's third cultural change focused on structure. ket. Current and past employee stockholders largely In thepast, divisions at HP operated largelyas indepen­ opposed the merger. They doubted that HP's culn1re dent businesses focusing on the development and sale could survive the influx of so many new workers of particular products. This structure kept operating {Malone, 2007). Their champion was board member units smaller to maintain the finn's person-centered Walter Hewlett, Bill Hewlett's eldest son. The board culture (Malone. 2007). Carly reduced 83 units to 4. pushed forthe Compaq deal over Hewlett's objections. Two "back end" units manufactured . print­ An ugly, highly publicized proxybroke out. Fiorinadis­ ers,and imaging equipment. These units then turnedthe missed Hewlett as "an academician and musician" in a products over to two "front end" units that targeted letter to stockholders. Information about board deliber­ either consumers or cmporations (Burrows, 200l ). ations was leaked to the press, which would later Within a year, Lew Platt left HP, complaining that promptFiotina to launch an investigation to identify the the new CEO wasn't listening to his advice. Board source(s). At a crucial junction in the proxybattle, she chair Dick Hagbom stepped down and Fiorina talked to investment managers at Gem1any's Deutsch assumed the roles of both CEO and board chair. Her Bank (who would earn$2 million in feesif themerger biggest supporter at first, Hagborn would grow went through) to win their support. Bank officials are increasingly concerned about Carty's shortcomings not supposed to consider existing financial relation­ and later worked to remove her (Malone, 2007). ships when voting compm1y shares, and Deutsch Bank Company cutbacks in 200 l marked a significant Jater paid a $750,000 fine to the Securities and downturn in the relationshipbetween Fiorina and her Exchange Commission (SEC), which regulates U.S. workforce. First, she asked employees to rake a vol­ financial markets(Burrows, 2006).The merger passed, untary pay cut or time offwor th up to I 0% of their but only by a slight majority. Hewlett then unsuccess­ salary (Carly also passed up a $625,000 bonus). fullychallenged the results in comt. Eighty-six percent of the workforce complied, 2004 marked the last full year of Carly'stenure. By although they were told that the voluntaryreductions this point, HP stock had lost half of its value. Dell did not guarantee that there would be no further lay­ began to eat away at HP's highly profitable printer offs. Still, when HP then instituted the biggest business (Elgin, 2005). The business press, which had in its history shortly thereafter, many workers felt once lauded Fiorina, began to complain about her lack of operational skills and failure to chart a coherent reporter. For his part, Keyworth denied sharing any direction forthe company. Employee moralecontinued confidential or damaging infom1ation (Richtel, 2006: to drop. TheCEO and her board sparred over appoint­ Waldman & Lublin, 2006). ments to head divisions of the company, plans for fur­ Venture capitalist Tom Perkins resigned in protest ther reorganization, and suggestions that she hire a over the spying tactics and the treatment of his friend . Issues came to a head in the Keyworth (Foley, 2006). Perkins then pressured the third quarter when thecompany badly undershotearn­ HP board (which initially kept silent about the leak ings projections and it looked like Fiorina was sacrific­ investigation) to reveal why he quit. ing others to cover for her mistakes. (She fired three When detailsabout HP's investigativetactics becan1e executives in a 5 a.m. phone call for failing to meet the public, Dunn defended her decision to launch the probe numbers.) Theboard removed Carly in February 2005. in responseto thedisclosure of confidential infon11ation, providing her with nearly $28 million in severancepay arguing that the leaks had the potential to affect HP's (Loomis & Ryan, 2005). Employees celebrated her stock price and that of other publicly held companies. departure. At HP's Boise facility, employees distrib­ However, she claimedthat she didn't authorize theques­ uted Hostess Ding Dongs to announce, "'The witch is tionable methods (Waldman & Lublin, 2006). Later, dead" (Malone, 2007, p. 386). Four pension funds Dunn was forced out of her post as board chair and holding HP stock filed a lawsuit claiming that the Congress investigated. TI1e fom1er board chair, HP's board had violated company policy by authorizing ethics officer,and two private investigatorswere charged excessive severan.ce benefits without shareholder with identity theft and fraud. Dunn was acquitted and approval (Marquez, 2006). her codefendants pled guilty to misdemeanor charges The board selected from NCR to be (Robertson, 2007a). Thecompany paid a $14.5 million Fionna's successor. In many respects, Hurd was the fine to the State of . The SEC found that HP "UnCarly" (Hardy, 2007). The new CEO avoided the illegally concealed the reason that Perkins had resigned spotlight, turning down most interview requests and from the board(Robertson, 2007b). avoiding technology shows (Lashinsky, Burker, & For a company long known for its excellent reputa­ Kaufman, 2006). Instead of traveling to the World tion, the pre-texting scandal markeda new ethical low. Economic Forum, he spent a day working at a local Edward Whitfield (R-KY), chair of the House Energy Best Buy to leam how customersview HP products. He and Commerce subcommittee that investigated the has restored the fim1's divisional structure to foster scandal, summed up the firm's problems this way: "For accountability and doesn't intimidate managers, believ­ thehighest-ranking officials of a company like Hewlett ing that intimidation keeps them from doing their best. Packard to beaware of and seemingly approvethis kind Under Hurd's leadership, the company has overtaken of activity J do not think speak'> well of their value sys­ Dell as the largest PC manufacturer and its stock price tem or their culture" (Nakashima, 2006, par. 24). has soared (Liedtke, 2008). Hurd was also tainted by the scandal. He admitted New board chair, Patricia Dunn, started a second to receiving information on the investigation but round of investigations of board leaks in 2006. driven claimed that he left the details up to Dunn. He apolo­ in part by distrust and conflict between directors. gized for what had happened, pointing out that the Private investigators secretly spied on board members board had lost sight of company values. The CEO and gathered extensive background information on then appointed a former federal prosecutor to gather reporters and their spouses. They also obtained phone facts on the way that HP conducts investigations. He records of boardmembers, employees, and jt1umalists began ethics training for executives and directors as under falsepretenses (a process referred to as "pre-tex­ part of a companywide ethics effort(Darlin, 2007). ting") and tried to install spyware on reporters' com­ puters (Nakashima & Noguchi, 2006).Fo nner Reagan A Failure ofEthical Leadership science advisor George Keyworth eventually admitted to being the source of the leaks and left the board. The business and popular press blamed Fiorina's Earlier, the board had asked Keyworth to be a liaison dismissal on poor execution, describing her as a to the media, sharing information about company leader who was better at creating and selling her developments. Fellow board members accused vision than at running day-to-day operations. Keyworth of going beyond his mandate by leaking However, this analysis doesn't go far enough. First a details about private board discussions to a CNET leader's success or failure depends as much or more on moral reasoning as it does on strategic thinking more self-centered than othercentered. In particular, (Paine, 1996). Billions were lost at Enron, Quest, theCEO seemed to lack threeimportant leader charac­ Marsh & McLennan. Fannie Mae, AIG Insurance, ter traits: compassion, integrity, and humility. and other finns because leaders engaged in unethical behavior and encouraged others to do the same. Compassion. Compassion (kindness, generosity, Second, focusing exclusively on Carly Fiorina's per­ love, and concern) describes an orientation that put� fonnance overlooks the important role played by the others ahead of the self (Peterson & Seligman. 2004). board of directors in this narrative. Ethical leaders exercise power on behalf of followers: The ethical leadership construct provjdes one unethical leaders pursue selfish ends. Coworkers at framework foranalyzing the behavior of both Fiorina Lucent and at AT&T describe Carly Fiorina as a com­ and the HP board of directors. Many discussions of passionate leader who brought in food for those who ethics arenonnative, outlining what leaders should do. worked late and would offer to put up coworkers and In contrast, the ethical leadership construct is a social guests at her house if the airport closed during bad scientific approach to ethics and leadership that weather. She appearedmuch less compassionate during describes the behavior of ethical leaders. Trevino, her stint at HP. To begin, she came to the company with Brown, and their colleagues (Brown & Trevino, 2006) a contritct that appearedto put her needsfirst (although defineethical leadership as "the demonstrationof nor­ she claims that she lost $85 million when she left matively appropriate conduct through personal actions Lucem). Once at HP. Carly put significant distance and interpersonal relationships. and the promotion of between herself and the workforce. Bill Hewlett and such conduct to foJJowersthrough two-w ay communi­ Dave Packard popularized theconcept Management by cation, reinforcement, and decision-making" (p. 595). WanderingAround (MBWA).They would regularly ta1k According to this definition, the practice of ethical to engineers, for example,

Carly Fiorina can best be categorized as an ethically standing leaders in the work of Jim Collins (2001) . neutral leader (Trevino et al.. 2000). There is plenty of Leaders of great companies. according to Collins, evidence that she was perceived, fairly or unfairly, as deflect credit for the success of their organizations to others, shun the spotlight, and live modestly. Morris, At Lucent, Fiorina also believed in setting high Brotheridge, and Urbanski (2005) define humility as sales targets to drive up the firm's sales price. Under (a) a realistic appraisal of the self (of strengths and her direction. sales managers used a varietyof tactics weaknesses); (b) openness to new ideas and knowl­ to build sales, includingloosening credit tenns, pres­ edge; and (c) tmnscendence-recognition that there suring customers to buy immediately so that sales are greater forces at work and that followers have could be booked in the current quarterrather than the much to contribute. next, and vendor financing-loaning up to the entire Lack of humility may well be the single most purchase price to dot-com companies. Many of these important contributor to Carly's fall from power. In dot-com firms went bankrupt without repaying her memoir, Fiorina (2006)notes that she turneddown the loans. Unethical sales practices were a major many requests forinterviews. Yet, there is little doubt contributor to Lucent's financial woes (Burrows, that she enjoyed the media attention. Her publicity 2003). By late 2002, 100,000 employees were efforts, including her appearancein HP commercials, laid off and its stock sank to $ l. The SEC accused seemed to promote Carly more than HP. Furt11en11ore, Lucent of improperly booking $1.l billion in rev­ she failed to demonstrate realistic self-appraisal, enue in 2002. The finn had to pay creditors of openness to new ideas, or a sense of transcendence. Winstar Communications $224 million for pressur­ Fiorina was extremely confident in her abilities. For ing the company into buying unneeded telecommu­ example, she rejected boardsuggestions that she hire nication ec1uipment (Gold, 2005). a chief operating officer, saying at one point that "a At HP, there is evidence that Carly's pressure to CEO had better have his or her hands on the wheel" make the numbers undermined the firm'sethical stan­ (Loomis & Ryan, 2005. p. J 00). (Her refusalto a..,kfor dards. Salespeople began to engage in "channel help was a key factor in the board's decision to fire stuffing"-offering discounts or other incentives to her.) A top-down communication style discouraged get a buyer to purchase more of the product than they feedback and devalued the input of employees. Until had originally planned. This practiceessentially books the end, she seemed to think that the fateof HP rested future sales in the current quarter. Channel stuffing entirely on her shoulders. She apparently made no boosts quarterly results but drives down long-tenn effort to groom a successor and drove a number of tal­ demand because the customer now has a large supply ented executives away, including many from Compaq of the product. It encourages accounting tricks and (Elgin et al., 2005� Nocera, 2006). oftenleads to unprofitable sales. Carly didn't actively Carly fell short where the company's founders promote the practice at HP but didn't discourage excelled. Bill and Dave could be gruffand demanding it either, calling channel stuffing "a technical term" but were seen as compassionate at heart They ago­ (Burrows,2003, p. 169). Analysts, who had long looked nized over layoffs and, according to company lore, to HP as a model of integrity, began to question HP's would apologize forangry outbursts. They created one quarterly reports (Elgin et al., 2005). of the most humane workplaces in the United States. Changing the reward and evaluation systems and The founders also served as models of integrity. HP corporate structure also had negative ethical conse­ products were expensive but they were dependable. quences. Individual rewards undern1ined HP'scollabo­ WaU Street could trust the numbers that Hewlett and rative culture that emphasized teamwork. The focus Packardpresented to analysts (Malone, 2007). FinaUy, shiftedfrom selling more profitableproducts that would Bill and Dave were humble to a fault, serving burgers benefit the company to selling low-margin items to at company picnics, d1iving old cars, and showing up boost personal income (Burrows,2003). Many employ­ at local hardware stores on the weekend. ees felt betrayed when bonuses were denied, further Not only was Fiorina seen as self-centered, she undennining tmst and cooperation. Consolidating divi­ also fell short as a moral manager. Press accounts sions increased Carly'spower. CEOs of largeorganiza­ mention few of her ethical initiatives. She focused tions are always powerful and intimidating, but Fiorina instead on other priorities like increasing earnings was more so than most. She would, as noted earlier, use and stock price, which made her appear unconcerned her power to intimidate followers (Kramer, 2006. ) about traditional HP values like concern for people, Employees were reluctant to challenge the CEO, respect, tmst, and cooperation. Fiorina put HP at eth­ remaining silent about their doubts about her plans. ical risk through her obsession with making the Fear and silence are warning signs of possible moral numbers. Just how much risk can be seen by the near failurebecause they prevent followersfrom speaking up collapse of Lucent aftershe departed for HP. when they note ethical misconduct (Jennings, 2006). The Board: Shunning Ethical power if he had stayed as board chair. Instead. he Responsibilities and Sanctioning stepped out of this role. Other evidence of lack of Criminal Conduct oversight includes the factthat the board never met to discuss the Compaq merger without Carly being In contrast to Carly Fiorina, who is best classified present Directors also boosted her potential bonus as ethically neutral. HP directors can best be from $3 million to $9 million in 2001, despite the described as unethical. They demonstrated significant company's erratic performance and when the com­ weakness both as moral persons and as moral man­ pany was engaged in the largest layoffs in its agers. Their inadequacies as moral persons stemmed history. Later, they softened Fiorina's exit with a in large part from their neglect of their ethical duties highly generous compensation package that appeared to reward her poorperformance and gen­ as board members. Specifically,HP directors erated a lawsuit from investors.

I. ignored the founding values and principles of the In addition to failing to take their responsibilities company when setting a new direction instead of seriously, individual board members directly engaged using them as an ethical foundationfor change. 2. failed to have a succession plan in place. Board in unethical behavior. Board member Robert members have a moral duty to plan for the orderly Wayman used his contacts to put Fiorina in touch transition of power, to ensure the development of with investment bankers at Deutsch Bank during the leaders who can step in when senior executives proxy fight. Keyworth revealed information about move or retire (Charan, 2005). The succession board deliberations to the press and then kept his process at HP was haphazard at best. Driven by actions to himself. Rather than dealing with this faulty analysis and inadequate succession planning, breach internally, board chairs Fiorina and Dunn board members began to search for someone who authorized investigations that resulted in criminal could "save" the company. ln the em of the celebrity activity. Dunn, with the approval of thecorporate ethics CEO, charismatic Carly Fiorina fit the bill. officeand outside counsel, approved pre-texting, sur­ 3. put personal agendas above the good of the com­ veillance, computer tracers, background checks, and pany. Board members seemed more interested in other unethical and illegal activities. fightingone another and in investigating leaksthan in being stewards of the corporation. Fiorina bat­ Board members also failed as moral managers.They tled Perkins and Keyworth, as did Dunn. (Perkins modeled unethical behaviorthrough in-fighting, ignor­ and Dunn continued to snipe at each other in the ing employee input, and spying. They focused attention press even after both had left the board.) They away from important values, devaluing HP's ethical managed to do serious damage to HP's reputation heritage. Only board member Walter Hewlett seemed as a result. Disgusted by the board's behavior, concernedthat Fiorinawas dismantlingthe HP Way.By managers of two largepension funds proposed that approving Carly's change initiatives, the board helped shareholders be allowed to nominate a slate of create a system that promoted unethical behavior. directors (Darlin, 2007). 4. disregarded employee input. Employees are a crit­ ical stakeholder group in any work organization. Ethical leaders take the concerns of important Discussion stakeholder groups into account when making decisions. Board members at HP. on the other The ethical leadership construct is a useful tool for hand, apparently devalued the concerns of HP analyzing the fall of Carly Fiorina and HP's subse­ workers despite widespread evidence that 1hey quent pre-texting scandal. According to this were unhappy with Carly's leadership. Ifthe board approach, the practice of ethical leadership includes had taken these concerns seriously. it likely never two pil1ars: the moral person and the moral manager. would have gone through with the Compaq merger Ethical individuals behave morally in their leadership that was opposed by current and past employees. roles and, at the same time, promote ethical conduct Credit for the subsequent success of the merger in followers. Both Fiorina and the board fell short of should largely go to the HP employees who, once this standard. Fiorina acted as an ethically neutral they lost the proxy battle, ensured that the integrn­ a reputation for being self-cen­ tion of two firms went smoothly (Malone, 2007). leader who gained 5. failed to provide adequate direction and oversight. tered. She was perceived as lacking compassion, Dick Hagborn could have provided important integrity, and humility. Her focus on the bottom line counsel to Carly and served as a check on her and individual rewards weakened the firm's ethical culture. For its part, the board of directors acted as the construct-ethical neutrality-needs further defi­ unethical leaders who were weak as both moral nition and clarification. As noted above, the tenn eth­ persons and moral managers. Board members failed icallyneutral is misleading. Labels like se{f{ocused to carry out the ethical responsibilities incumbent in and pragmatic appear to be better descriptors for their roles. They directly engaged in unethical behav­ leaders who have other priorities besides ethics. The ior and sanctioned criminal activity. Through their experience of Carly Fiorina demonstrates that, when poor example and disregard forHP's ethical heritage, it comes to moral management, there is no neutral the directors undennined the firm's moral reputation. ground. Unethical leaders actively promote immoral Applying the ethical leadership construct to Carly behavior; ethically neutral leaders foster unethical Fiorina's tenure atHP demonstrates, first of all, that a organizational climates through neglect. leader's success will dependas much on such virtues as The ethical leadership framework also fails to humility and compassion as it does on such skills as account forthe relationship betweenincompetence and public speakingand strategic thinking. Character needs immoral leadership. Fiorina and the HP board were to be an important component of any CEO selection both ineffective and unethical. Carly's centralized cor­ process. Second, this case suggests that ethical neutral­ porate structure prove-0 unwieldy at the same time that ity may be a misnomer. Carly Fiorina didn't deliber­ it stifled dissent, for instance. By rewarding the CEO ately set out to create an unethical culmre. Nonetheless, regardless of her perfonnance, the board wasted funds her perceived self-centeredness and single-minded while creating perceptions of unfairness and impropri­ focus on financial objectives unde1mined HP's ethical ety. This mix of incompetence and immorality is com­ climate. Her experience should serve as a caution to mon among leaders, leading Ciulla (2005)to arguethat other CEOS charged with organizational turnarounds. the relationship between ethics and effectiveness is at Leaders need to continually remind followers of the the core of leadership ethics. She defines "good" importance of achieving goals through ethical means. leaders as those who are both competent and moral Merely ignoring ethical concerns is sufficient to put an (Ciulla, 2004). Kellerman (2004) uses the same organization at riskfor corruption and scandal. ethics/effectiveness framework when developing a Third, HP's experience is further evidence that typology of "bad" leaders. Addressing this interplay celebrity CEOslike Carly Fiorina aren't worththe risk. between ethics and effectiveness will strengthen the Quiet (and generally more effective) leaders have explanatory power of the ethical leadership construct, replaced many of their flashier predecessors at HPand making it an even more robust analytical toot elsewhere (Crosariol,2005). Such quiet leaders appear less susceptible to the abuse of power and position. References Fourth, viewed through the lens of ethical leader­ ship, whathappened during and alterFionna's tenure is Anders. G. (2003). Perfect enough: Carly Fiorbw and the rein­ a reminder that boards of directors are ultimately vemicm of Hewlett-Packard. New York: Portfolio. responsible for the organization's moral culture. Board Brown, M. E., & Trevino,L. K. (2006).Ethical leadership: A review members select chiefexecutives, supervise !:heir activi­ and future directions.Leadership Quarterly. 17, 595-616. Brown, M. E .• Trevino, L. K., & Harrison. D. A. (2005). Ethical ties, and approve their policies. Irresponsible directors leadership: A social leaming perspective for construct devel­ like those at HPput the organization'sethical reputation opment and testing. Organizational Behavior and Human at risk. Board members must act as moral persons and Decision Processes, 97, 117-134. moral managers by setting a moral example, promoting Burrows, P. (200I, February 19). The radical. Business Week. values, and ensuring that ethical conduct is reinforced. 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