FOLLOW THE LEADER: HEWLETT-PACKARD AND ITS SUCCESSION CRISES

Sari Baldauf put down the telephone and leaned back in amazement into her hotel suite's plush sofa to try to register what she had just heard. She always looked forward each time she took the long journey from Helsinki to Palo Alto for meetings of the Hewlett-Packard Company (hereafter “HP”) . But this time, at the beginning of August, 2010, what confronted the Board was a particularly ticklish confrontation with CEO himself, one that she had never before had to encounter during her tenure on the Executive Board at . Hurd had been accused of sexual harassment by a former HP marketing contractor (and B-film actress), Jodie Fisher. What's more, the ensuing internal investigation had shown that several expense reports from Hurd's office from the period of the alleged relationship were fraudulent, with an amount in dispute of up to $20,000. And now the CEO had pre-empted everything by reaching a private settlement with Fisher (via her attorney, the notorious ) just the previous day. So had Baldauf come all the way to Southern for nothing? Of course not! What about the “The HP Way”? knew full well that the lingering influence of founders William Hewlett (1913-2001) and (1912-1996) meant that HP had always been more than just another IT equipment company. That “HP Way” embodied the precepts upon which they intended that their company's operations would always be based, as set out in five axioms: 1. We have trust and respect for individuals. 2. We focus on a high level of achievement and contribution. 3. We conduct our business with uncompromising integrity. 4. We achieve our common objectives through teamwork. 5. We encourage flexibility and innovation. To Baldauf and to the rest of the Board – of which seven out of ten had been recruited to the Board by Hurd - the duty was clear: on August 6, they voted unanimously to remove Hurd as CEO of the company.

Carly Fiorina: First From Outside Chief Financial Officer Cathie Lesjak took over as CEO for the interim, which was necessary since no full- time replacement had been designated nor seemed immediately available. The Board's Nominating & Governance sub-committee swiftly got in touch with usual the head-hunting firms. This was the first time Baldauf had had the opportunity to see this body swing into action, and she found their approach a little bit strange. She had noticed that the first couple of successors as CEO to himself – namely John Young (1978-1992) and Lewis Platt (1992-1999) - had been promoted from inside the company. had been the first to have had nothing to do with HP previously to her appointment as CEO.. Yet somehow the N&G committee's search was nonetheless clearly focused to the outside.

______Professor Fred Lachotzki and research associate Michael Olson prepared this case as basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright©2012 Nyenrode Business Universiteit.

This made Baldauf uncomfortable. It's true she had long held Fiorina in a special regard - not just as HP's first female CEO (and Board Chairman as well), but in fact the first woman ever to head a company making up the Dow Jones Industrial Average – yet she also could not escape the thought that Fiorina's tenure was where HP's problems had begun. Already named by Fortune as the “#1 Most Powerful Woman in Business” while still at Lucent, Fiorina brought to HP an at times overwhelming wave of celebrity and media interest. She unified all the HP-brand marketing under the theme “Invent,” but the highlight of her service there was undoubtedly the $25 billion acquisition of in May, 2002. However, there was clearly a direct line between the costs and internal restructuring which that mega-deal made necessary and HP's reporting for 2002 the first annual loss in its entire history as a public company. Company sales and financial performance simply did not respond to Fiorina's star-power. As HP's stock price dipped down to half of what it had been when she had come on board, the increasinlgy dire state of affairs finally moved the Board to require her to step down at a special session in February, 2005. Baldauf had ultimately been glad to vote to ask Fiorina to leave – with a severance package of just over $21 million in cash - yet in the wake of Mark Hurd's ouster she was alarmed at the task of yet again having to find a suitable replacement in short order. Surely this was no way to run such an important company?

HP's “Pretexting” Scandal: The Chairman Falls At least Baldauf's Board colleague Patricia Dunn, CEO of Barclays Global Investors, had been elevated to Board Chairman shortly after Fiorina's departure, to Baldauf's considerable relief. CFO became interim CEO, in a split of the duties of Chairman and CEO; which had never before been tried at HP. One urgent task from Fiorina's tenure still remained. There had appeared a series of leaks in leading national business publications that had exposed to the public gaze much of the internal turmoil around Fiorina's performance, and then the subsequent CEO-hunt. Their nature suggested that the source lay somewhere within the company's executive suite or boardroom. New Chairman of the Board. Dunn promptly established a task-force of internal HP security officials, together with some external contractors, to investigate these leaks in a confidential effort dubbed “Project Kona.” Still, even Fiorina's eventual successor, Mark Hurd, formerly CEO of NCR Corporation, found himself plagued by leaks. It took only a little over a month after taking up the job for him to inform a meeting of the company's highest executive ranks that he found such leaks “reprehensible and unacceptable” and to announce a “zero tolerance” policy – just one unauthorized leak of information from anyone, and that person would automatically be fired. Still, this failed to stop them,1 so the company redoubled its efforts over the following months. The effort finally came to a head in at the Board meeting on May 18, 2006, when enough evidence had been accumulated by then to implicate long-standing director George Keyworth, former Science Advisor to President , as the guilty party.

1 Among the further information that emerged were allegations that Mark Hurd used the “inside information” of his pending departure to HP to sell considerable amounts of his shares in NCR prior to the move; the SEC ultimately chose to take no action. Success, so it seemed, but the matter did not end there. Rather, over the next few months the extraordinary range of measures undertaken by agents acting in HP's name was itself leaked to the public. Offices of suspect media outlets (e.g. , New York Times, CNET) had had their trash surreptitiously inspected and undercover agents infiltrated into them posing as clerical or cleaning staff; and suspected journalists had generally been subject to thorough investigations – including into their telephone records, to which investigators gained access by “pretexting,” i.e. posing on the telephone as those journalists themselves (e.g. citing their stolen Social Security numbers) to convince telephone company service representatives to release the information. The revelations of these methods being use by HP were spectacular because of the unethical taint that came thereby to the reputation of such an esteemed company. Congress quickly took notice, resulting in hearings in September, 2006, before the House Committee on Energy and Commerce, even as Patricia Dunn resigned from the HP Board and general counsel Ann Baskins from HP entirely. Mark Hurd - by then HP CEO and Chairman – had by then not been directly implicated in the “pretexting” scandal, but subsequent research suggests that he should have been. The worst journalist privacy abuses had actually been perpetrated by a special “Unauthorized Disclosures Team” that Hurd had established on his own authority, reporting only to him. In the end, however, Hurd managed to blur the line between this effort and Dunn's “Project Kona” so that the latter took the entire blame for the disgraceful investigative techniques employed. In effect, Mark Hurd succeeded in making Patricia Dunn take the fall for the abuses so that his shooting-star career could carry on. It was he who had to take up the task of getting the company back on track after this enormous disruption.

Mark Hurd: Champion or Scoundrel? This he set about to do. Although not particularly well-known when he caught the N&G Committee's eye, Hurd was nonetheless hired for his demonstrated ability to perk up company performance as NCR's CEO, together with the almost eerie insider's perspective and exact analysis he had shown of HP's problems and their possible solutions during his CEO job-interview. When it came time to perform, Hurd did seem to fulfill all this promise and more. HP's stock price jumped by 40% just within his first partial year (April-December 2005) at the helm. He brought with him a new attentiveness to quantitive indicators of analysis – but most of all he brought a new determination to slash costs, carried over from his record with NCR, such as never had been seen before in the HP executive suite. Within that first partial year he laid off a full 10% of HP employees (15,200 personnel) and reduced the number of HP data centers from 85 to 6. A major feather in his cap was the acquisition in August 2008 of (worth $13.9 billion), at which time he made sure that all new EDS employees (only those who were retained, of course) had their salaries adjusted, generally downwards, to the level of their HP counterparts. It was also true that the company made good progress under his command in gaining leading market-share positions in desktop , , and inkjet and laser printers (in all of these except inkjets attaining the #1 position). HP revenue in 2009 was $115 billion, versus $80 billion when he arrived; and profits increased each year at an average rate of 18%.

Yet there was a downside. In his cost-cutting zeal, Hurd cut the company's IT department from 19,000 employees to 8,000 and reduced the R&D budget from 9% of revenue to 2%. “That's why H.P. had no response to the iPad,” complained one executive to . He was not above deriving money-savings from cut-backs in the company's usual charitable contributions, and he forbade all his executives from serving on charitable organization boards. Revealingly, while cutting his employees' salaries he also took a 20% cut in his own – but the Board's Compensation Committee promptly added the same amount to his bonus. Employee morale suffered greatly; internal surveys at one point showed a full two-thirds of HP employees ready to leave the company if they received an employment offer from somewhere else. In any event, with the expenses scandal and his pre-emptive settlement with Fisher he was gone, and under the terms of his severance agreement he took with him $12 million in cash together with a potential $38 million worth of HP stock. It also took him all of a month (31 days) to find a lucrative follow-up position as co-president of Oracle, the company founded by his friend and tennis partner . HP promptly reacted by suing Hurd, alleging that his move “has put H.P.'s most valuable trade secrets and confidential information in peril,” although a non-compete agreement had in fact never been part of Hurd's HP employment contract;2 the parties settled on 20 September as Hurd agreed to give up that part of his severance package consisting of restricted stock with a potential value of up to $13 million. This lawsuit was but the bookend of another one filed a few weeks earlier against HP by a group of shareholders, alleging that Hurd's firing had harmed the company and that the amount of his severance package could have been recovered if the company had only fired him from the CEO position outright.

Léo Apotheker - The Right Prescription? The search for a new CEO took just under two months this time, and again the Nominating & Governance sub-committee went outside of the company to find him. This time committee members went way outside, for their ultimate choice was on the other side of the Atlantic. This was the European businessman Léo Apotheker, with a 20-year history of important executive positions at the pioneering German Enterprise Resource Planning (ERP) firm SAP. Apotheker's university education had been at the Hebrew University in Jerusalem, after which he had taken up various financial and operations positions in other European companies prior to joining SAP in 1988. But while he was being considered as a candidate he had had plenty of time to prepare for this challenging new assignment, since the SAP Board had dismissed him after only nine months of being its sole CEO3. At the same time, the split between CEO and Chairman roles would remain: just as Apotheker was appointed, Ray Lane - formerly of Oracle and managing partner of the famous venture capital firm Kleiner Perkins Caufield & Byers – was made non-executive Chairman of the Board. Still: this was an ERP expert, and not someone with extensive experience in the computers, servers, and peripherals that had long been HP's stock-in-trade, right? In actuality, the firm's involvement in ERP and the “softer” side of IT generally (software, services, etc.) had been steadily growing over the past years. In fact, HP had

2 In fact, Joe Nocera of the New York Times claims that California law will not enforce them. 3 He had previously shared that role with another for thirteen months. The immediate causes for his dismissal were the failure of an ERP- as-Software-as-a-Service initiative he had championed, called SAP Business ByDesign, together with an aggressive raising of prices he had pushed through just as the world was sliding into recession. long been an indirect competitor with SAP, in that it worked closely with Oracle to provide the hardware onto which Oracle's ERP software could be loaded to provide complete business management solutions. That marriage had now ended in divorce as soon as Oracle acquired in January 2010, which provided it ERP hardware of its own, whereas HP had by then developed its own expertise in ERP services that it did not intend to surrender. That divorce became further embittered when Mark Hurd became Oracle CEO shortly after pocketing that generous severance settlement which one would have thought was enough to persuade him not to jump to such a competito; the lawsuit over his doing just that followed, although it was swiftly thrown out, while derisive public comments by Oracle chief Larry Ellison over the mistake HP had made in letting Hurd go further poisoned relations. In short, HP were very seriously into ERP, and in this light, Apotheker's SAP background – which had been almost exclusively in sales as he had risen swiftly up the company ranks – stood HP in good stead (as did Ray Lane's years at Oracle). Like Hurd before him, Apotheker had a solid track record in taking the tough decisions to implement needed cost-cutting, even if it meant slashing headcount. There were even intriguing rumors that he had somehow been involved in the theft of Oracle source code through a SAP Texas-based subsidiary, TomorrowNow, a dispute the two companies were then settling in court (with ultimately $1.3 billion in damages awarded to Oracle), although Oracle had never mentioned him by name in its accusations. If they were interested, the selection process would have been a good opportunity for the HP Board to ask Apotheker about this, off the record. At least the four Board members of the Nominating & Governance sub-committee had that chance; no other Board members would meet him before he was named HP's new CEO on 30 September 2010, to take effect November 1. Indeed, most had never even heard of him before.

New ecosystem Be that as it may, and for all of HP's interest in software and services, as Léo Apotheker finally took over the helm the company was still the world's largest computer seller. It had a renowned history in instruments and early innovations that had ultimately led to the personal computer, after all, and had leapt to the world #1 position as a result of the spectacular merger with Compaq computer that Carly Fiorina had engineered back in 2001. The result had been a massive sales operation in virtually every country on the globe, one that sold two computers on average every second and earned $4 million in revenues each hour, producing impressive financial totals that no one could ignore. For its 2010 fiscal year (ending in October) Hewlett-Packard had reported $126 billion in revenues, ahead even of IBM for a similar period ($99.9 billion) and almost double that of Apple ($65 billion). But those were revenues, not the profits that a company gets to keep. On that measure, in the same period HP profits were but $11.4 billion and Apple's were $23.6 billion. This underscored the realization that, while HP may have dominated the static revenue situation at that point in time; market evolution is always dynamic. In particular, computer development clearly seemed to be moving beyond the PC, which increasingly was becoming merely a commodity business where a number of worldwide manufacturers offered products of very little differentiation and mainly competed on price. Apple's introduction in 2007 of the iPhone – the prototypical “smartphone,” i.e. a powerful computing platform that happened also to be a mobile telephone – pointed the way to the future, and its iPad (brought out the very year of Apotheker's arrival to HP) did so even more. That Apple was able to make superior profits to HP on revenues that amounted only to half powerfully underscored how Steve Jobs' enterprise had successfully chosen to opt-out of the commoditization trap which was afflicting the Microsoft-Intel (also known as “Wintel,” or as “PC” as opposed to “Mac”) portion of the worldwide personal computer market – as part of which HP had been both Microsoft and Intel's biggest customer for some years. Clearly, what Apple had succeeded in doing was crafting personal computing devices for which customers were glad to pay much greater margins than for the common Wintel personal computer. Much of this was down to a greater attention to aesthetics, design, and usability; another great influence was that Apple was pioneering the way to new generations of smaller, more personal computing devices (smartphones, tablet computers) that were likely to be the next steps in the evolution of the computer. But many observers also attributed Apple's success in large part to the building of a common ecosystem which could offer customers an overriding framework for their personal technology experience, ensuring a familiar set of standards and procedures as they switched from device to device within the company's offerings. For Apple this constituted a common look-and-feel among its equipment, but also important components like a common operating system (iOS) as well as common infrastructural support such as the iTunes site for the downloading of music, games, and applications. This was something Wintel computers had never had; it was even something which the rival smartphone efforts from Google centering around the Android operating system could only partially match. It was further something that IBM had not even tried to deal with; that company had sold its personal computer division to the Chinese firm Lenovo in 2005 in order to concentrate its money-making activities in computer software and services. As much as gaining – in revenue terms – from its own personal computer operations, for HP it was clear that the trend there was leading in the wrong direction and that something had to be done: HP had to get into smartphones somehow, it had to start offering tablet computers, or it would be left behind. Not to worry, though: for all the messiness of his departure, Mark Hurd had been fully aware of these long- term strategic considerations and had laid the groundwork for Hewlett-Packard's response to them- just before the axe fell on him, in fact, in July of 2010 when HP bought Palm in a $1.2 billion deal. Granted, Palm had never done anything with tablet computers, but with its PalmPilot personal digital assistants (PDAs) it had pioneered in that area of small, personal computing devices which would soon be combined with telephone capability and produce the smartphone.4 Palm would be among those doing that combination of a PDA with a telephone, of course, namely in the “Pre” line of smartphones which were introduced initially in mid-2009, right into the iPhone/Android line-of- fire. It was no surprise that, in such a competitive environment, sales of the Pre faltered somewhat. But that did not concern HP as it appraised Palm for acquisition. The issue was not so much the Pre per se, but rather the operating system that lay behind it, one that was developed in-house at Palm expressly for the Pre and that was called “webOS.” For all the various hardware disappointments of the Pre telephones, webOS quickly gained widespread approval as a robust and useful operating system.5 Indeed, the thinking at HP was that webOS offered an excellent vehicle for creating that ecosystem for new lines of hand-held computing devices that was necessary to have a

4 Actually, Apple had gotten here even before Palm, with its Newton device of the early 1990s. And a company called Psion had been even earlier than that. But neither of these ultimately made any market-impact, in contrast to the PalmPilot line. 5 For one thing, it offered true multi-tasking capability at a time when iPhone and Android users were still limited to running one program on their devices at a time. chance against Apple. Palm had only failed because, in the end, it was still a small company with limited resources. HP could take what Palm had invented and do much better, especially when one element of the take-over deal was its recruitment of Jon Rubinstein, who had headed webOS development at Palm – and earlier had been central to the building of Apple's ecosystem through his early work there with the iPod. Rubinstein in short order let it be known that the people he had brought over to HP would be working on a webOS 2.0, to be ready at the end of the year. This all fit together rather well – but then Mark Hurd was gone, and it was Léo Apotheker who had to take over this brief, in an technical area where in fact he did not have all that much experience. It did take a few months for him to get entirely acclimited and start moving this ball further on his own.6 When he finally moved, however, he did so in a big way. First he had HP unveil in February, 2011, at a “Think Beyond” event stages at the Fort Mason Center in San Francisco, three new webOS-based devices that were to be the warhorses for its webOS campaign: the Pre 3 (the latest in the line of Palm smartphones); the Veer (a smaller webOS-based smartphone), and most importantly, the TouchPad, a tablet intended as a direct competitor to the iPad, and indeed with a few usability advantages over the latter stemming from webOS. The company then followed up at its yearly “Winter Summit” in San Francisco in March with a number of pronouncements. While there had been talk in the previous year of parallel work on a Windows-based tablet, that was now by the board: not only would HP proceed with tablets only on the basis of webOS, but it eventually aspired to make even personal computers only with webOS. At the same time, there was to be an applications (“apps”) store established on a cloud-computing basis, together with an associated developer community, to further build the webOS ecosystem and ensure a supply of useful applications for customers for when these devices were finally put on-sale.7

Seeking Autonomy They finally were put on sale on July 1, 2011,8 with the TouchPad offered at a price of $500 a piece. Sales were slow – very slow – even though tech reviewers (among them David Pogue of the New York Times) offered generally encouraging appreciations of the new devices. This was a problem. Regular PC sales had continued their slow decline ever since Apotheker had come on board; the company was counting on the introduction of webOS devices to provide a boost to its fortunes and convince both shareholders and analysts alike that the company had found its own path towards a profitable future. It hastily slashed the TouchPad's price to $400 a piece. To no effect: the level of sales hardly responded. It seemed company fortunes were rapidly heading for a cliff, as earnings had trailed badly behind expectations for a while. That cliff had a specific date: 18 August, the scheduled date for release of HP's third-quarter figures.

6 In the meantime, he managed to rid his Board of four directors who had been supporteres of retaining Mark Hurd. For the recruitment of their successors, Apotheker was directly involved – something that nominally ran counter to HP policy, but Chairman Ray Lane defended Apotheker's conduct. 7 These events were by no means dominated by webOS, however. Apotheker also made announcements pertaining to what he called new "big data" applications for ERP and information services, all of which would be enhanced by the acquisition of Vertica, a data management company, that HP announced in February. Along this line, the company had previously acquired both 3PAR (a data storage company) and Arcsight (system security) in September the previous year. 8 July 1 in the US, but July 15 for Canada and major European countries. And only August 15 for Australia. When 18 August finally arrived, HP management were ready, with a number of bombshell announcements: 1) The company announced that had agreed to purchase, for $10 billion9, the British enterprise software company Autonomy Corporation, based in Cambridge and specializing in enterprise search and knowledge management applications. Their unique technology had in fact been based on research spin-offs from Cambridge University, and they had been previously been a take-over target of other firms – including Oracle – although not at any valuation near that which HP was offering; 2) Not only would HP withdraw the TouchPad and its associated webOS telephone devices from the market, but it would give up on the idea of such devices entirely and shut down the division. It still owned webOS (and employed the programmers and other personnel in charge of it), of course; it would explore options as to what to do with it, which could include licensing or even selling the operating system outright to another tech company which could make use of it. 3) It was contemplating exiting from the personal computer business – where it was the largest seller in the world, but which provided it with one-quarter of its revenues, but only one-sixth of its profits - entirely as well. This could likely take the form of re-organizing its PC activities into a separate unit that could be spun-off as a separate company. Lately a number of such spin-offs – by firms as diverse as Marathon Oil, Kraft Foods and Conoco Phillips – had been well-received on the financial markets. Apotheker had the full backing of his Board for this shift of strategic emphasis. 4) Hewlett-Packard was falling considerably behind its 2011 fiscal year earnings-per-share target: $3.70 at best, compared to a previously-estimated $4.27.10

In effect, Leo Apotheker was signalling to the markets that Hewlett-Packard intended to exit its consumer- oriented businesses, in order to devote itself exclusively to corporate clients. And it was doing this by very demonstrative moves both coming and going: putting its PC business on the block, while making a “can't-say-no” offer for Autonomy that amounted to an 80% per-share premium, totaling 30 times earnings. In any event, this option had always been maintained even as the ambitious attempt to confront Apple with a range of devices based on webOS had been pursued. This orientation towards software, not hardware, and to corporate clients after all constituted exactly Apotheker's own professional background, and the company had kept up a steady flow of acquisitions relevant to this end – 3PAR, Arcsight, Vertica – while the higher-profile webOS campaign had been going on. IBM had shown the way: it had gotten rid of its own consumer businesses six years ago and devoted itself to software and services. Now Hewlett-Packard would do the same.11

All Change – Again Or would it? Some on the HP Board did not agree with the bid for Autonomy, thinking it much too

9 The actual price would turn out to be closer to $11 billion. 10 Hewlett-Packard officials kept this bad news for release last; and indeed there was an initial drastic rise in the stock-price in response to the Autonomy and personal computer news, before it dipped to way below where it had started once the earnings figures were known. 11 One of the ironies of HP's August 18 announcements involved precisely the TouchPad: when shortly afterwards its price was reduced yet again, to $99, to clear out stocks, it became a raging success, prompting a buying-mania within the US and even among HP employees. The company even promised to prolong its production for a limited to satisfy this great demand - presumably it made a loss on each machine at the $99 price, but perhaps it had already ordered the components and aimed to earn money on them rather than discarding them. expensive. (It went through anyway.) But all of them were concerned with the trajectory of the stock-price; the drop of 47% in value over Apotheker's tenure represented by far by any company (like HP) listed in the Dow Jones Industrial Average over that period and represented some $30 billion in lost market-capitalization. To some, abandoning the PC business as was proposed did not make sense, because of the synergies it offered for the company's other businesses. Also, splitting out that division might ultimately make the company itself small enough to become a take-over target itself. In any case, the HP Board – for all its ever-changing composition – had repeatedly shown itself in the past to be capable of summarily dismissing CEOs in whom it had lost confidence, and it did so with Léo Apotheker on 21 September. Also true to form, Apotheker departed with a severance package worth $25.4 million for his not-quite eleven months of work at the company.12 At least this time – perhaps reflecting the dire straits in which the company found itself - a successor was in- place immediately: , former eBay CEO, recently the losing Republican candidate for the California governorship – and already on the HP Board (brought in by Apotheker, in fact). It did not take her long to “take a hard look” at the decision to ease out of the personal computer business and to over turn it. “This was first and foremost a math exercise,” she remarked, “and a very revealing one.” The Board unanimously backed the decision. But by this point, all this was quite enough for our good friend, Sari Baldauf. Along with two other colleagues, she announced she would not seek re-election to the HP Board at the annual shareholders' meeting in March, but would concentrate instead on a rather easier assignment: dealing with the nuclear reactors and other power-generating facilities as Board Chairman of Fortum, the Finnish electricity utility. Subsequent events showed the wisdom of that decision, as the after-affects of numerous bad Board decisions soon made themselves known. Baldauf had already had a foretaste during her Board tenure, back in 2010 when the company had had to write off the $1.2 billion it had spent to acquire Palm. But she was long gone by August, 2012, when the company announced the write-down $8 billion of the $13.9 billion it has spent to acquire EDS back in 2008, during the tail end of Mark Hurd's tenure as CEO. This admission of failure was alarming in itself, since EDS (which had been rebranded within the HP organization as “HP Enterprise Services”) had been a key element in the company's attempted metamorphosis out of the former emphasis on hardware to an orientation on software and data services. Just as important in that shift, however, had been the Autonomy purchase the previous year – and the EDS write-down inevitably spurred a re- examination of the effective value of those assets, now aided by a high-level Autonomy executive who, since Autonomy co-founder and former CEO Michael Lynch had been fired by HP the previous May, now felt he could come forward with some interesting stories to tell. These had to do with alleged systematic accounting mis-reporting and other malfeasance by Autonomy in the run-up to its purchase by HP in late 2011, supposedly in order to make the company look more attractive than it really was. HP executives soon discovered what they believed to be a pattern of improper revenue acceleration, invalid registration of the “negative margin” sales (i.e. done at a loss for promotion purposes) that contributed more

12 Starting with Meg Whitman, HP by-laws have been changed to limit such severance payment for CEOs terminated even without cause. Essentially, stock and option ownership that has not vested will be canceled; this would have saved the company around $3.6 million in Apotheker's case. than 10% of the company's revenue, and other similar shenanigans. Many outside commentators entered “I told you so!” mode, maintaining that such problems would have been easy to discover before HP had spent so much money on acquiring Autonomy, had anyone just cared to look. In any event, HP was forced to announce in late November, 2012 yet another write-down to reflect goodwill/intangible asset impairment, this time of $8.8 billion. Together with other similar but smaller measures in other cases, that brought the total of such write-downs for just the year 2012 to $20 billion – compared to HP's entire market capitalization at the beginning of that year of $23 billion! Many HP shareholders shared the concern that Autonomy's alleged revenue problems had not been discovered before the acquisition took place; they filed a lawsuit in a San Jose, California court shortly after the Autonomy write-down announcement, naming as defendants CEO Whitman, the Board of Directors, and auditing firms Deloitte and KPMG (even as HP referred Autonomy to the SEC – which quickly brought in the FBI to help investigate – in preparation for what will surely be legal proceedings against Lynch and other former Autonomy executives). The larger issue, however, remained HP's future.13 Technology was rapidly changing; the was dying, and IBM had showed how to achieve the (allegedly) necessary yet drastic transition to software services. Yet the two greatest vehicles that were supposed to take the company there – EDS and Autonomy – now stood revealed as calamitous failures.

13 A smaller issue was the continued functioning of Meg Whitman as CEO; in light of these devastating and embarrassing developments, some were advocating that HP dismiss her and yet again try to find a decent chief executive.