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This article appeared in a journal published by Elsevier. The attached copy is furnished to the author for internal non-commercial research and education use, including for instruction at the authors institution and sharing with colleagues. Other uses, including reproduction and distribution, or selling or licensing copies, or posting to personal, institutional or third party websites are prohibited. In most cases authors are permitted to post their version of the article (e.g. in Word or Tex form) to their personal website or institutional repository. Authors requiring further information regarding Elsevier’s archiving and manuscript policies are encouraged to visit: http://www.elsevier.com/copyright Author's personal copy Organizational Dynamics (2012) 41, 254—263 Available online at www.sciencedirect.com jo urnal homepage: www.elsevier.com/locate/orgdyn The building of employee distrust: A case study of Hewlett-Packard from 1995 to 2010 Kimberly D. Elsbach, Ileana Stigliani, Amy Stroud INTRODUCTION Our analysis suggests that HP’s fall from the rankings was not due, primarily, to diminishing employee trust, but to an increase in employee distrust. In particular, we found that HP On January 12, 1998, Fortune magazine published its first- and its leaders provided signals of values that led specifically ever ranking of the ‘‘100 Best Companies to Work for in to employee distrust. These values were organizational dis- America’’. This ranking was designed to measure employee respect for employees, dissatisfaction with employees, and trust in a company based on five values related to trust that unfairness in employee treatment. Our findings help to shed were developed by the Great Places to Work Institute. These light on the specific actions of organizational leaders that are five values included the organization’s credibility, respect, likely generate employee distrust. We illustrate these find- fairness, pride, and camaraderie with regard to employees. ings in detail in the following case study and summarize them In the inaugural survey, Hewlett-Packard came in at #10, in a framework of ‘‘Building Employee Distrust’’ depicted in and remained there in the following year’s survey. Yet, by the Fig. 1. fourth ranking, in 2002, Hewlett-Packard had completely dropped off the list. Worse, Hewlett-Packard never returned to the list during the ensuing nine years. In fact, by late 2010, EMPLOYEE TRUST AND DISTRUST AT The Washington Post described Hewlett-Packard as a com- pany with ‘‘undermined and frayed’’ values, and one in which HEWLETT-PACKARD: 1995—2010 employee trust had been severely, if not irretrievably damaged. We examine employee trust and distrust in HPin six stages. The What happened to Hewlett-Packard? How did one of the first stage, covering the years 1995—1998, sets the stage for ‘‘100 Best Companies to Work for in America’’ in 1998 become the initial ranking of HP as one of the ‘‘100 Best Companies to so much less desirable by 2010? In particular, what happened Work for in America’’ and shows how and why HP achieved this to employee trust in the company? Since employee trust was ranking. The second stage, covering the years 1999—2001, the basis for the ‘‘100 Best Companies to Work for in Amer- illustrates how HP began to build distrust with its employees ica’’ survey, understanding how employee trust was affected through the actions and language that began with their during HP’s downfall seems essential to unlocking the answer new CEO, Carly Fiorina. The third stage covering the years to this reputation puzzle. 2001—2002 reveals how employee distrust was further estab- We will examine the story of employee trust in Hewlett- lished through a controversial merger between HPand Compaq Packard (called HP hereafter), through publicly-available Computer. The fourth stage, covering the years 2002—2004 documents, from 1995 (prior to the first Fortune survey), examines the entrenchment of employee distrust during through 2010. We focus our analysis on signals about the attempts to establish new values for HP. Finally, the fifth company’s values from both the behaviors and language of HP and sixth stages, covering the years 2005—2006, and leadership. We examined these signals for information that 2006—2010, illustrate a series of failed attempts to improve might affect the five values related to trust measured by the trust (without first removing distrust) by another new leader at Great Places to Work Institute (i.e., credibility, respect, HP, Mark Hurd. Before describing these six stages, we provide fairness, pride or camaraderie), and identified over 300 some background on HP and its historical values, as well as the statements or actions that appeared related to these values. business climate at the time. 0090-2616/$ — see front matter # 2012 Elsevier Inc. All rights reserved. doi:10.1016/j.orgdyn.2012.03.003 Author's personal copy The building of employee distrust 255 Figure 1 The Building of Employee Distrust: Value Signals and Perceptions Background: Hewlett-Packard and the ‘‘HP Way’’ result, HP’s leadership was constantly looking for cost sav- ings, including moving jobs overseas (in manufacturing, customer support, finance, and human resources) and redu- In 2011, Hewlett-Packard was a multi-national, high-tech cing employee services (such employee IT services and company specializing in developing and manufacturing infor- human resources support). While it is likely that these mation technology (IT) including personal computers, industry economic and competitive pressures put a strain on servers, storage devices, networking products, imaging and employee trust at HP, our analysis suggests that it was not printing devices, and software. The company was headquar- cost-cutting measures per se that led to employee distrust. tered in Palo California, USA, and had offices in more than 170 Instead, as we outline in more detail below, it was the countries on six continents. HP was ranked as the top IT communication and value signals that accompanied many company world-wide in revenues, and maintained over of HP’s actions that was central to building distrust among HP 324,000 employees. employees. We begin our story of employee trust and dis- The company — called the ‘‘godfather of Silicon Valley’’ — trust at HP below. was started by two Stanford Engineering graduates, Bill Hew- lett and David Packard in a one-car garage in Palo Alto. When HP went public in 1957, Packard wrote down the management Hewlett-Packard 1995—1999: Understanding beliefs he and Hewlett shared, including a respect of and trust Employees’ Initial Trust in HP in employees, an environment that fostered creativity, and a flat management hierarchy. These ideals became known as the From 1995 to 1998, popular press stories about HP revealed a ‘‘HP Way’’ and served as a model for company culture in the number of leadership decisions that signaled a strong respect emerging Silicon Valley. Over time, the HP Way became synon- for employees by the company. For instance, in a pair of ymous with a culture that embraced flexible work hours, stories accompanying the announcement that HP had creative freedom, great employee benefits, and a sense that received a Distinguished Partner in Progress Award for its layoffs would be used as only a ‘last resort.’ In return for this operations in Singapore, several employees remarked on the positive culture, employees gave their all to the company, trust and respect that the company and its leaders showed for even taking pay cuts to avoid layoffs, and remaining loyal when its workers. In particular, employees reported that the com- other job offers came their way. By the mid 1990s, the HP Way pany’s leaders gave them the freedom to decide how to do was known worldwide as a model for entrepreneurial corpo- their own work, which suggested a respect for employees’ rate culture. abilities and integrity. As was reported in The Straits Times on It is important to note, however, that HP was not without June 17, 1995: challenges at this point in time. In the mid 1990s HP had five major divisions: computers, electronic instrumentation, Mrs. Anne Lim . has a particular liking for the way her medical instrumentation, chemical analysis, and electronic employer, Hewlett-Packard, tells staff what to achieve components. Like most IT companies at this time, HP was but leaves the how-to-do-it to them. ‘‘It’s the belief in subject to increasing competitive pressures and squeezed to people, that they want to work hard and do their best, and reduce their costs across all of these business units. As a then recognition will be forthcoming’’. Author's personal copy 256 K.D. Elsbach et al. This type of respect was claimed as the reason that 47 of comments, as well as programs and policies that were publicly the original 62 employees at HP Singapore had remained enacted and promoted by HP leadership. In particular, use of since starting their jobs 25 years ago. The Straits Times terms such as: ‘‘belief in people’’, ‘‘open management style’’ continued this theme in a second story, also published on and ‘‘respect for employees’’ clearly signaled that employees June 17, 1995. As they noted: felt respected by the company. In addition, terms such as ‘‘close knit family’’ and ‘‘second home’’ indicated that Mr Soo Kok-Leng, 43, HP’s director of human resources employees felt a sense of camaraderie. Finally, phrases such (Southeast Asia) . explains, ‘‘There’s no feeling of hier- as ‘‘they walk the talk’’ strongly suggested that the company archy here; everyone can talk like colleagues and not feel was viewed as credible by employees. Given these strong threatened’’. Overall job goals are made known, but signals, it is not surprising that employee trust was relatively employees are left to achieve them as best they can. As high at this time (reflected in the high ranking in the Fortune Mr.