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H-P Chief Quits in Scandal Hurd's Ouster Follows Board Probe Into Expenses, Relationship with Contractor

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H-P Chief Quits in Scandal Hurd's Ouster Follows Board Probe Into Expenses, Relationship with Contractor Page 1 of 3 Dow Jones Reprints: This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit www.djreprints.com See a sample reprint in PDF format. Order a reprint of this article now MANAGEMENT AUGUST 7, 2010 H-P Chief Quits in Scandal Hurd's Ouster Follows Board Probe Into Expenses, Relationship With Contractor By BEN WORTHEN And PUI-WING TAM Mark Hurd, the man credited with reinvigorating Hewlett-Packard Co., resigned as chief executive of the technology giant after an investigation of his relationship with a female contractor found he violated the company's business standards. H-P said Friday that Mr. Hurd, 53 years old, didn't violate the company's policy regarding sexual-harassment but submitted inaccurate expense reports that were intended to conceal what the company said was a "close personal relationship" with the woman. The amount of money in question wasn't disclosed. The woman wasn't identified but was described as an outside marketing contractor for H-P between the fall of 2007 and the fall of 2009. The news, released after stock markets closed Friday, shocked investors and caused H-P shares to plunge 8.3% to $42.48 in after hours trading. Michael Holston, H-P's general counsel, said Mr. Hurd demonstrated a "profound lack of judgment that seriously undermined his credibility and damaged his effectiveness." H-P hired a law firm to investigate the matter after the woman's lawyer sent a letter alleging sexual harassment to Mr. Hurd's office on June 29. Mr. Hurd turned the letter over to the company's legal department and the board was informed the next day, according to a person familiar with the matter. The resignation is "all about Mark's behavior and judgment" said Cathie Lesjak, H-P's chief financial officer, who will assume the CEO role until a replacement for Mr. Hurd is found. In addition to Mr. Hurd's own expenses, H-P investigated whether the contractor provided all the services she was paid for. There are "a couple of instances where that was in question," Mr. Holston said. Mr. Hurd, in a prepared statement, acknowledged that "there were instances in which I did not live up to the standards and principles of trust, respect and integrity that I have espoused at H-P and which have guided me throughout my career." Gloria Allred, a lawyer for the woman, said there was no affair or sexual relationship between her client and Mr. Hurd. She declined to identify her client or comment further. One person familiar with the matter said the questionable expense reports totaled no more than around $20,000. Page 2 of 3 Mr. Hurd, H-P's chief since 2005, had been in discussions with the board to extend his tenure as CEO before the woman's letter surfaced, said a person familiar with the discussions. Mr. Hurd's relationship with the board soured during the investigation, people familiar with the matter said. The findings of the investigation were presented to the board July 28, these people said. Mr. Hurd, who was H-P's chairman, wasn't present in the parts of meetings where the board deliberated his status, one person familiar with the matter said. Earlier this week, the board came to a unanimous decision to ask Mr. Hurd to step down, this person said. Mr. Hurd agreed and an exit package was negotiated Friday, the person added. H-P board members "have been very thoughtful" about deciding that Mr. Hurd had to leave, said a person familiar with the board. "The board is doing its job properly." Mr. Hurd's severance agreement calls for a cash payment between $11 million and $12 million, and other stock and bonus payouts that could bring the total to more than $35 million. Mr. Hurd, in the statement, said he decided to step down after a number of discussions with members of the H-P board. "This is a painful decision for me to make after five years at H-P, but I believe it would be difficult for me to continue as an effective leader," Mr. Hurd said, stressing that the decision "in no way reflects on the operating performance or financial integrity" of H-P. According to a person familiar with the situation, it's unclear if Mr. Hurd knew the contractor prior to her hiring in 2007. But in August 2007, Mr. Hurd flew to Los Angeles to personally interview the woman for the contractor marketing position, which this person deemed unusual for the CEO. In September 2007, Mr. Hurd flew to Denver for a second interview with the prospective hire at the company's expense, said this person. The contractor worked for H-P on events world-wide over the ensuing two years, and was typically paid $1,000 to $5,000 in expenses for each event, this person said. Mr. Hurd would also meet with the woman in Los Angeles and often expensed meals with her to H-P but his reports reflected a different guest than the contractor, said this person. In some cases, the contractor was paid for events that didn't occur, added this person. Another person familiar with the matter took issue with several elements of that account. The person disputed that the CEO flew to Los Angeles to meet the contractor outside of H-P events. The person said the events were forums for around 40 or 50 CEOs and 15 or so H-P staffers, and said the dinners took place in the hotels where everyone typically stayed. "It is easy to make false allegations or hide under the cloak of anonymity," said Glenn Bunting, a spokesman for Mr. Hurd. "The truth is there was nothing untoward nor was their an improper relationship of any kind between Mr. Hurd and the contractor." The resignation stunned longtime observers of H-P, a big maker of computers, printers and other hardware in Palo Alto, Calif., that helped build the early high-tech scene in Silicon Valley. H-P in the past decade has had its share of turmoil, however, including a controversial acquisition of Compaq Computer Corp. sought by former CEO Carly Fiorina—who was ousted by the board—and a scandal in 2006 when it became public the company had hired security experts to investigate board members and several journalists. In contrast with Ms. Fiorina, Mr. Hurd was regarded as an unflashy, buttoned-down manager and a numbers specialist. He is married to Paula Hurd, and the couple have two daughters; they own a house in Atherton, Calif., that they bought in 2005 for $7.15 million. Page 3 of 3 "I definitely am shocked," said John Sullivan, a professor of management at San Francisco State University. Mr. Hurd "is a low-key, accounting kind of guy. He cut costs. He wasn't a flamboyant kind of guy.'' Mr. Hurd joined H-P as CEO in 2005 following the firing of Ms. Fiorina. Mr. Hurd, then CEO of ATM maker NCR Corp., impressed H-P's board members with his knowledge of H-P's financials, then director Tom Perkins has said. Messrs. Hurd and Perkins are also directors of News Corp., owner of The Wall Street Journal. At the time, H-P was a tech giant that produced inconsistent earnings, attracting Wall Street's criticism. Mr. Hurd moved quickly: Four months after he joined H-P, he said he would eliminate 14,500 jobs, or about 10% of its work force at the time, in a restructuring designed to make the company competitive with rivals Dell Inc. and International Business Machines Corp. It was the first of multiple restructurings at H-P under Mr. Hurd, who also added to the company through various acquisitions. Over his tenure, H-P bought companies such as Mercury Interactive, Electronic Data Systems Corp, 3Com Corp. and Palm Inc., moving the firm into fields from smartphones to networking equipment. The acquisitions and restructurings helped fuel growth at H-P. Under Mr. Hurd, H-P produced a string of profitable quarters and often beat Wall Street expectations. H-P hit a string of milestones, passing Dell as the world's largest maker of PCs in 2006 by units. It also passed IBM as the world's largest technology company by revenue that same year. In its most recent fiscal year ended in October, H-P produced revenue of $114.6 billion and had 304,000 employees. H-P shares had more than doubled during Mr. Hurd's tenure, far outpacing its peers in the Dow Jones Industrial Average. Its market capitalization stands at $98 billion, up from $46 billion on March 28, 2005, the day before Mr. Hurd's name surfaced as H-P's CEO. Ms. Lesjak, who was named interim CEO, is a 24-year H-P veteran who became CFO and a member of the company's executive council in January 2007. She is 51 years old. The H-P board has created a search committee to find a new CEO. H-P Friday also released preliminary results for the third fiscal quarter ended July 3. It predicted a profit of about $1.08 a share and revenue of $30.3 billion—above its previous targets. —Joann S. Lublin, Nick Wingfield and Stu Woo contributed to this article. Printed in The Wall Street Journal, page A1 Copyright 2009 Dow Jones & Company, Inc.
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