Mark Hurd's Abrupt Departure Leaves HP Reeling

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Mark Hurd, Hewlett-PackardHewlett-Packard (HPQ) ousted CEO Mark Hurd on Friday for falsifying expense reports and other documents to conceal a secret relationship with a former contractor and help her get paid for work she didn't do.

Until the 53-year-old abruptly resigned, sending HP's stock tumbling after hours, he had a nearly bulletproof reputation on Wall Street. During his five-year stewardship of the world's biggest maker of personal computers and printers, its stock price had doubled, boosting its market value more than $40 billion and it became the world's No. 1 technology company by revenue.

HP said Hurd was forced out after the company discovered he had a relationship with a woman who worked with HP on marketing matters. The company said he falsified expense reports and other financial documents to conceal the relationship and help get the contractor paid for work she didn't do. But the company said its internal probe found Hurd didn't violate its sexual harassment policy.

"As the investigation progressed, I realized 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 HP and which have guided me throughout my career," Hurd said in a statement. "This is a painful decision for me to make after five years at HP, but I believe it would be difficult for me to continue as an effective leader at HP and I believe this is the only decision the board and I could make at this time."

"Painful Decision"

High-profile Los Angeles attorney Gloria Allred said she is representing the woman and "there was no affair and no intimate sexual relationship" between her client and Hurd. Allred, reached by The Associated Press late Friday, declined to comment further.

The allegations were first disclosed Friday, though the company learned of them several weeks ago.

Hurd said it was a "painful decision" to leave but acknowledged 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 HP." He will get a $12.2 million severance payment.

A person with intimate knowledge of the case told the AP that the woman worked as a host for more than a dozen events for CEOs that Hurd attended between 2007 and 2009. The person said the disputed expenses range from $1,000 to $20,000 for travel, lodging and meals.

This person, who requested anonymity because this person wasn't authorized to speak publicly about the details of the investigation, said many of the expenses were for meals after the events and that Hurd insists they were legitimate business expenses.

Hurd has offered to repay expenses that were incorrectly filed, this person said.

"Really Stupid Things"

The company's chief financial officer, Cathie Lesjak, 51, was named interim CEO. She has been with the company 24 years but has taken herself out of the running to fill the position permanently. HP has set up a search committee to look for a permanent replacement.

Mark Kelleher, an analyst with Brigantine Advisors, said Hurd's resignation boils down to "one person doing some really stupid things." "That gave a great deal of comfort to investors that this was not a company-fundamental issue," he said.

Still, HP's shares - which closed Friday on the New York Stock Exchange at $46.30 - tumbled after hours to $41.85 as investors reacted to the stunning news of his resignation. Preliminary financial results HP released Friday for its fiscal third quarter came in slightly above analyst expectations.

Beloved by investors for his relentless cost-cutting -- and scorned by thousands of laid-off employees for the same -- Hurd was seen as rescuing the company from the mess left behind by his ill-fated predecessor, Carly Fiorina.

Hurd has transformed the 71-year-old company from a computer and printer maker hooked on profits from printer cartridges into a company that looks a lot like its archrival IBM (IBM), a major player in technology services and other fast-growing areas.

Untimely Departures

Though their underlying stories are very different, Hurd's departure is like Fiorina's in one key way: Both were forced out with the company about to reap the benefits of sweeping changes they made at the Silicon Valley institution.

Fiorina left in 2005 in the wake of her decision to acquire Compaq Computer and an ensuing upheaval over her personality and her business strategies, but the divisive deal proved instrumental in HP's ascendance under Hurd.

By comparison, Hurd is departing after cutting tens of thousands of jobs and launching an expensive expansion, including the $13.9 billion acquisition of technology-services provider Electronic Data Systems, the $2.7 billion takeover of computer-networking equipment maker 3Com Corp. and the $1.4 billion deal for mobile phone maker Palm Inc.

HP general counsel Michael Holston said on a conference call Friday with analysts that Hurd's actions concerning the contractor showed "a profound lack of judgment." He said Hurd's "systematic pattern" of submitting falsified financial reports to hide the relationship convinced the board that "it would be impossible for him to be an effective leader moving forward and that he had to step down."

"The facts that drove the decision for the company had to with integrity, had to do with credibility, had to do with honesty," Holston said, declining to elaborate further on specifics. Holston said the inaccurate financial reports "related to Mark's conduct with this specific individual and wasn't broader than that."

Earnings Preview Released

HP said it became aware of the relationship several weeks ago when the former contractor accused Hurd and the company of sexual harassment. An investigation found that HP's sexual harassment policy wasn't violated but that its standards of business conduct were.

Hurd and Robert Ryan, HP's lead independent board member, said Hurd's departure has nothing to do with the company's financial health.

To reassure investors, HP, based in Palo Alto, previewed its third-quarter results late Friday in advance of a detailed report Aug. 19. The company said it expects to report earnings of 75 cents per share, compared with 67 cents a year earlier. Excluding one-time items, the company earned $1.08 per share, a penny ahead of analysts' current expectations. Revenue is expected to rise 11% from last year to $30.7 billion, slightly higher than analysts' expectations.

The company's forecast for the current quarter, which ends with its fiscal year in October, is roughly in line with analysts' expectations.

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tedstir

Let me get this straight...the guy who saved HP from the garbage bin, saved hundreds of thousand jobs, turned HP into the top US technology company is forced to resign over expense reports? hmmmm?? The brilliant Board of Directors, in their posture to be "morally correct" forced Hurd's resignation. In doing so, HP stock dropped $5 billion in market cap in one hour after the announcement. The company is now in turmoil as they search for a new CEO. A new CEO is usually given a 6 -12 month pass. Meaning, it will take 12 - 18 months for HP to regain their footing, assuming they can ever find another Mark Hurd.
There was a woman involved who initially claimed sexual harassment & then dropped the complaint. I noticed that she's represented by Gloria Allred. Movie? Book deal? hmmmm??

August 07 2010 at 4:10 PM Report abuse rate up rate down Reply
OrhanNursanFetta

hp's board of directors should lighten up a little. Mr Hurd has been doing a fine job directing the company in a tough economic period. The board should not have made such a big deal over such a small thing. Are the board of director's at HP able to walk on water and are they saints. I don't think so. They just gave Mr Hurd a golden perachute and made him a much richer man. He will be hired by a competitor and use his talents to make another company succesful in competition with HP.

August 07 2010 at 3:42 PM Report abuse rate up rate down Reply
stoykac

Really? More of Mainstream Media's attempt to derail good leader's getting into politics and keeping with our status quo. How much did Boxer's campaign pay the AP?

August 07 2010 at 1:42 AM Report abuse -4 rate up rate down Reply