JUST AS FORMER HEWLETT-PACKARD CEO Carly Fiorina was heading out to promote her new memoir, Tough Choices, the HP board imploded over a leak and surveillance scandal. She talked to Directorship about the similarities and differences between HP's board now and at the time of her abrupt ouster in 2005. She also suggests that an even more thorough housecleaning may be necessary for the leadership to recover fully. Here are highlights from an exclusive interview:
Would it be fair to say that Hewlett-Packard's board is dysfunctional?
Absolutely.
What are roots of that? How did it happen?
I think boards get dysfunctional when personal agendas outweigh public responsibility. And I think that can happen, unfortunately, any time, with any group of people, which is why focusing on the board's dynamics and having up-on-the-table conversations about the source or the existence of dysfunction are so important.
As I mentioned in my book, the Hewlett-Packard board until the late 1990s really was not an active board. What board members said to me when I arrived was, "Dave [Packard] was the dictator in the boardroom. We all did what Dave wanted." So I think there was a period of time when the board was fairly passive. Then there was a period of time when the board became very active. The decision to spin out Agilent required a lot of active discussion. I think the culture, however, had become a culture of conflict avoidance. People had a difficult time talking about tough issues directly. And so this pattern of conflict avoidance meant people would take things underground. I found it around my executive table, and I found it around the board table.
So was conflict avoidance the common denominator between what is currently going on and what happened to you?
Two things, to me, cause dysfunction. One I've already spoken about, when people's personal agendas become all-consuming. The other is when other people stop talking candidly, openly and directly. Debate and disagreement in the boardroom are paramount to a healthy business. And not everybody is comfortable with that. Some people feel threatened by direct dialogue. I think directors need to understand that respectful, open debate and discussion about what you agree on as well as what you disagree on are part of the job.
HP's board has five vacancies. What has to happen now?
I believe for the sake of the company—which is a company I love—there has to be up-onthe- table conversation about what has happened here. My personal view is that it can't be swept under the carpet. People have got to talk about what happened. I think the difficulty in the boardroom is it's a very small group of people now. They are embattled, and they have to fill a bunch of seats.
Will five new board members be enough, or does HP need a deeper housecleaning that that?
I'm not there. I don't know what's going on in that boardroom. My supposition would be right now that there's not necessarily complete alignment about what has to happen next. I doubt that the dysfunction has all disappeared just because three people have left.
One would assume that for the sake of continuity, a total turnover wouldn't be practical.
I'm not suggesting that's the right answer. I don't know what the right answer is. What I do know is that a lot of straight talk has to happen now.
One theory floating around is that the board had a closed mentality, sort of like a Silicon Valley club. Do you buy that?
When I was there, my view was—and this is why I had great trepidation about bringing Tom Perkins back—not just that the mandatory retirement age rule was one the board had agreed on and I didn't see any reason to break the rule, but more important I didn't think more tech expertise was what we needed. I thought what we needed was bigcompany operational expertise. I've spent 30 years in big, complex companies, and they are different in nature from small technology startups. Of course, I believe that you need some people who understand technology. But Hewlett-Packard isn't a startup in Silicon Valley anymore. It's an almost $9 billion global colossus.
We've heard that having Mark Hurd serve as chairman may be a mistake, that an independent chairman might be a better idea. What do you think?
Let me take it out of HP's specific situation for a moment. I personally don't believe there's a silver-bullet answer to how a boardroom best works. I think in some situations, a separate chairman and CEO works well, and in others the combined job works well. I think it has more to do with how the people around the board table operate. Having said that, my observation would be it's not clear to me how in this particular case that particular answer is responsive to the issue that apparently exists. It may be, but it's not intuitively obvious to me.
What's your impression of the role played by [outside counsel] Larry Sonsini?
When I was there, Sonsini was a great counselor to me and to the board. I consider him also a very good friend. My experience with him is that he tried very hard to understand various points of view. That's my impression of him.
If financial results and board structure aren't adequate measures, how do you do an objective assessment of board function?
I would focus first on, what do they spend their time on? Of course, a board has to review the financials of a company. But in my view, the board needs to be spending most of its time not on what's already happened but on the leading indicators. So those are: Do we have ethical issues we need to consider? Where are our risks? What's happening with leadership development? What's happening with customer satisfaction? Are we still executing against our strategy? Are there other strategic alternatives we should be considering? Whom do we have in which chairs, and do we have the right people in the right jobs? In a technology company, what's our rate of innovation?
There are some leading indicators that point to the ongoing health of the business. And I think, first, board members should be spending their time on the right things. Second, you can't cut any corners on rules of governance. You can't skim a 10K—an example from my book. You've got to know what' s in it and sign off on it.
Do you think pressure from special interests like labor and religious groups, hedge funds and pension funds is interfering with board and CEO decision- making?
I think there's a danger in that. Not because those groups don't have a legitimate interest in the impact of a company. I happen to strongly believe that a global company has huge impact, and I think directors need to be thinking about what that impact is on the environment, on the community, for their own enlightened self-interest. But I think the model that some people have in their minds is our political system. And our political system is designed to move very slowly. It is designed to not move at all until there is an emerging consensus among many interest groups about what the right thing to do is. That's not how a business can operate in a competitive environment. We need to talk plainly about the fact that if we want American companies to compete on a global stage, they have to be businesses, not political organizations. We're in different spheres.
What are you going to do next?
I kind of made myself a promise that I wasn't going to make a decision about another fulltime commitment until after I got this book out and saw this process through. I may go back and run a company again. I may move off into public service. I suspect — I hope — I will serve on boards of companies that are interesting to me and that I have admiration for. I think that's a worthy cause.
