This article is part of the series

Why H-P Should Not Split Itself Up

By ValleyBeat FOXBusiness

Nearly ten years ago I was at a dinner with friends, one of who was an executive at Hewlett-Packard (HPQ). Carly Fiorina had just been forced out of the company after that controversial merger with Compaq and I found myself making a pretty forceful argument for reversing that fateful mistake and breaking up the company.

Continue Reading Below

It seemed like a no-brainer to me, but my friend argued against. The meal ended with dessert and a stalemate over the fate of the Silicon Valley icon.

Then, in a surprisingly inspired move and perhaps its final act as a well-functioning entity, the board turned the company over to long-time NCR executive Mark Hurd. What happened next was nothing short of a miracle. Hurd led HP to market share gains in computing and printers, five years of revenue growth, 22 straight quarters of increasing profits and a stock price that more than doubled.

Granted, Hurd did have his detractors. He was a ruthless cost-cutter who ran the company with an iron fist. His relentless pursuit of operating performance deprived executives of much of the freedom they had grown accustomed to at a company that had always stood for innovation above all else. And acquisitions of EDS and 3Com failed to live up to their potential.

But we’ll never know just how much of the company’s ongoing issues were attributable to Hurd as opposed to HP’s famously dysfunctional board. A sexual harassment claim by a marketing contractor was all it took to ignite another round of infighting among what former H-P director Tom Perkins called, “the worst board in the history of business.”

Although the accuser’s allegations were found to be baseless, the board was divided over what to do about Hurd and ended up ousting him anyway, a move that Oracle chairman Larry Ellison said was “the worst personnel decision since the idiots on the Apple board fired Steve Jobs.” (Ellison went on to hire Hurd and recently named him co-CEO of Oracle.)

Continue Reading Below

What happened next will either go down in history as one of the most glaring examples of board incompetence or just another day at the office, depending on how you look at it. The board replaced Hurd with Leo Apotheker even though he had just been fired by SAP and two thirds of H-P’s directors had never even interviewed the guy.

Apotheker would make a real mess of things before the board realized its mistake and dumped him after just 11 months on the job. What puzzled me at the time (but now that I think about it, I guess it was just par for the course) is that instead of doing what it should have done in the first place – an exhaustive search for the best CEO candidate – the board turned right around and gave the job to one of its own directors, Meg Whitman. Never mind that the former eBay executive-turned-politician had absolutely no enterprise, IT, hardware, software, complex supply chain, or turnaround experience.

And now after four years of layoffs, cost-cutting and cleaning up the balance sheet, Whitman has essentially admitted she has no idea how to reinvigorate growth and opted to split the company in two. Sadly, that’s the same tired and uninspired solution every armchair CEO – including me, I have to admit – had before Mark Hurd came along and proved there was a better way.

We’ve seen this scenario play out many times before. It was the same way with IBM. The wizards on Wall Street called for a breakup to unlock shareholder value and avoid bankruptcy, but it’s a good thing the board hired Lou Gerstner instead.

Apple’s situation was different but its prospects looked just as dim until the company acquired NeXT and brought back Steve Jobs. And we recently heard the same old breakup rumblings about Microsoft just before Satya Nadella was named to replace Steve Ballmer. The stock has been on a tear ever since – up 26%.

Make no mistake. Dividing H-P into a personal computer and printer company and another focused on the enterprise provides no solution to either company’s competitive or growth problems. There is no creative vision or insightful strategy behind the move. Whitman herself called it “the right tactic.” She’s right about one thing. It is a tactic – a politically expedient and unimaginative tactic that’s tantamount to admitting defeat.

Maybe Hurd’s solution to the problem was a tactic as well, but it had the virtue of being effective. It worked for five years. A better CEO – the right CEO – would have come up with a better solution than this.

What do you think?

Click the button below to comment on this article.