HP Shouldn't Pay for Hurd's Mistakes

" NEW YORK (TheStreet) --HP's ousted and disgraced Chairman and CEO Mark Hurd screwed up and investors have to pay for it. I don't get it.

Despite concluding that Hurd's conduct "displayed a profound lack of judgment", HP gave him a big-money sendoff to the tune of $12.2 million in severance payments, an extension of the deadline to cash in options on 775,000 HP shares, pro-rata vesting and settlement of 330,177 performance-based restricted stock units, settlement on December 11, 2010 of 15,853 time-based restricted stock and eligibility for continued group medical and dental coverage for up to 18 months., according to an SEC filing retrieved through EdgarOnline.

Why should a single dime come out of the bottom line? Why should a single share be awarded to someone who, in his own words, "did not live up to the standards and principles of trust, respect and integrity" that he demanded of others at HP?
Make no mistake, Hurd wasn't hurting for the money. As Eric Jackson pointed out in his recent column titled Mark Hurd's Excesses Were in Plain Sight, Hurd's total compensation for 2008 was $43 million, making him the fourth-highest-paid CEO that year.
HP's board may think it is fair to reward Hurd for the work he did to set the company back on the road to success -- and there are few who don't acknowledge that the company improved under his leadership -- but what about the damage to HP's reputation that Hurd also inflicted in the end?

The performance of a leader must be measured -- and rewarded -- based on more than the numbers. Integrity matters. Trust matters. We're talking about "violations of HP's Standards of Business Conduct" by the man who held ultimate responsibility for corporate conduct.
Hurd should have been fired, but the board on which he had served as chairman didn't have the stomach for it.
It may appear that the board took the high road by pushing Hurd out, but the severance agreement shows that old-school, nepotistic boardroom behavior is alive and well in America.
The message to investors is clear: The instinct among board members to look out for their own is stronger than their sense of duty to shareholders "

Jodie [Fisher] Will Likely Get 300,000 Thank You Notes’

By Michael Corkery, Wall Street Journal

If ever there was a case of schadenfreude, it is on display by the employees, past and present, of Hewlett-Packard.
As one of worker put it, “we had an office party this Monday at HP HQ,’’ to celebrate the resignation of CEO Mark Hurd amid an expense account scandal. In short, dozens of readers identifying themselves as H-P employees or ex-employees have left comments on Deal Journal cheering Hurd’s resignation.

Hurd may have been beloved by Wall Street (H-P’s stock tumbled 8% on Monday, but rose more than fourfold during his five-year tenure at the H-P helm) but he wasn’t loved by everybody inside the technology giant where he had implemented draconian cost cuts, including laying off thousands of people.
“Many HP employees were dancing in the hallways today, the witch is dead. Morale was at an all-time low at lunch last Friday,’’ wrote one employee. “Jodie will likely get about 300,000 thank you notes.”
While expressing delight in his resignation, many objected to the “golden parachute” that will cushion the fall from grace. Hurd, who ranks among the top paid CEO’s in the nation, will walk away with about $28 million in severance and stock options.“If any employee was found fiddling with their expenses they would be marched out of the building and tossed into the street. No compensation. Why then should Hurd get any compensation?” asked one Deal Journal commenter.
There were some who called out Hurd’s apparent hypocrisy: A CEO who was ruthless in his efforts to cut expenses was accused of falsifying his own expense reports.
A reader identifying himself as Joe the engineer from HP wrote: Hurd’s employees left in droves (including me). The rest would have left when the economy got better… those that he didn’t fire, anyway. I love watching all this happen to him, couldn’t have happened to a better guy. Thanks Mark for making me take all that ethics training - looks like YOU were the one who needed it.
Judging from the comments, much of the animosity appeared to come from EDS, the software company that H-P acquired in 2008.
An ex-EDS employee writes: “God he deserved it. The way we (EDS ) employees were treated after the merger, was just terrible. HP made their numbers basically through the EDS division and we got rewarded with a 20% pay cut. Mark also took a pay cut on his base salary - note base salary not on his bonuses! I am glad that he will be using his bonus money to pay his lawyers.”
Of course, it is unclear whether such comments are a representative sampling of the H-P morale or the venting of a few disgruntled workers. But it is clear that Hurd didn’t inspire much love from some corners of the company.

H.P. Ousts Chief for Hiding Payments to "Friend"

Yes !!!

"conflict of interest, failed to maintain accurate expense reports, and misused company assets".

"The woman’s lawyer contacted the company in late June, charging sexual harassment. While the directors were investigating that charge, they found inaccurate expense reports that covered payments made to the woman. The directors said, however, that the sexual harassment charge was unsubstantiated.

The board charged that Mr. Hurd, 53, failed to disclose his use of company funds. It urged Mr. Hurd to resign, but he balked and offered to compensate the company for the disputed funds, said to range from $1,000 to $20,000, according to a person close to Mr. Hurd who was briefed on the situation but was not authorized to speak publicly.
The board, however, insisted. “This was a necessary decision,” said Marc L. Andreessen, a venture capitalist and a director.
...
Mr. Holston also said Mr. Hurd used inaccurate expense reports to conceal the relationship with the woman. Mr. Hurd, who is married, has denied having a sexual relationship with the woman, according to the person briefed on the situation. Mr. Hurd declined comment.
Gloria Allred, the celebrity lawyer who has agreed to represent the woman, said, “We want to make clear that there was no affair and no intimate sexual relationship between our client and Mr. Hurd.” She declined to make the woman available for an interview or to identify her.
The company’s stock plummeted almost 10 percent on Friday on the news of Mr. Hurd, known for his straight-talking, analytical approach to business. Mr. Hurd rewired H.P. through layoffs, acquisitions and relentless cost-cutting measures.

The woman worked for H.P. between the fall of 2007 and the fall of 2009, having been hired by the office of the chief executive, the company said. Sources close to the company and familiar with the situation said that over a number of months, the contractor attended events for H.P. in Asia, Europe and the United States, and often dined alone with Mr. Hurd after the events. The contractor’s fees ranged from $1,000 to $5,000 for events in the United States and up to $10,000 for overseas ventures.

Even though the same contractor was present, Mr. Hurd said that he dined alone or with a different person on his expense reports, these people said.
A person briefed on this situation said Mr. Hurd had described the situation as “surreal and bizarre.” Mr. Hurd has denied any romantic context in the relationship with the contractor and talked about the board being swayed by the potential public relations problems that would follow accusations of sexual harassment.

Mr. Hurd, who was in the midst of contract negotiations with the board, did not file his own expenses, this person said. H.P.’s board and Mr. Hurd had, over the past month, been negotiating a new contract that would have had him earning $100 million over the next three years, according to a person briefed on the meetings. "

http://www.nytimes.com/2010/08/07/business/07hewlett.html?_r=1

Anger in UK.

Network World

An announcement that HP will cut more than 900 jobs in the UK by October has prompted anger from the Unite union

HP has announced internally that 934 jobs will be axed in the UK by October.
According to Unite union, HP has a 16,500-strong workforce in the UK, which could also be affected by a further 1,000 job cuts from November, which the union said is a "proportional" part of the 9,000 job cuts worldwide that the company announced last month.

The union is planning to meet with HP in the next two weeks for negotiations.
In a statement, HP said: "[The proposed changes] were first discussed with the HP European Works Council in November 2009 and have been part of an ongoing consultation process since then." HP also said that the "proposed changes" were "part of the company's ongoing review of its business".

However, Unite said that the latest round of job cuts was particularly painful after seeing nearly 4,000 jobs being cut over the past two years since HP took over EDS. "This will create further insecurity and uncertainty in HP with the threat of yet more redundancies to come," said Peter Skyte, Unite national officer for IT and communications. "Our aim is to reduce and to avoid compulsory redundancies. The fact that the company still retains nearly 2,000 temporary staff and contractors merely adds insult to injury," he added.

Although Skyte said that it is "too early" to say whether the union members would go on strike in response to the job cuts, he did not rule out industrial action. In April, after a series of strikes and talks through the Advisory, Conciliation and Arbitration Service (ACAS) regarding a dispute over pay and redundancies, Public Commercial Services (PCS) union were in the process of finalising the details of a pay and redundancy offer for staff working on the Department for Work and Pensions contract. PCS was unable to provide a status update at the time of writing.
Meanwhile, Skyte warned that the job cuts at HP meant that that fewer people were having to do more work.

"Managers are concerned that they don't have enough people to do the work," he said, saying that work for clients, including Rolls Royce and the Ministry of Defence, could be affected.
Unite also said that workers at HP sites in Bracknell, Bristol, Hook, Erskine, Milton Keynes, London and Warrington are likely to be affected by the jobs cull. Last month, HP was forced to pay BSkyB a total of £318 million in full and final settlement of a high profile lawsuit over a failed CRM implementation by EDS ten years ago.

HP to move work to low-cost offshore locations

IDG/Blooomberg and Businessweek

Hewlett-Packard's Enterprise Services business is counting on automation of its services and an expansion of its strategy to move work to low-cost offshore locations like India, to help cut costs and get more efficient, an executive of the company said on Wednesday.

The roll out of automation is also likely to be more efficient at the company's large offshore centers, said Robb Rasmussen, vice president and general manager for Best Shore Delivery of HP Enterprise Services on Wednesday.

"One of the most optimum places for automation is within an offshore location," Rasmussen said. The roll out of technology to automate a service, and the training of staff can be done more efficiently in these locations, as they have thousands of staff serving a large number of clients, he added. HP said earlier this month that it was cutting 9,000 jobs over three years as it restructures its enterprise services business and automates the services it offers enterprise customers.

Some other companies such as Dell have also said they are introducing automation to make their services more efficient. HP said it would invest US$1 billion in this connection, while also hiring 6,000 staff for the new services initiative, including some in services delivery.

In some offshore locations, including India, HP may however see net additions to the number of staff, Rasmussen said. The company is still hiring in India and some other offshore locations, and does not plan a reduction in staff in these countries, he added.

India is already the second largest location for HP's services business in terms of number of staff.
HP also has a majority-owned services subsidiary in Bangalore, called MphasiS, which became part of the company after its 2008 acquisition of Electronic Data Systems.

As its business grows, HP's enterprise services is having an increasing number of staff in offshore locations, Rasmussen said. The company has 14 offshore services centers across Asia, Eastern Europe and Latin America.

Customers are increasingly opting for an "India plus one" offshore delivery model, which includes near-shore delivery from locations in the customer's time zone, in addition to delivery from India, he added.

Automation will further drive down costs, as key services like applications management will be done with fewer people, Rasmussen said.

Link to article : http://www.businessweek.com/idg/2010-06-23/hp-services-to-cut-costs-by-automation-and-offshore-delivery.html

H.P. Will Cut 9,000 Jobs

HP announced Tuesday that it would cut 9,000 jobs (3678 in EMEA) and take a charge of about $1 billion over several years, as it consolidates and automates data centers. A.P.

During the same time period, H.P. will hire 6,000 new workers in sales and service delivery positions, said Jane McMillian, an H.P. spokeswoman. Under MArk Hurd, the company has shaved costs by regularly cutting large numbers of staff. In 2005, Mr. Hurd cut 15,300 jobs, in part by consolidating the data centers running the company’s own operations.

In 2008, after H.P. acquired Electronic Data Systems, it cut 7.5 percent of the company, or 25,000 people, and reduced the salaries of others by 20 percent in some cases. In May 2009, H.P. announced that it would cut 6,420 people.

Mark Fabbi, a vice president and analyst at Gartner, compared Hewlett’s data center division to factory floor during the Industrial Revolution. “In the Industrial Revolution, they put things on an assembly line and didn’t need those jobs anymore,” he said. “This is the same thing applied to H-P, a hundred years later.”

The company said it would record about half of the $1 billion charge in the third quarter and the rest by the end of fiscal 2013. The layoffs and $1 billion charge will result in savings of $500 million to $700 million a year, the company said.

HP criticized for earnings accounting

Hewlett Packard Playing Games with Earnings CNBC, 06/2 , Herb Greenberg

First, housekeeping: Glad to be back!
Second: My inaugural "Herb on the Street" on CNBC (see video below) focused on whether Hewlett Packard is minding the earnings GAAP.

GAAP, of course, is generally accepted accounting principles. My beef: HP [HPQ 47.27 1.69 (+3.71%) ] presents itself to Wall Street as a non-GAAP company and has decided to exclude a $1 billion charge from non-GAAP earnings.

The issue of GAAP vs. non-GAAP is a longtime, simmering issue on Wall Street and it really gets down to this: Should investors view companies the way the companies want to be viewed or the way GAAP intended them to be viewed?

I say the latter, if the charges are not one-time in nature and are part of an ongoing restructuring/acquisitions strategy, which appears to be the case at HP. Acquisitions, in fact, are a stated part of HP's business strategy. (Note its recent deals to acquire Palm [PALM 5.71 0.05 (+0.88%) ] and 3Com.)

Some background:
* Two years ago, HP acquired EDS, the enterprise services company, for $13.5 billion.
* At the time the company said the deal would be accretive to GAAP earnings in 2010.
* Now the company is taking a $1 billion charge over a multi-year period, but only reporting that charge in GAAP results.

The result, in my opinion: Never mind that it appears EDS won't be GAAP accretive in 2010, it would appear that non-GAAP results will be artificially inflated.
Furthermore, it's easy to see why HP likes to keep the charges out of non-GAAP: Over the past three years, as the accompanying chart shows, non-GAAP earnings per share have beaten GAAP earnings per share.

I'm not the only person who has that view. On a conference call held by HP Monday to discuss a new strategy for its enterprise business, Sanford Bernstein analyst Toni Saccanoghi-who is generally known for asking the tough question-asked why the $1 billion charge would only be included in GAAP.

HP CFO Cathie Lesjak responded, saying, "While business charges in non-GAAP are typically more routine, routine rebalancing of activities and adjustments to changing business conditions. So this is really a structural change."

Perhaps, but as Saccanoghi responded in a note: "Given that HP's actions appear to be strategic in nature, we believe this could (and should) raise questions among investors. We note that HP has taken restructuring charges of more than $50 million in 10 out of the last 20 quarters (and restructuring charges of any magnitude in 17 out of the last 20 quarter) and this current charge may reinvigorate investor debate over HP's use of GAAP vs. non-GAAP earnings."
As well it should-and not just as it pertains to HP.