HP: the adventure continues

Larry Ribstein —  8 August 2010

When I last discussed HP, I reflected on the spectacular failure of independent board governance associated with pretexting-gate. That, you might recall, was Patricia Dunn’s highly questionable covert-op that epitomized the general board dysfunction that can accompany independent director governance of modern corporations.

Now we have news (from the NYT) that HP’s most recent CEO, Mark Hurd, misreported payments to a woman who worked for HP that he had some sort of relationship with. The woman hired Gloria Allred, so the doodoo hit the fan and Hurd had to leave.

The narrative that seems to have emerged is that it’s sort of silly that this highly successful executive should have to leave the company just as it’s zooming to success. The WSJ quotes a Wharton professor as saying “[Hurd] was one of the great-performing CEOs of the era and could have easily had another five years or more.” The NYT story says Hurd “talked about the board being swayed by the potential public relations problems that would follow accusations of sexual harassment.” What a shame that mere public relations will cause super-CEO Hurd to miss a reported $100 million payday he was negotiating for. He’ll have to settle for a mere $12 million in severance plus stock compensation.

But I’ve been wondering – exactly how successful was Hurd? The reason I’m wondering is this snippet from the Times story:

The company also released preliminary results for its third quarter. H.P. said it earned 75 cents a share, compared with 67 cents in the period a year ago. Excluding one-time items, earnings were $1.08 a share, slightly more than the $1.07 expected by analysts. Revenue rose 11 percent, to $30.7 billion; analysts were expecting $30 billion. In its outlook for the fourth quarter, H.P. said it expected earnings of $1.03 to $1.05 a share, or $1.25 to $1.27 after excluding one-time items. Analysts had forecast adjusted earnings of $1.26 a share. It forecast revenue of $32.5 billion to $32.7 billion, in line with expectations

Jeff Matthews says (tip Tom Kirkendall)

Wall Street’s Finest remain easily distracted by the inflated earnings figures at HP that became a fixture under Mark Hurd. * * * [A]s we see it, a guy who can fool all of Wall Street’s Finest all of the time—by among other things, turning 75 cents worth of earnings into $1.08 worth of earnings through the magic of numbers prepared using accounting principles not generally accepted by accountants—could certainly convince himself that a great deal else can be accomplished through the magic of other principles not generally accepted elsewhere in life. In other words, one fiction may reasonably lead to others.
Whatever the true story behind the story, however, one thing we know remains true: the more things change on Wall Street, the more they stay the same.

Indeed, haven’t we seen this before? Like over-reliance on imperial CEOs? Bernie Ebbers and Scott Sullivan just hitting the numbers quarter after quarter?

Well, things aren’t quite the same. Fortunately we’re in the post-SOX era and Bernie Ebbers is in jail for the rest of his life. So there’s no reason to worry about fraud. Is there?

Larry Ribstein

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Professor of Law, University of Illinois College of Law

One response to HP: the adventure continues

  1. 

    This is far more interesting than fraud – it is all out in plain sight.