SAN FRANCISCO (AP) — The downfall of Hewlett-Packard Co.’s CEO Mark Hurd was swift and stunning.
The 53-year-old abruptly resigned Friday over previously undisclosed allegations of sexual harassment and financial shenanigans involving a relationship with a former HP contractor.
But before the news broke and sent HP’s stock tumbling, Hurd had a nearly bulletproof reputation on Wall Street for his stewardship of the world’s biggest maker of personal computers and printers.
HP said that Hurd was forced out after the company discovered that he had a secret relationship with a woman who worked with HP on marketing matters, and that he falsified expense and other financial reports to conceal the relationship and help get the contractor paid for work she didn’t do.
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.
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.
He doesn’t think the company will have any trouble filling its top job, either.
“That’s kind of a plum spot in CEOland, so they have their choice of who to put in there,” he said.
Beloved by investors for his relentless cost-cutting – and scorned by thousands of laid-off employees for the same – Hurd was seen as HP’s white knight, an outsider who rescued the company from the mess left behind by his ill-fated predecessor, Carly Fiorina.
He has transformed the 71-year-old company from a computer and printer maker hooked on profits from printer ink, into a company that looks a lot like its archrival IBM Corp. and is now a major player in technology services and other fast-growing areas.
Under Hurd, HP’s stock price doubled, its market value grew by more than $40 billion and HP has become the world’s No. 1 technology company by revenue.
On Friday, HP’s shares closed trading on the New York Stock Exchange at $46.30, then tumbled to $41.85 as investors reacted to the stunning news of his resignation.
Now, five years after taking the HP helm, Hurd is suddenly out of a job and his situation is similar to Fiorina’s in a key way: Both were forced out as the company stands ready to reap the benefits of sweeping changes they made that transformed the Silicon Valley institution in fundamental ways.
Fiorina was forced out in 2005 in the wake of a fight over her decision to acquire Compaq Computer and an upheaval over her personality and business strategies. The Compaq deal was bitterly divisive but proved instrumental in HP’s ascendance to the rank of the world’s top personal computer seller – something that happened under Hurd’s tenure.
Michael Holston, HP’s general counsel, said on a conference call with analysts that Hurd’s actions showed “a profound lack of judgment” and that his “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 added that the inaccurate financial reports “related to Mark’s conduct with this specific individual and wasn’t broader than that.”
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, stressed that Hurd’s departure has nothing to do with the company’s financial health.
Also Friday, HP issued preliminary results for its fiscal third quarter, which came in slightly above analyst expectations.
HP said it earned 75 cents per share during the period, compared with 67 cents per share in the same quarter a year ago. When excluding one-time items, the company earned $1.08 per share. Analysts polled by Thomson Reuters expected adjusted earnings of $1.07 per share.
HP said its revenue rose 11 percent from last year to $30.7 billion; analysts were looking for $30 billion in revenue.
HP gave outlook for its fiscal fourth quarter as well. The company forecast earnings of $1.03 to $1.05 per share, or $1.25 to $1.27 per share after excluding one-time items. Analysts were hoping for adjusted earnings of $1.26 per share. HP expects $32.5 billion to $32.7 billion in revenue, in line with analysts’ expectations of $32.6 billion.
HP, which is based in Palo Alto, plans to report its final results Aug. 19.
HP’s stock price has nearly doubled since Hurd started at HP on April 1, 2005, when the shares closed at $21.71. They closed trading Friday on the New York Stock Exchange at $46.30, then tumbled to $41.85 as investors reacted to the stunning news of his resignation.