Today, 
Kathleen Reardon infuriates me.
She’s got this long post claiming the H-P scandal was about politics, hinting that Patricia Dunn fell because she was a woman.
This is a little like saying the Mark Foley scandal happened because he was a Republican. It’s relevant, but only tangentially.
Dunn rose to power in part because of her gender, yes. She was put in place by Carly Fiorina to be a yes-woman in Fiorina’s transformation of Silicon Valley into Pittsburgh. Fiorina’s strategy was to "roll-up" the PC hardware business with Compaq and then "earn" oligopolist profits on proprietary hardware and software.
It’s a corporate policy as brain-dead as the Bush Administration’s approach to war and budgets. It’s based on an equally-flawed attitude, in Fiorina’s case the idea that the tech industry was consolidating, that only a few players would be left, and that those players would earn big profits.
WRONG.
There were some H-P directors who knew how brain dead this policy was. Dunn assumed this was Tom Perkins. Perkins was no ordinary sclub. This was Tom Perkins as in Kleiner Perkins, one of the greatest venture capitalists the world has ever seen, the ultimate Silicon Valley insider, and a priceless resource to a company like H-P. Dunn thought she could use spies to take Perkins down as a leaker.
But Perkins wasn’t the leaker. The leaker, according to Dunn’s investigators, was George "Jay" Keyworth. (As you’ll see in the link, he denies this.) Keyworth too was also no ordinary schlub. He had been on the H-P board for 20 years. He was the company’s institutional memory. (He’s also chair of the Progress & Freedom Foundation.)
When your institutional memory and your industry’s leading light go up against a banker with no experience in the business, there’s something important at stake. Something far more important than sex.
By the time Dunn let the dogs out, it was already obvious that
Fiorina’s great plan was not going to work. The oligopoly in PCs would
never happen because the Chinese could easily take over the market
through Lenovo unless H-P kept margins slim. The oligopoly in software
would never happen because of open source — the enterprises H-P was
depending upon as buyers are the biggest beneficiaries of the open
source business model.
So the business model was collapsing, H-P was going along a
disastrous path, and the board chair’s response was to spy on the
nation’s top VC and her company’s institutional memory? Then Reardon says it’s about sex and politics?
The fact is that H-P had another choice which it could have made, a
choice it rejected when it hired Fiorina, who is the person most
responsible for the mess the company is now in.
It could have gone the GE way.
GE was once a high-tech company. This was back in the 19th century. The
company’s big innovation was the electric utility. It developed the
equipment that made today’s electrical grid possible. It replaced
gaslight with electric light. It made most of the 20th century’s
innovations possible.
But by the 20th century it was apparent this growth opportunity would slow. So every generation GE found a new leader. Gerard Swope made GE an international company. Ralph Cordiner decentralized the company, giving divisions more responsibility. Reginald Jones made GE a big consumer brand name. Jack Welch made GE a financial titan. (These are just some of the high points.)
The charge of all of these men, and current chair Jeff Immelt (above),
has been the same. Follow the growth. Prune the slow-growing sectors,
buy into faster-growing sectors, target 15% growth in annual profits
and sales. So far, Immelt has chosen to avoid the rock-star status of his predecessor. I couldn’t pick him out of a line-up, could you? But if his numbers work, so what?
Each new chair was given his head, based on a strategy. The company’s
corporate culture, meanwhile, was maintained. It may seem strange to
think that someone managing a consumer electronics plant or a financial
services office could be imbued with a corporate culture first crafted
for building electric utilities, but that’s what leadership is about.
Instead of doing any of this, Fiorina tried a roll-up. When that didn’t work, Dunn hired Mark Hurd,
an operations guy. But operations is a short-term fix. Without a
strategy, one that dumps slow-growth units and buys into faster-growth,
you’re GM, not GE.
The real story here is the destruction of one of America’s greatest
companies on the altar of short-term values and valuations. This is
something Perkins and Keyworth were fighting. For their troubles they
were violated and shown the door.
And that — right there — is the real scandal.
