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HP (The case suggests that the “HP Way” may no longer be relevant today…
HP
The case suggests that the “HP Way” may no longer be relevant today for HP. What is the “HP Way”? Do you think any company can operate successfully today based on similar values? Why or why not?
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Lots of businesses have good principals, but at HP they were uphold in the culture and the behaviour of the employees. (Apollo 2011)
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Current HP Values: "Passion for customers
We put our customers first in everything we do.
Trust and respect for individuals
We work together to create a culture of inclusion built on trust, respect and dignity for all.
Achievement and contribution
We strive for excellence in all we do; each person's contribution is critical to our success.
Results through teamwork
We effectively collaborate, always looking for more efficient ways to serve our customers.
Speed and agility
We are resourceful and adaptable, and we achieve results faster than our competitors.
Meaningful innovation
We are the technology company that invents the useful and the significant.
Uncompromising integrity
We are open, honest and direct in our dealings."
(HP 2017)
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Current issues for CG are : Cyber security and Health and safety. Future CG issues are culture and ethics.
It is important for companies to support the community, so need a good ethical strategy.
(Wikipedia) tenets of The HP Way:
We have trust and respect for individuals.
We focus on a high level of achievement and contribution.
We conduct our business with uncompromising integrity.
We achieve our common objectives through teamwork.
We encourage flexibility and innovation.
In Hewlett's words, the HP Way is "a core ideology ... which includes a deep respect for the individual, a dedication to affordable quality and reliability, a commitment to community responsibility, and a view that the company exists to make technical contributions for the advancement and welfare of humanity." (wikipedia)
Stakeholder theory
Stakeholder theory says that the company has an impact on many stakeholders and therefore has a reposnibility to stakeholder other than just shareholders. (Solomon)
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HP board were aware that for long term sustainability of the business, they needed to look after the needs of all stakeholders and this included leading by example with regard to ethical issues.
Who should be responsible for setting and upholding the ethical culture of a company? How can a company ensure that such a culture is practised on a day-to-day basis?
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HP had a strict Standard of Business Conduct (SBC) which had been revised and tightened following a scandal in 2006 when HP had spied on directors, employees and journalists. (Bradley 2017)
Team Production Theory
(Blaire 1999)
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Team Production
Multiple stakeholders invest in the company and they all deserve a share of company profits. This includes employees.
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If you assume that the directors follow agency theory and serve the shareholders only, they may have elected to retain Hurd. However, since HP had guiding principals that promoted ethical behaviour, they decided to remove Herd form the company.
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Following the demise of Enron, and the global financial crisis, there has been a general lack for confidence in stock market investment (Solomon). Companies are therefore under increased pressure to appear to have a sound ethical governance strategy and to have control over the company.
Stakeholder theory
Anybody who can affect or be affected by the policies and activities of the company is a stakeholder. The company has a fiduciary duty under US regulations and also a responsibility to protect stakeholders.
US corporation law discourages stakeholder centric behaviour. Companies have a separate legal personality and directors are not personally accountable for their behaviour.
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Boards are only compelled to look after stakeholders as far as it maximises the return for shareholders.
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Stewardship theory
The directors act in the best interests of shareholders. Agents will act on behalf of those that have engaged them.
Do you think that HP was justified in forcing Mark Hurd to resign? Why or why not?
Hurds behaviour
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Prior to the scandal, Hurd had become disliked by some at HP. He had become inaccessible to all but the very senior executives and was showing failings as a leader. (Burgelman 2017)
While Hurd was CEO the share price doubled , so shareholders liked him. However, the profitability of HP was below that of other similar businesses. (Burgelman 2017)
How the board decided
Some board members had been brought on by Herd and could be seen as Hurd supporters. However some upheld their fiduciary duty over their loyalty to Herd. (Burgelman 2017)
Hurd leaving HP so abruptly inevitably left a gap that was difficult to fill immediately. (Burgelman)
Hurd acted unethically, broke company rules and acted with dishonesty to the board. As soon as trust between the board and the CEO is broken, the board can not effectively steward the company. They can no longer trust information from the Hurd and nor can they trust that his actions will be in the interest of the company. Therefore there is no choice but to force Hurd to resign.
Directors act as trustees of the company. The board have a fiduciary duty to act only in the way that will steward the company. If they can not honestly say that they ave complete control of the CEO, they have a fiduciary duty to act to take complete control.
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The board has a fiduciary duty to act in the best interest of the COMPANY, not the SHAREHOLDERS.
Many people thought that the board over reacted when they decided to force Hurds resignation. (Blodget 2011)
People accused the board of forcing Herd's resignation to avoid bad publicity (Wikipedia), but there are other reasons that the board should have acted in the whay that they did.
Boards need to be forward looking. By keeping Herd, they would have been serving he present but not securing a positive future.
While Herd had been a hit with shareholders, he had not lead the company to develop enough new products.
By accepting Herds actions, the culture of the company would have been damaged and the long term effect would have resulted in lower company performance.
Hurd was more of a stabiliser and interested in making efficiencies rather than building new things. (Lashinsky 2009)
Hurd did not encourage R&D. The R&D spending was relatively low while profits were increasing (lashinsky 2009), but how long could this last without a change?
HP was still recovering from an ethics scandal regarding phone tapping of employees and board members. (Blodget 2011)
Therefore , the board had to be seen to act when a new and public ethics scandal erupted.
To not act would have been seen as a purposeful decision to support the behaviour that Herd had been accused of.
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If the board had allowed Hurd to carry on in his position, it could have lead to a situation that he had too much power over the board. Kt was important f the board to take control and exert its authority.
Comment on the fall of HP’s share price after Mark Hurd’s resignation. Does this mean that the decision to ask Hurd to leave was a poor decision from the shareholders’ point of view?
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When Hurds resignation was announced, the share price fell by 10 %. (Burgelman 2017)
Shareholders (institutional shareholders in particular can have a positive affect on the financial management of a business by monitoring to ensure best return on investment (Solomon), but they do not always have a wider looking view to help govern ethical issues. Listening to shareholders alone can result in unethical corporate behaviour.
Institutional shareholders have a stewardship role to play on behalf of the individual investors who make up their funds.
Institutional shareholders can vote, execute activism, ask questions of directors and ultimately divest. Independent shareholders are less likely to do anything other then divest if they don't like what they see.
THP directors had to make a call to either retain Hurd and suffer the potential consequence of shareholders not liking the decision or the consequences of the decision long term, or getting rid of Herd and suffering the immediate loss in share value.
It can be argued that voting is a fiduciary duty of institutional investors. This is particularly true in USA. (Solomon)
Shareholders hold power over the board (Solomon) to make decisions in their favour. Since shareholders liked Hurd, it was difficult for the board to decide against keeping him.
Blair (1999 law) wrote that US law dictates that companies re overseen by a board not to reduce agency costs, but to encourage investment in the right areas of the business, not just to maximise shareholders profits. In this case, it was not in the companies long term interest to keep Herd.
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Institutional investors filed law suits against the board for failure of fiduciary duty to shareholders. (Ricadel 2010)
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Agency theory
Agency problem (Solomon)
The agents (directors) do not always make decisions what are in the best interest of the principals (shareholders).
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Based on the events that have transpired, did Mark Hurd deserve the severance package he received? Why do you think the board gave him such a generous severance package?
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In California, no competition clause in contracts is not allowed. (Booth2010)
Severence package in HP stock may have allowed Hurd to continue his lifestyle without needing to take a new job in the same sector.
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HP did not want Hurd to take HP IP to another company. They sued him for taking a job with Oracle. (Booth 2010)
This California state legislation protects employees rights to a future career. It also helps the tech industry thrive by allowing for employees to move and take skills from company to company. (booth 2010)
By HP trying to prevent Hurd joining another organisation, they are sending he message that employees can not expect to develop their careers elsewhere. Since employees are stakeholders, should HP and other Californian companies do more to protect their employees future careers?
The board had a fiduciary duty to protect the company from any sabotage that Hurd could cause (deliberately or not) when he left the company. He could take IP to another company. (Booth 2010)
Blodget 2010
If HP had strong evidence that Hurd had really broken company rules, he would have been fired with no severance package. However, there may be reasons that the board were reluctant to do so:
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Should managers be required to behave ethically even if their actions do not directly affect the company? How does HP expect its employees to behave?
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Culture is the next big thing in CG. There is an increasing trend for boards to be responsible for the culture of the business.
Culture comes for the top. In the future, directors will be accountable for culture.
Company culture comes from the top. Employees will start to behave unethically if the CEO sets the wrong example.
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Regulations in UK are saying that the board is responsible for the culture that drives good ethical behaviour.
Culture is about what the leaders SAY and DO. Or what they allow and permit to happen.
By allowing Herd to behave badly, they are sending the message to all employees that this is the right way to behave.
Having a poor culture will not attract any good stakeholders. Good employees won't want to work for HP, Investors will avoid HP, customers will choose not to buy HP products.
If somebody can not make the right decision some of the time, how can they be trusted to make the right decisions the rest of the time?
It is becoming increasingly important for companies to adopt high levels of ethical behaviour. This behaviour will only spread through he company, if it comes form the top in terms of words and also actions of directors and senior managers.