Ethical Dilemma: Corporate Governance the HP Way HP Way Founded in 1939 in a garage, Hewlett-Packard (HP) is the original Silicon Valley company. The HP Way is the legendary culture of innovation and creativity that HP had codified and disseminated itself. This case focuses on HPs corporate governance journey in the 21st century. Lost Its Way By the late 1990s, with founders Bill Hewlett and David Packard long gone, HP had more than 100,000 employees and $31 billion in annual revenue. While the product market competition intensified, HP also experienced a series of corporate governance intrigues that involved boardroom coups, corporate spying scandals, and rapid-fire CEO turnover. In short, this iconic company seemed to have lost its way. In 1999, Carly Fiorina became the first female CEO of a Dow Jones 30 company. She spearheaded the controversial $25 billion acquisition of Compaq in 2002. In 2005, she was fired after HP lost half of its value. For her trouble, Fiorina was paid $20 million to leave. Board chair Patricia Dunn was frustrated by unauthorized leaks from the board when the decision to fire Fiorina was deliberated. Dunn hired a private security firm to illegally spy on board members and journalists, and she herself was fired in 2006. The board then hired Mark Hurd to be HPs next CEO in 2006. In four years, HPs share price doubled, and it became the first IT company to have sales exceed $100 billion. But Hurd suddenly resigned in August 2010 amid stories of sexual harassment. He left HP with a severance packet of $12 million and joined Oracleone of HPs archrivalsas co-CEO. Oracles founder and CEO Larry Ellison called the HP boards decision to let its star CEO go the worst personnel decision since the idiots on the Apple board fired Steve Jobs many years ago. In November 2010, HPs board hired Lo Apotheker as the new CEO. But he was quickly fired in September 2011 after HP lost $30 billion in market capitalization. For Apothekers less than 11 months of hard work, he walked away with $13 million. In September 2011, Meg Whitman, an HP board member and eBays former CEO, was named HPs newest CEOthe fourth since 2005. At this point, turmoil at the topin combination with the challenging product-market competition where PC sales were not growing and demand for printing was reducedcontributed to a free fall. In August 2010, HP was worth $100 billion. In January 2013, it was worth only $29 billionless than Carnival Cruise Lines, which had one-ninth of the revenue. While HP continued to sell and profit from PCs and printers, where it was the worldwide market leader, the disarray at the top was viewed as one of the great corporate destructions of all time, noted an expert. Can Whitman stop the free fall? Stopping the Free Fall Whitman did stop the free fall and restore stability. She successfully implemented a five-year turnaround plan. But whatever HP once had been, it was no longer. Its new innovations were more incremental as opposed to radical. Its cost-cutting was painful: Whitman laid off 85,000 employees from a total headcount of 300,000 when she took over. Very few people have run a $110 billion company, Whitman commented in a Harvard Business Review interview. Everything has more zeros attached to it, more complexity, more countries, more tax jurisdictions. Because HP became such a sprawling technology conglomerate, its shares were trading at a conglomerate discount. To unlock value for shareholders, in 2016, Whitman engineered a split of HP into two new $50-billion-plus publicly traded companies, each with a narrower set of businesses: Hewlett Packard Enterprise (HPEdropping the hyphen between Hewlett and Packard from the original entity): the data center, cloud, and consulting company, with revenues of $58 billion and an operating profit of $6 billion in 2015. HP Inc.: the PC and printer company, with revenues of $57 billion and an operating profit of $6 billion in 2015. The stock of HP (the original company) when the decision was announced went up. However, Whitman did not tell board members which child company they were going to serve until about a month before hand in order to minimize boardroom intrigues. The move was viewed by many commentators as a sign of defeat, admitting HPs inability to slow the commoditization of its PC and printer businesses. A Tale of Two HPs Of the two new child companies, HPE, packed with technologies of the future, was sexier. Whitman kept it for herself as CEO. HP Inc. had a bunch of commoditized businesses that were believed to have a low probability of growth and every likelihood of slow decline. Whitman named herself board chair for HP Inc. and appointed another executive as CEO. Whitmans goal as HP Inc.s board chair wasin her own wordsto make sure both companies are working together. Surprisingly, HP Inc.s stock climbed 67% in its first two years. Both PC and printer sales increased significantly. The printer company was also endeavoring to transform itself to become a serious player in 3D printing, which has potential to transform manufacturing. In contrast, HPE was a laggard in a high-growth field. Both Amazon and Microsoft crushed its cloud services. In 2017, Whitman stepped down as HP Inc.s board chair and HPEs CEO. The announcement resulted in a 6% drop in HPEs stock price. In January 2020, HP Inc. received a takeover bid from Xerox, another former American technology icon that was now fading. With only $10 billion in annual revenue, Xerox was much smaller than HP Inc., which had $58 billion in annual revenue. For decades, HP and Xerox were among the most innovative companies in the world. In their public debate related to the acquisition in terms of who could manage HP Inc.s assets better, both were arguing who had the superior vision to acquire and then eliminate competitors and who had better plans to jettison employeesnot an inspiring debate. HP Inc. believed that Xeroxs bid was driven by activist shareholder Carl Icahn, who owned 11% of Xerox and 4% of HP Inc. On March 5, 2020, HP Inc., whose stock was trading at $21 per share, rejected Xeroxs offer of $24 per share. On March 31, 2020in the midst of COVID-19Xerox withdrew its bid, noting, There remain compelling long-term financial and strategic benefits from combining Xerox and HP. The refusal of HPs board to meaningfully engage over many months and its continued delay tactics have proven to be a great disservice to HP stockholders. From a corporate governance standpoint, HP Inc.s successful defense against Xeroxs takeover bid is not likely to be the last episode of the saga involving not only HP Inc. itself, but also its sibling HPE. Next time when you print something out of an HP printer, spare a thought about the corporate governance intrigues and the product-market challenges that surround both HP companies. As a corporate governance consultant, if you had been engaged by HPs board in 2012, what would be your advice to reduce the frequency and the embarrassment of corporate governance intrigues and fiascos that took place between 2005 and 2011? What are the benefits and drawbacks of splitting HP into two halves? As an HP Inc. shareholder, do you support managements decision to reject Xeroxs takeover offer on March 5, 2020, which would have given you a 14% premium?