Founded in 1939 in a garage, Hewlett-Packard is the original Silicon Valley company. The “HP Way” is the legendary culture of innovation and creativity that the iconic company had codified and disseminated itself. To most readers of Global Strategy, HP probably represents a leading producer of printers and laptops—in fact, most of the manuscript of Global Strategy was printed on an HP printer, which has become a standard feature in many offices.
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 revenues. 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, it seemed to have lost its way.
In 1999, Carly Fiorina was brought in as 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. Patricia Dunn, chair of the board, 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 then fired in 2006.

The board hired Mark Hurd to be its next CEO in 2006. In four years, HP’s share price doubled, and it became the first IT company to have sales of more than $100 billion.
Hurd did all this while squeezing costs. Even though Hurd seemed to have restored HP to its former glory, he suddenly resigned in August 2010 amid stories of sexual harassment and iffy expense reports. He left HP with a severance packet of $12 million and joined Oracle—one of HP’s archrival—as co-CEO. Oracle’s founder and CEO Larry Ellison called the HP board’s 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, HP’s board hired Léo Apotheker as the new CEO, but quickly fired him in September 2011 after HP lost $30 billion in market capitalization. For Apotheker’s less than 11 months of hard work, he walked away with $13 million: severance payment of $7.2 million, HP shares worth $3.4 million, and a performance bonus of $2.4 million. In September 2011, Meg Whitman, an HP board member and eBay’s former CEO, was named HP’s newest CEO—the fourth CEO since 2005 and the seventh since 1999 (there were several interim CEOs between “permanent”
CEO appointments). At this point, turmoil at the top—in combination with the challenging competitive landscape in which PC sales were not growing and demand for printing was reduced—contributed to what Bloomberg Businessweek reported was a “free fall.” In August 2010, HP was worth $100 billion. In January 2013, it was worth only $29 billion—less 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. Could Whitman stop the free fall?
Stopping the Free Fall Whitman did stop the free fall and restore stability. She had successfully initiated and 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, and Whitman laid off 85,000 employees from a total head count 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, it 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 (HPE—dropping the hyphen between Hewlett and Packard in the name of 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.
Each became more focused and easier for shareholders to value and appreciate. When the decision was announced, the stock of HP (the original company) went up. However, to minimize board room intrigue, Whitman did not tell board members which child company they were going to until about a month and a half before the event. The move was viewed by Bloomberg Businessweek (and many other commentators) as “a sign of defeat,” admitting HP’s inability to slow the commoditization of its PC and printer businesses.
A Tale of two HP Companies Of the two new child companies, HPE, packed with technologies of the future, was sexier and seemed to have more momentum to grow. 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. PC sales were not growing, and demand for printing hard copies was lower than before.
Whitman named herself chair of the board for HP Inc. and appointed another executive as CEO for HP Inc. Whitman’s goal as chair of HP Inc. was—in her own words—“to 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, Hewlett Packard Enterprise was a laggard in a high-growth field. Both Amazon and Microsoft crushed its cloud services. In July 2017, Whitman stepped down as chairman of HP Inc. In November 2017, she announced that she would step down as HPE’s CEO after six years at the helm of HP and HPE. The announcement resulted in a 6% drop in HPE’s stock price. In February 2019, Whitman announced that she would not seek reelection to HPE’s board, ending her involvement in HPE. In September 2019, HPE acquired Cray for $1.4 billion.
In January 2020, HP Inc., which was struggling to fight off low-cost rivals from Asia, received a takeover bid from Xerox, another former American technology icon that was now fading. With only $10 billion in annual revenues, Xerox was much smaller than HP Inc., which had $58 billion in annual revenues. 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 about who had the superior vision to acquire and then eliminate competitors and who had better plans to jettison employees—not an inspiring debate.

HP Inc. believed that Xerox’s 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 Xerox’s offer of $24 per share. On March 31, 2020, Xerox withdrew its bid, noting that “The current global health crisis and resulting macroeconomic and market turmoil caused by COVID-19 have created an environment that is not conducive to Xerox continuing to pursue an acquisition of HP Inc.” However, the same press release complained, “There remain compelling long-term financial and strategic benefits from combining Xerox and HP. The refusal of HP’s 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 Xerox’s takeover bid is not likely to be the last episode of the saga involving not only HP Inc. itself, but also its sibling, Hewlett Packard Enterprise. The next time you print something on an HP printer, spare a thought about the corporate governance intrigues and the product market challenges that surround both HP companies.

Case Discussion Questions

1. As a corporate governance consultant, if you had been engaged by HP’s 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?

2. What are the benefits and drawbacks of splitting HP into two halves?

3. As an HP Inc. shareholder, do you support management’s decision to reject Xerox’s takeover offer on March 5, 2020, which would have given you a 14% premium?