The HP CEO Scandal: The HP Board Was Engulfed in Fear

(MoneyWatch)  When the HP (HPQ) board fired CEO Mark Hurd last week, it acted on the advice of a PR firm to deliberately make things public rather let them leak out, as the New York Times reported today. Yesterday, the Times had a story about an email it received from Larry Ellison in which the Oracle (ORCL) CEO defended his friend Hurd.

There's more of a connection between the two stories than the publication in which they appeared. In two tales are the twin sides of a core weakness that has infiltrated many corporations: fear. HP's board was afraid of what would happen if they stuck by Hurd and afraid of what would happen if they didn't. Making fear-based decisions is a wide-spread problem in many corporations. The consequence for HP was strategy that is unbalanced, flinching, and ineffective.

The views of both public relations firm APCO and Ellison neatly define the common bounds of corporate thinking when faced with a crisis. The PR experts told HP to release all the information, lest news of the sexual harassment charges find its way out and cause an even bigger stir:

According to a person briefed on the presentation, the representative from the APCO public relations firm even wrote a mock sensational newspaper article to demonstrate what would happen if news leaked. The specialist said the company would be better served by full disclosure, even though an investigation had produced no evidence of sexual misconduct.H.P.'s board, according to the person briefed on the presentation, took this advice, disclosing the unsupported accusations against Mr. Hurd. The company said Friday that Mr. Hurd had falsified his expense reports and that because it was enforcing the same code of ethics it would apply to any employee, he resigned.

Ellison provided the counter fear: that the company would suffer without Hurd at the helm, and that it couldn't afford for him to go:

"The H.P. board just made the worst personnel decision since the idiots on the Apple board fired Steve Jobs many years ago," Mr. Ellison wrote. "That decision nearly destroyed Apple and would have if Steve hadn't come back and saved them."
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"In losing Mark Hurd, the H.P. board failed to act in the best interest of H.P.'s employees, shareholders, customers and partners," Mr. Ellison wrote. "The H.P. board admits that it fully investigated the sexual harassment claims against Mark and found them to be utterly false."

And so HP's board sat between two dreads: bad publicity, and a resulting drop in stock price, or bad performance, and a resulting drop in stock price. Reportedly, HP's board initially was split 6 to 4 over whether to make the story public.

Fear as the primary motivation in corporations is nothing new. In early May, I noted how much of Apple's success with the iPad was the willingness to fail. It fills the hallways of corporations and often becomes the only thing that anyone responds to. Let me find a way to save my my project, my budget, my job.

Fear is a powerful motivation, and it can be positive when it helps inform otherwise risky behavior. However, when fear is the primary driving force, the results are catastrophe. During his first inaugural address in the storm of the Great Depression, President Franklin Delano Roosevelt told the American public that fear was its biggest enemy:

I am certain that my fellow Americans expect that on my induction into the Presidency I will address them with a candor and a decision which the present situation of our people impel. This is preeminently the time to speak the truth, the whole truth, frankly and boldly. Nor need we shrink from honestly facing conditions in our country today. This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself--nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.

How many businesses have lost markets, failed to realize their potential, allowed the unfit to remain, sent talent packing, all because of fear?

Perhaps HP has a culture of fear. That could explain why, over the years, the board has failed to curb a number of egregious actions and tendencies. What would happen if they came down hard on a CEO's extravagance or poor judgment?

Fear alone is debilitating. It's time for all levels of executives to respect problems, but not to make every decision based on avoiding the worst that can happen. It might bring some measure of financial success, at least once a corporation is large enough, but it never sees the big win and never leads to greatness.

Related:

• The HP CEO Scandal: Six Lessons Every Company Should Learn
• HP's Latest CEO Embarrassment: Mark Hurd Resigns In Sexual Harassment Scandal
• Why Federal Civil Fines Can't Deter Tech Companies like HP
• HP Shows Foreign Bribery Can Bite U.S. Companies at Home

Image: RGBStock.com user dyet, CC 2.0.