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Did HP's Board Make Yet Another Bone-Headed CEO Choice?

The board of Hewlett-Packard (HPQ) is like a girl who has a taste for bad boys. In recent memory, every time HP has hired a CEO, problems eventually ensued. According to a report by New York Times columnist Joe Nocera, that sadly might continue with new CEO Léo Apotheker. Apparently, under his watch, SAP allegedly got itself involved in massive IP theft from Oracle (ORCL).

As if HP didn't have enough trouble with business partner Oracle. As if the company's board hadn't flubbed enough in its previous CEO choices and, as former GE (GE) CEO Jack Welch pointed out, by in not sufficiently preparing internal candidates to take over if necessary. In the last ten years or so, it's been necessary twice.

You'd think that HP would have taken picking its latest CEO carefully. After all, there was a lot to lose. The potential gain would be closer to staying in place, at least for now. The choice of Apotheker -- German for druggist -- was calculated to help the company focus on critical software and service offerings all too frequently overshadowed by hardware sales. But the prescription may have taken a bad turn.

Forget for a moment that SAP kicked Apotheker out. Forget criticism of such strategic blunders as raising prices so high that customers screamed or a lack of rapport with SAP employees. Instead, look at SAP's acquisition of TomorrowNow, which has landed it in a court case brought by Oracle.

There was just one little problem. TomorrowNow's business model was based on theft, pure and simple. When it landed a customer, it gained access to Oracle's servers, so that it could service the Oracle software that had been written for that client. But instead of limiting itself to servicing the software it was licensed to work on, TomorrowNow instead "scraped" Oracle's servers, vacuuming up proprietary software code. According to the Oracle complaint, between September 2006 and February 2007, Oracle discovered "at least 10,000 illegal downloads by SAP."
Apotheker did shut down the offending division, but only six months after becoming co-CEO -- and he had already been head of sales and marketing, so you'd think he would be in touch with what a group had been doing. Especially after Oracle had brought suit in March 2007 and then CEO "Henning Kagermann" admitted to "inappropriate" use of Oracle's material ... that only continued after. You can even begin to sympathize with Oracle CEO Larry Ellison and why he mouthed off about HP's choice of new chief executive.

One poor choice for CEO -- maybe it's a spot of bad luck. Two in a row? Then, as statistical quality experts like W. Edwards Deming have always argued is the problem with most corporate performance mistakes, you're dealing with a systemic weakness. Add in the HP board chair was tossed for arranging surveillance of reports and the company's own directors, and there's little doubt that something is amiss in the boardroom. Even if you wanted to argue with Nocera's conclusions as incoming HP board chair, and former Oracle executive, Ray Lane does, the potential for embarrassment and distraction should still have been obvious to people with the business experience it takes to get on a board like HP's.

HP is a big company that could stumble badly on any of a number of fronts: resuscitation of its repressed internal R&D work, effective use of the Palm acquisition, the growth of commoditization in all levels of hardware, a changing market, and fallen employee morale. One more poor CEO choice could be the last blow.


Image: Flickr user r3v || cls, CC 2.0.