Why Meg Whitman Won't Save HP

Last Updated Sep 23, 2011 4:21 PM EDT

By firing Léo Apotheker and naming Meg Whitman as CEO, Hewlett-Packard's (HPQ) board tried to reassure investors -- corporate-speak for goosing the stock price, which has lost almost 60 percent of its value from its high in just the last two years. Instead, the stock slid.

Investors who hoped that the change would start a new day for the company may be disappointed. At the close of Friday, the stock was $22.32, its lowest price in six years. And the reactions of chairman Ray Lane and Whitman to pointed questioning and skepticism during the analyst call yesterday raised an important question of whether anything will really change at HP. If not, the stock could be in the dumps -- or lower -- for a long time to come.

One year HP stock chart (Yahoo Finance)
Meg hasn't charmed them yet
Not that yesterday was a good day for stocks in general. The Dow was down 391 points on worries over the economy. But even toward the end of the day, when it seemed certain that HP would name Whitman as its new CEO, the company's stock did worse than average.

HP gained some on Wednesday with the news that Apotheker would be out. However, the stock gave up almost all the gain by mid-afternoon yesterday. The Street wasn't all that enthused about Whitman as a candidate for two reasons.

One is her record. Whitman doesn't have experience in any enterprise-style computing or software business. Her managerial background is largely in consumer-oriented goods and services: Proctor & Gamble, Disney, Stride Rite, Florists' Transworld Delivery, and, most recently, eBay.

Her record at the latter, which is supposed to be her tech calling card, was uneven. She failed to adjust strategy to changing market realities. By the time she left in 2008, eBay's stock slumped to about $10 from its high of $58 in 2004.

The other reason is the board's unseemly haste to dump Apotheker and enthrone Whitman. Sanford Bernstein analyst Toni Sacconaghi said, "We would view any decision not to conduct a comprehensive search of internal and external candidates for a permanent CEO role as unsatisfactory and unnecessarily hasty."

Ray parries and ducks
Analyst skepticism came boiling into yesterday's conference call. Keith Bachman of BMO Capital Markets thought the replacement process might have set a "world record" for speed.

Lane explained the candidate search last year already uncovered the possible candidates. The argument had some plausibility, and rumor has it that most anyone capable of running HP had already turned the job down.

But Lane strained credulity was in asserting that Whitman had enterprise computing experience because eBay was a heavy technology user. By that argument, GM's CEO is an expert in the CAD market because engineers all use that design software.

The dance continued
Sacconaghi asked about board changes because of low investor confidence. Lane argued, "More than half of this board is new after Léo [Apotheker]." In short: not their fault.

And yet, the board again leaked information about replacing a CEO, as it did during the ouster of Carly Fiorina. The board backed Apotheker's strategy of jettisoning the PC division. As former BNET governance expert Nell Minow said, "If Apotheker's vision and execution failed, it is the fault of the board that selected him."

About face
Lane and Whitman said they still backed the strategy. But in the most astounding verbal gavotte of the call, they immediately backpedaled. Lane said Whitman and the board would examine the PC spin-off decision to see "whether there was a benefit to our investors or to our customers."

If it cannot be stronger on the outside in terms of delivering better equipment and better technology than our competitors, then it stays inside. ... The decision is going to be handed to us. It will be based on what investors and customers tell us.
That set the stage for Whitman to back away from the PC spin-off even though "as an active member of HP's board of directors for the past 8 months, Meg has a solid understanding of our products and of our markets," as Lane said. Of the strategic choices she voted on as well, presumably.

In other words, Whitman was for the spinoff before she was against it. Now the board wants to back away from the strategy and blame it on Apotheker.

Whether the board and Whitman stay with the recent changes that spooked the investment community or try to turn back to the time that led up to the turmoil, they will likely retread the ground that has kept the stock at a low price.


Image: Flickr user jonasj, CC 2.0.
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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.