HP Forces Mark Hurd to Resign - Analyst Blog

One of the most eminent leaders of the Silicon Valley, Mark Hurd, the CEO of the world’s largest computer manufacturer Hewlett-Packard Company (HPQ), has been forced to resign recently, as a result of a sexual harassment allegation brought against him.

The integrity of the CEO was questioned as a result of his relationship with a marketing contractor, for whom the CEO is believed to have incurred $20,000 of expenses in relation to travel and restaurant tabs. Although this is a substantial amount of money to be spent on the entertainment of a company executive, when compared with Mr. Hurd’s compensation, or the financial benefit that the company has achieved from his leadership, this turns out to be a miniscule amount.

Under the leadership of this capable administrator, the company has made some important acquisitions, rationalized its workforce by 40,000, which ultimately helped the company to transform itself from a basic computer and printer maker to a well diversified technology giant with a huge product portfolio of hardware and business solutions.

Billionaire Larry Ellison, Oracle's (ORCL) CEO and a friend of Hurd's, came out with his own take on the whole issue. He was clearly of the opinion that the decision was poorly taken. He also said that it was akin to the way Apple Inc. (AAPL) forced Steve Jobs to resign 25 years ago, on similar grounds. He believes the decision to terminate the services of Hurd will go against the company, its employees, shareholders, customers and partners, and that finding an equally capable replacement will be a challenge.
 
Ellison is also of the opinion that Hewlett-Packard has moved with its allegation against Hurd, although the internal investigation conducted by the company did not reveal adequate evidence of wrongdoing. We believe this creates an environment of uncertainty, which may negatively affect the reputation of this world-class organization.
 
As a severance package, Hurd will be paid $12.2 million, which makes the $20,000 of inappropriate expenses look insignificant. The amount includes the right to purchase 775,000 shares of outstanding options for HP common stock until September 7. He is also entitled to receive 330,177 restricted stock units in lieu of his performance during the period from January 2008 until the date of his resignation. Moreover, on December 11, 2010, he will get the amount due for 15,853 additional shares granted to him in 2009.

Of course there is no dearth of capable leaders in HP, but finding the right candidate for the post of CEO is a challenging task. The search for the most capable and duly experienced candidate, internal or otherwise, has already begun. We believe that this event may have a knee-jerk reaction on the price of the company’s stock, although its long-term fundamental story remains intact.
 
We have a short term Hold rating on HP shares, as indicated by the Zacks #3 Rank.
 
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