Archive for Carly Fiorina

Rewarding Failure: Jackass Investing “Poor-folio” award for Hewlett Packard

Posted in Poor-folio Awards with tags , , , , , on October 24, 2011 by mikedever

Small business owners understand the need for hard work, integrity and perseverance. If they don’t, they don’t survive, let alone thrive. When I started my investment firm, Brandywine Asset Management, 30 years ago, there were no guarantees. I spent the vast majority of my waking hours researching trading strategies and the legal issues surrounding setting up and marketing a commodity fund, preparing marketing materials, establishing brokerage relationships… the list was almost endless. Fortunately, so was my energy at that time. But one ingredient that wasn’t endless was my bank account. When, after the first year, the business wasn’t yet paying the bills, I borrowed the money off my credit cards (Why and how I got the cards in the first place is another story). Fortunately credit card companies considered me a good credit risk and continued to extend credit as long as I paid their monthly bills on time. In time, with more than 100k owed to the card companies it became clear that I only had one way out, I had to make the business succeed. That was the only way to pay back the debt. (I know, another alternative would have been to renege on my commitment to the card companies, but I never considered that to be an option. I got myself into the situation. It wasn’t the card companies’ responsibility to get me out. It was mine alone).

Fortunately, with continued perseverance, I was able to grow the business and repay my debts. Brandywine thrived and became a highly successful managed futures trading firms. But believe me, I struggled to reach that outcome. I had many opportunities to fail along the way. Over the years I’ve come to recognize that millions of other small business owners can relate to this story. My story is their story.

But that’s not the story in “corporate” America. Unfortunately, corporate America rewards failure. How else can you explain the obscene severance packages doled out to failed executives by huge companies such as Home Depot, KB Homes, Merrill Lynch and most recently, Hewlett-Packard. Many of these companies’ CEOs damaged their companies financially or reputationally (or in the case of Merrill Lynch, actually took their companies to the brink of collapse), and then got paid tens of millions of dollars to go away. In the case of HP, Leo Apotheker mismanaged the company for just eleven months before the Board of Directors (incompetent boards is a topic for another post) showed him the door. But heh, while you’re on your way out, here’s $30 million as a reward for your failure. Huh!?

Apotheker was just the last in a string of HP executives who were rewarded for being fired (er, “resigned”). Just last year then-CEO Mark Hurd left after being accused of a variety of violations of HP’s Standards of Business Conduct, including “misuse of company assets” that was related to his “close personal relationship” with an HP contractor. An investigation uncovered that the contractor was paid yet there was a question about whether her services were actually provided (this behavior is illegal in all states except Nevada). Oops! And how did all this get past the HP Board of Directors the whole time? Oh right, Mr. Hurd was Chairman of the Board. Despite the damage his behavior caused HP, Mr. Hurd was paid $12 million to leave and was also entitled to an additional $53 million that he negotiated away in exchange for being able to take a leadership role at Larry Ellison’s Oracle.

Prior to Mr. Hurd there was Carly Fiorina, who received over $40 million in severance and stock grants for “resigning” in 2005. Look, I generally liked these CEOs (at least Hurd and Fiorina). They were dynamic and assertive. They should have been paid well. But they should have been paid well for the quality of their work and the value they brought to their shareholders, not for the quantity of the messes they left behind.

As a result…

Because of its continued legacy of rewarding failure in both the executive suite and boardroom, I am awarding HP the most recent Jackass Investing “Poor-folio” award.

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