Mixed Messages from H-P

On Friday, Hewlett-Packard fired its CEO because he violated the company’s code of conduct. Mark Hurd had submitted inaccurate expense reports.

That sounds like a good message from the Board. Anyone can be fired for violating the code.

However, Mr. Hurd was given a severance package that may be worth more than $35 million, including a cash payment of $12.2 million. He violated the code, but was not fired “for cause” so he gets to keep his severance package.

That sounds like a bad message from the board. If it is company policy to fire someone for violating policy, then you should fire him and deny him severance.

However, as a top executive, Hurd had an employment agreement that better defined “cause for termination.” Cause involves “material neglect” of an individual’s duties or conduct “that is not in the best interest of, or is injurious to, H-P.” Mr. Hurd’s $20,000 of inaccurate expenses probably did not meet that standard.

Mr. Hurd stepped into the role of CEO after the poorly handled corporate espionage investigations by the prior CEO Carly Fiorina. He talked about improving the ethics of H-P.

Hewlett-Packard’s Standards of Business Conduct starts off with the headline test: “Before I make a decision, I consider how it would look in a news story.”

Mr. Hurd should have taken his own test.

Sources:

• H-P’s 8K announcing the firing of Mark Hurd
• Employment Agreement between Mark Hurd and Hewlett-Packard dated March 29, 2005 from EDGAR
• Hewlett-Packard’s Standards of Business Conduct
• Mark Hurd Neglected to Follow H-P Code by Ben Worthen and Joann S. Lublin in the Wall Street Journal