Hewlett-Packard: tawdry, but no Enron

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When you're a CEO who does something stupid, here's the drill: Congress holds hearings. Lawmakers spank you silly. The press hyperventilates. Then you go back to work, while real prosecutors and market forces determine your fate.

Hewlett-Packard CEO Mark Hurd got the full House hose-down yesterday at a hearing where he had the unhappy job of trying to explain why he allowed private investigators to spy on his own board members. With little actual information emerging from the hearing, which included testimony (and nontestimony) from other current and former HP officials, the predictable bombast dominated the headlines. Rep. Cliff Stearns compared HP to Enron. A shaken Rep. Michael Burgess said HP's spying tactics "give me the creeps." Rep. John Dingell called the HP scheme "a plumbers' operation that would make Richard Nixon blush."

No doubt that HP has an embarrassing mess on its hands. But come on, now. Enron? Watergate? Does anybody really think the entire company, along with billions of dollars in shareholder value, is about to go poof?

Not even close. While Hurd acknowledged that "this isn't my finest hour," HP's boardroom scandal, as far as we know, has nothing to do with the company's actual operations. The entire fiasco revolves around a few phone calls made by directors and the obsessive effort by HP attorneys and their hired guns to find out whom they were calling.

Enron, by contrast, was a top-to-bottom fraud in which company leadership severely misled customers, shareholders, employees, and regulators. The company manipulated markets and misstated its finances so audaciously that its auditor, Arthur Andersen, was forced out of business. Corruption was so endemic that the entire company vaporized; once the fraud was removed, there wasn't enough left to make it worth salvaging.

Details never get in the way of a rich congressional sound bite, but it's worth delineating our scandals here. The Enron era—and let's include Worldcom, Tyco, Lucent, and their like as well—was characterized by brazen abuse of company funds. There was lavish spending on noncompany luxuries. Profits and losses were booked in fantasy time to make earnings look better. "Loans" were advanced to customers in order to get their business, then hidden when they couldn't be paid back.

There's no evidence anything like this is happening at HP. In fact, market indicators show the company to be remarkably stable during the worst embarrassment in its history. Consider that in the past two weeks, the company's chairman has resigned, along with three other high-ranking officials. Two board members have left. Both the Securities and Exchange Commission and the California attorney general are conducting investigations. These are precisely the kinds of developments that rattle Wall Street.

Yet HP's stock price has held up. Since September 4–the day before the news of the scandal broke–the share price has fallen less than 2 percent and has fluctuated only mildly. That's because investors don't see any reason that the boardroom affair should interfere with HP's strong performance in the market, where it has been giving fits to tough competitors like Dell.

The one thing that would sour the market? A concerted effort by prosecutors or regulators to go after the top guy. Hurd, despite the career low point he's at right now, is the force holding HP together. That's why HP directors have been taking the unusual step of calling journalists (using pay phones?) to insist that the board totally supports Hurd and has no intention of seeking his resignation. Investors can only hope that Hurd has plausible deniability and is not linked to anything illegal, so that he doesn't become a liability to the company. And can get back to running a technology company instead of a spying operation.

--Rick Newman

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Hewlett-Packard
  • Rick Newman

    Rick Newman is the author of Rebounders: How Winners Pivot From Setback to Success and the co-author of two other books. Follow him on Twitter or e-mail him at rnewman@usnews.com.

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