Silicon Insider: Carly Fiorina's Failure to Communicate

ByCommentary By <a href="mailto:insider@forbes.com"><b>Michael S. Malone</b></a><br>Editor-at-Large, Forbes ASAP

Feb. 12, 2002 -- Carly, you could have just told us why.

The battle over the proposed Hewlett-Packard merger with Compaq has now reached the sulfurous stage, that moment in a family feud (and at HP this is most definitely about family) when words are said and actions done that can never, ever be taken back.

It began when HP CEO Carly Fiorina and HP's management, already suffering pushback from analysts and their own employees over the merger, suddenly were blindsided by a revolt by the company's largest private shareholders: the children and grandchildren of the two founders.

Since then, most of the nastiness has come from the side of HP management. It began with a newspaper ad quoting the late David Packard in apparent agreement with the idea of the merger. This led to an angry response by David Packard Jr. that his father would never had countenanced the company's growth through such a massive acquisition. Especially not with a culture so alien to the legendary HP Way.

It has only gotten worse. Though the odds still seem in management's favor, Fiorina and company still feel scared enough to resort to ad hominen attacks, most notably describing board member Walter Hewlett, who is leading the revolt, as a mere "academic." Hewlett has responded with angry national print ads saying "A $25 billion mistake is not the HP Way."

A Schism That Won't Be Healed

No matter how events play out from here, it is unlikely that this schism will ever be healed. If the proxy vote fails next month, Fiorina will resign. If it passes, one can easily imagine the two families beginning the long process of liquidating their ownership in HP.

Either way the vote goes, there will also be one other victim: the HP Way. Its preservation was the real reason for the founding families' revolt. Put simply, the Hewletts and Packards, along with thousands of other employees past and present, believed that the Way, the company's unique and influential culture, was HP's most important asset … and that it would be destroyed by the merger.

On the other side, Fiorina and her staff appear to believe that the HP Way is an anachronism of a different, slower time, and that for the company to survive and succeed in the future it must be driven purely by a rational business strategy — not some metaphysical mumbo-jumbo left over from the good old days.

The current situation is now fraught with ironies. For example, after all of the layoffs, organizational changes, assertion of executive hierarchies and the destruction of traditional company rules of behavior, the HP Way that the old-timers are fighting to save is probably already dead.

Though Fiorina and her team appear not to believe in the Way, they are now reduced to appealing to it — or its memory — in order to get enough shareholders votes to win.

If you read between the lines, what this means is that, contra-Carly, the HP Way really did exist, it remains as powerful and useful as ever, and that its last use will be to destroy itself forever.

So, What Is the Strategy?

The most tragic irony of all is this: Had Fiorina believed in the HP Way, had she followed its dictates, none of this nightmare need have happened. You see, the heart of the HP Way is the notion of trust — and the ultimate manifestation of that trust is in open communication from the top of the firm to the bottom. And this is where she has failed as CEO.

In particular, I daresay that if you ask the average HP employee, or shareholding retiree, exactly why the HP-Compaq merger would be a good deal, the only answer they can give you is that the managements of the two companies think so.

Just take a look at the company's new two-page ad, which lists HP's current market positions and assets and then how the Compaq merger will make the combined company No. 1 in several businesses including PCs.

This ad raises as many questions as it answers. After all, IBM was the biggest computer maker in the world. It blew up. Ditto Atari in video games. And Texas Instruments in chips. And Wang in workstations. And Apple in personal computing. And Tektronix in test and measurement instruments.

In tech, being No. 1 one doesn't mean a damn thing unless it is powered, as with Microsoft, Intel and Oracle, by a dynamic corporate strategy and the ability to execute it. But on those latter topics, Fiorina is all but mute. Just trust me, she seems to be saying. I know what I'm doing.

What we have here, to quote Strother Martin's character in Cool Hand Luke, is a failure to communicate. And this failure by Fiorina has been disastrous — it may even wreck a great company and destroy her own career.

A Matter of Scale

By remaining secretive, and in the process showing contempt for the intelligence of her own employees, Fiorina began to sow doubt in the very people she needed to close the deal. They began to ask themselves if she had a plan at all, or whether this was merely self-aggrandizement at the cost of a great company.

Coming on the heels of growing concern over her autocratic management style, the families felt they had no choice but to fight for their fathers' firm.

As it happens, Fiorina does seem to have a strategy, but you have to dig deeply into some of her industry speeches to find clues to it. It goes like this:

The information technology industry is undergoing a period not only of consolidation, but standardization, around specific architectures like Itanium, UNIX, Linux and NT. During such periods, competitive advantage goes to those firms that can bring to bear the maximum amount of R&D, sales, marketing and other economies of scale. With the merger, HP will have that scale, and that in turn will help it dominate such high-margin emerging markets as digital imaging and digital publishing.

Did you know this was Fiorina's strategy? It's nice to finally hear it, isn't it? I think she is completely wrong, but I'm happy to know that at least she's got a plan. I certainly wouldn't have gleaned that from the advertisements.

I can't helping thinking that had Fiorina last autumn thoughtfully presented, in detail, her reasons for pursuing the merger, none of this acrimony would have occurred — she might have even had her cake (Compaq) and eaten it (minus the collapse of morale and the family mutiny) too. But then, she would have to trust the intelligence of her employees and shareholders.

In other words, she would have to believe in the tenets of the HP Way.

Michael S. Malone, once called “the Boswell of Silicon Valley,” is editor-at-large of Forbes ASAP magazine. His work as the nation’s first daily high-tech reporter at the San Jose Mercury-News sparked the writing of his critically acclaimed The Big Score: The Billion Dollar Story of Silicon Valley, which went on to become a public TV series. He has written several other highly praised business books and a novel about Silicon Valley, where he was raised. For more, go to Forbes.com. And you can talk back to Silicon Insider via e-mail.

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