INSIDE TRACK: Battling to convince the doubters: INTERVIEW CARLY FIORINA, CHIEF EXECUTIVE, HEWLETT-PACKARD: The head of the US computer group tells Scott Morrison and Richard Waters about her fight to win backing for th:
Financial Times; Dec 20, 2001
By SCOTT MORRISON and RICHARD WATERS
Carly Fiorina certainly stands out in the spartan halls of Hewlett-Packard's self-consciously ascetic executive suite. The dark brown walls and open-neck checked shirts speak of a low-key engineering culture that traces its roots to the famous garage where Silicon Valley's creation myth began.
Ms Fiorina, by contrast, projects an east coast sassiness: a mix of sharp sales skills, forthrightness and intellectual acuity that brought her to the venerable computer company in the first place. "There is no question I was brought in by this board of directors to effect change," she says, her thousand-watt saleswoman's smile somewhat faded after the pressure of recent weeks.
Change, though, is wreaking havoc at HP. The heirs of founders David Packard and William Hewlett have come out against Ms Fiorina's efforts to take over Compaq, the biggest corporate combination ever attempted in the young information technology industry.
That has left her struggling to win enough votes to complete the deal and with the highly unusual prospect of an all-out battle with one of her own board members: Walter Hewlett, who has promised a proxy fight to persuade shareholders to vote the takeover down.
The HP chief executive is clearly out to dispel the perception that she is locked in a fight over the corporate soul of a Silicon Valley legend. The battle over the merger "is not about old versus new, not past versus future, not family versus company - it's not about any of that", Ms Fiorina insists.
But like Jacques Nasser, who was recently sacked as chief executive of Ford Motor, she cannot escape the fact that she has been cast in a difficult role: one that requires her to overhaul the culture of a giant global company, all the time under the eyes of a watchful founding family. And the signs are that a proud organisation whose values were summed up in The HP Way, a defining management textbook for Silicon Valley, may well reject change.
"There have been many times in this company's history when people have used the phrase 'the HP way' as a talisman against change," she says.
If Ms Fiorina finds herself in the fight of her corporate life, she may largely have herself to blame. She and other HP directors clearly failed to foresee the strident opposition from Mr Hewlett and other family members and the galvanising effect it would have on other opponents.
One institutional investor says that failing to ensure that Mr Hewlett was firmly behind the deal from the outset was a "sloppy" mistake. For his part, Mr Hewlett has said he made it very clear to HP's board that he reserved the right to vote the shares he controls against the merger.
Ms Fiorina does not dispute that. But she contends that his decision to campaign against the merger came as a "complete surprise" to her and the HP board.
"There is a large difference between voting those shares and engaging in a public fight against a deal he voted for and engaging in the process actively and aggressively with shareholders and the media," she says. With hindsight, she would not have done anything differently, she adds.
However, it is not only the founders' families who are arrayed against her. Wall Street has come out heavily against the deal, unconvinced that a merger with Compaq will fix the company's problems.
Tom Perkins, a venture capitalist who sits on the Compaq board, says HP investors have a clear choice: "It's a struggle over what HP is going to be in the future. Is it going to be a Polaroid or a Xerox, or a challenger to International Business Machines?"
But this case has not been well made on Wall Street. "I don't think the company has done a very good job at articulating the strategic rationale," said one analyst favourable to the transaction.
That has allowed much of the debate over the deal to centre on whether HP is right to saddle itself with Compaq's big personal computer business, raising its exposure to a fiercely competitive industry.
The HP chief executive now shows signs of bending on this point, hinting that she may consider spinning off the PC operation after the merger is completed. "Nothing that we do today in bringing these two companies together forecloses what we might do a couple of years from now," she says.
Above all, though, it is doubts about Ms Fiorina's ability to pull off a difficult integration that has left a doubt over her deal. A portfolio manager at one of HP's 20 biggest institutional investors says that while the companies appear to have a well-thought-out integration plan, they have failed to dispel the widely held belief that big technology mergers simply do not work.
According to HP executives, Wall Street is plainly wrong in comparing this with other, failed IT mergers of the past. Unlike most of those, "this is not a diversification play", says Ms Fiorina: a merger of two companies with complementary and overlapping products, it looks far more similar to mergers in other mature industries that have proved successful, she adds.
Ms Fiorina is also fighting doubters who question her personal record. Those include questions about her role at Lucent Technologies, the telecommunications equipment maker where she had been a senior executive, and which suffered a dramatic collapse last year.
"It's hard for me to see how I had anything to do with that," Ms Fiorina says now. "We didn't miss numbers while I was there," she asserts, adding that Lucent's problems date from after her departure.
She does concede that HP "mis-executed in the fourth quarter of 2000", when it failed to hit its earnings targets - though she blames most of its problems on the technology industry downturn.
Ms Fiorina's best hopes of convincing the doubters now rest on the argument that she has set very low targets for the savings that can result from the deal. She is busy setting the stage for early January, when HP is expected to launch a vigorous campaign that it hopes will sway the institutional investors that are in a position to determine the future of the company.
The next stage of the campaign will focus on being "more revealing about how we are accomplishing integration", she promises. She is also clearly expecting that good quarterly earnings from both companies will demonstrate that customers are not "leaving in droves" ahead of the merger, something that would reassure investors that revenues would not collapse if the deal went through.
HP will also argue that while it expects revenue losses of about 5 per cent as a result of the merger, profitability will not be significantly hit because the bulk of those loses will be in low-margin businesses such as personal computers.
Whatever the merits of such arguments, the dynamics of corporate mergers mean that Ms Fiorina still has a fair shot at completing her deal.
Shareholders "vote with their feet - people who don't like the deal get out and people who like it get in", she says. That means that, if it comes to a vote, the chances of a rejection may be low.
Also, many HP shareholders are likely to fear the consequences of overturning their board's merger plan. While Ms Fiorina refuses to say what she would do next, she concedes that "clearly the credibility of board and management would be damaged". Mass resignations would be likely.
If the deal is completed as planned in the first half of next year, she may even be helped by fortuitous timing. Just as her first efforts to shake up HP were thrown off course by the collapse in the technology industry's fortunes, the integration with Compaq could see the benefit of a rebound in technology spending - though, after failing to predict the depth of the downturn, Ms Fiorina has not been willing to forecast the timing of a recovery.
"There are mergers that had an initial negative reaction and went on to out-perform," she says. "The short-term reaction of the market is not a good indicator of medium- to long-term success."
If she is right, it will be one of the great CEO escape acts of all time. |
