It comes down to a combination of skills and compensation. If you look at Dell and HP you suddenly see a stark contrast one company is building, has broken free from the crutch of quarterly reports, and is slated to be far more powerful than they are now in a few short months. The other is crippled undergoing a massive separation and layoff of nearly 1/3rd of its employees (combination of latest 33K and 55K earlier layoff announcements) and the firm that Whitman and HP’s board were likely hoping would acquire one of the units, EMC, is being bought by Dell effectivity leaving HP packaged to sell (you can certainly see why-holy crap) but without a viable buyer (well there is Oracle but Mark Hurd would likely use HP as his personal hunting ground given how the executives bad mouthed him when he left).
So why was one CEO able to take a company in trouble and turn it into, potentially (this isn’t done until it is done), one of the most powerful firms in in tech that has ever existed and another CEO take a powerful firm that was already in trouble and gut it. I think it comes down to a combination of skills and compensation.
Compensation
If you look at Dell and Dell Computer, Michael Dell is the major stockholder it makes no sense for him to gut the company to pop profits and pump his salary because he’ll take a bigger bath in the fall of the value of the firm and it represents the majority of his net worth. The company also bears his name and, when he passes, it will be a lasting monument to who he was. In effect Dell is his shot at immortality and both of these things assure he remains focused on making the company stronger and more powerful over time.
A more typical CEO has mixed compensation with options and salary tied to financial performance. If they cut dramatically they can raise profits massively and pump their bonus. Recent studies have shown the more a CEO is paid the worse they do. A stock pop allows them to sell options at multiples also allowing them to significantly enrich themselves and while it would be nice if the firm was stronger when the left than when they started their compensation generally doesn’t require that. Hired gun CEOs generally can game the system so their compensation and the long term viability of the company are on opposing paths particularly if they can work a sale or a divestiture as either generally results in a lucrative personal bonus. As HP fell Whitman got a huge pay increase and the outcome of that should be obvious.
MBAs in particular are famous for gaming their compensation to benefit to the detriment of their companies and that is because we are largely taught how a company is run financially but not given insight into product, marketing, or building to last. The skill set it very tactical and Whitman is a showcase of that skill set.
Skills
In skills Whitman and Dell couldn’t be farther apart. Both built companies but eBay was never Whitman’s and it was a relatively small on-line auction house when she ran it. Michael Dell built Dell from a dorm room hobby into a multi-national power which means he understands not only the computer tech industry but Dell intimately. That skill allows him to speak with authority on virtually any subject surrounding the firm where Whitman often has trouble not looking vapid because she just doesn’t have the background nor a foundation in HP’s technology type to build one. She had undoubtedly learned the buzz words but struggles with their meaning and her selection of unqualified people who have failed in critical jobs has either been an industry joke or tragedy for HP. But she was branded a failure some time ago (she does have a bumper sticker though). (It strikes me that running for office tends to create a lot of images that aren’t too flattering for later executive life).
The end lesson here is that complex firms in any industry need to be headed by people who have a basis in the technology. Whitman should have simply been a place holder until the board could find someone more qualified and her extended stay likely has killed the enterprise side of the company. The PC side, HP Inc, is run by a subject matter experts and should turn out better even though it was saddled with most of the combined company’s debt.
One of the interesting pieces on Whitman while she was in politics compared her to Carly Fiorina and likely forecast her failure at HP. It is a quick read but suggests, outside of her core competence, she doesn’t have the personality that is consistent with success.
Wrapping Up: Lessons Learned
As an industry we should look at the contrast between Dell and HP and recognize that if a firm is to be successful it can’t be run excessively focused on quarterly results without adequate skills at the top. After the 5th sequential failed CEO you’d think HP’s board would get a clue but they continue to plow ahead with mistake after mistake because they don’t know HP or really how to run a large company in any industry any better than the CEO does.
Dell, in contrast, has both subject matter expertise at the top and an executive whose compensation is in line with the long term health of the company. He was motivated to take the company private and sacrifice short term financial gains in order to assure the firm’s long term future and success. Whitman will likely leave HP richer but otherwise unsuccessful while Dell Michael as a long term testament to his skills and both are a showcase of why executive compensation and skills are a critical aspect of long term success.
