Dogfight in the boardroom

By WILL THOMPSON

There is a New York expression, generally applied to the new boy, or girl, friend of friends. The question asks, "Is he/she a bottom, or a top?" It is shorthand for "are they a dominant or passive personality?"

The expression is particularly appropriate, with its resonances of power and gender, to the struggle between two business icons.

Walter Hewlett was a board member at Hewlett-Packard, the company his dad started, since 1987; Carly Fiorina is CEO.

Last year Hewlett-Packard (HP) had profits of US$624 million ($1.4 billion). A nice fat amount, you might think, but chicken feed given that sales were US$45.2 billion ($101.5 billion), and in 2000, profits were US$3.7 billion ($8.3 billion). This decline happened because the tech industry, along with the US economic miracle, imploded.

Corporate investments in computer technology collapsed and HP's stock price sank. Fiorina, who had been poached from Lucent for stocks once worth US$85 million ($191 million - now worth less than half that), cut some corners, but nothing seemed to work.

Then on September 3 last year, she announced a US$25 billion ($56.15 billion) stock swap and merger with Compaq. At first Hewlett supported the move but he changed his mind and the difference of opinion quickly degenerated to name-calling, allegations of avarice, then of cheating. Hewlett was kicked off the HP board, in part because he took the company to court for supposedly strong-arming institutional investors to support the merger.

The case was heard this week in Delaware and ended in a victory for Fiorina. It dismissed Hewlett's strong-arm charges and his allegations that HP executives misled investors by exaggerating the benefits of buying Compaq.

Hewlett said he would not appeal and would "now do everything possible to support the successful implementation of HP's acquisition of Compaq".

Like most arguments, this one reveals larger tensions. The HP-Compaq marriage is symptomatic of increasing struggles between boards and CEOs and may signify a re-emergence of the Imperial CEO in American business.

It has been given the inevitable gender spin. Hewlett is male, rich and thus automatically a top. Fiorina is the highest-ranking female executive in the US. She began as a secretary.

"Ooh, Carly Fiorina," enthused a friend of mine who is writing a book on money and sex. "She's incredible. She doesn't believe there is any glass ceiling." Translation: Carly was always a top, too.

So the collision has been spectacular and much commented on. Why?

"Perhaps because it's novel, perhaps it's because there hasn't been a highly publicised takeover battle involving a woman CEO before," says Linda Swartz, one of the top US tax lawyers and co-chairwoman of the tax department at New York firm Cadwalader, Wickersham and Taft.

Each side took out full-page ads in the business sections of the daily newspapers. Like the tone of the dispute, which headed straight for the gutter after HP described Hewlett as "a musician and academic" (ie, loser), the advertisements were almost gratuitously cruel. One, paid for by HP, was a double-paged ad, titled Flip on the left, and Flop on the right. Under Flip, there are several subcategories: On the merger, On shareholder value, etc.

Flip tells us "On the merger: Walter Hewlett, an HP director, votes for the merger of HP/Compaq" and dates this September 3 last year. Flop then informs readers "On the merger: Walter Hewlett publicly declares his opposition to the merger of HP/Compaq" dated November 6 last year.

Hewlett's camp responded with scolding advertisements, headlined, "Vote today to prevent a $25 billion mistake."

Both groups toured the US trying to persuade investors of their view. Rumours began to float around of Fiorina's lavishness, her penchant for corporate jets. When Hewlett announced a rival strategy for the company, called "focus and execute", concentrating on the profitable printing business, Fiorina hissed, "It is not a plan - it is a press release."

Then Hewlett produced board papers that suggested Fiorina would profit from the merger by US$63 million ($141.5 million). The company denied such moves were ever to be implemented.

Hewlett produced more paperwork showing the discussions of salary packages for Fiorina and Compaq CEO Michael Capellas to be more advanced than the company had admitted. HP voiced outrage at this violation of boardroom confidentiality.

Seven days before the vote, Hewlett staked Fiorina's future on the merger, saying that if it did not proceed, she would have to go. "I don't think Carly Fiorina will survive if this transaction is turned down by shareholders," he said. He also said, "This time we don't want someone learning on the job," a reference to her not having been a CEO before arriving at HP.

After he lost a narrow proxy vote, Hewlett demanded a recount. Then he sued his own company. Then he was kicked off the board.

The nastiness is indicative; this is a nervous time in American capitalism. During the boom of the 90s, CEOs began to see themselves as media celebrities as opposed to stewards of a company.

The quintessential Imperial CEO was Jack Welch, who made General Electric the Wall St darling of the 90s. Characteristics of the Imperial CEO, says Charles Elson, director of the Centre for Corporate Governance at the University of Delaware, include the focusing of power in their position, a comparatively weak board, and finally a desire to reward performance highly, whether good or bad.

That they became famous during a boom is no coincidence. "Companies were successful in spite of the poor accountability mechanisms within them,"says Elson. "What's happening now is that things have slowed down a bit and you're seeing companies that were not very well run being exposed."

With decreased earnings and profits, and with the shenanigans at companies such as Enron, the respect accorded the CEO is diminishing. Even Federal Reserve chairman Alan Greenspan, who did much to create the conditions in which they thrived, says that during the latter 90s they enjoyed too much power.

Elson believes that Fiorina's triumph has reasserted the ascendancy of the CEO.

Consider one of Hewlett's charges: that Fiorina muscled Deutsche Bank to change its vote. His contention was based on a voicemail in which Fiorina tells another executive, about Deutsche and another bank: "We may have to do something extraordinary to bring 'em over the line here."

According to Elson, this shows just how much more power is naturally available to CEOs than to members of the board of directors. "The CEO has tremendous authority," he says, "over the deployment of the resources of the corporation that directors don't have.

"That's the concern that Hewlett was raising here, that there was a concern that there was an improper deployment of corporate resources in this area that preserved the CEO's view."

Issues of gender are also important. Sexual determinism has become chic here.

The New York Times has run stories on how women rather than men first drew attention to Enron's woes. The theory promulgated has been that women are less likely to think within the constraints of the male cabals that run companies.

Elson doesn't subscribe to this. If wickedness is gender neutral, he says, virtue must be also. Swartz' years in business tell her that women aren't more or less inclined to any style of business than men.

"The behaviour doesn't differ," she says. "Occasionally the perception differs."

But Swartz, who has extensive experience in complex global mergers and acquisitions, agrees that the Hewlett-Fiorina struggle was construed as a test for women in business, at least by the press.

"I certainly think she was under increased scrutiny because she is a woman and I believe that some of the perceptions have been coloured by her gender." They certainly have. One wonderful piece of mud slung at Fiorina was the allegation that she travels with a personal hairdresser. Her intimates deny this. We were also told that Fiorina likes to do her own laundry and grocery shopping. No one paused to mention the battalions of barbers and shoeshine men who visit the offices of male CEOs.

"That Fiorina has apparently succeeded," says Swartz, "can only help the next female CEO who is thrust into that role. I really think the market has been acclimatising itself. I've seen since the time the deal was announced, the press has been changing its slant."

At the outset suspicion reigned, an attitude Swartz describes as "Oh my goodness, how can she do this." Even Goldman Sachs asked if she knew what she was doing. Now the tone is more, "she's fighting a hard fight, and making the right tactical moves".

A source in the financial industry agrees that the bottom/top formula is a correct way to look at what has occurred between Hewlett and Fiorina: a fight for dominance.

One question that has been debated, he says, is whether they're both alpha dogs, charismatic leaders. "Well, I think it's very difficult to become a CEO without having charisma and a strong sense of leadership ... William Hewlett doesn't strike me as an alpha dog personality. He's more the quiet type who rose up. While I don't sense that in him, I sense that in her."

But even the victory hangs a question mark over Fiorina.

Elson says that the recent brawling could have been avoided. "It tells you something's very wrong here. This is a board that would ignore half of the shareholders, that would keep off the board a shareholder as large as Hewlett. I think they've made a terrible mistake."