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A Former Tech Legend Is Dow's Biggest Flop of 2012


The constant flow of bad news coming out of the company has helped its board live up to the title of "Most Inept Board in America."

Hewlett-Packard (NYSE:HPQ) shareholders must be sick and tired of scandal after scandal, bad deal after bad deal, and CEO after CEO. Tired, mostly, of seeing the value of their stock sink lower and lower.

Even after a recent rally, HP stock has plunged 45% this year, making it far and away the worst performer of the 30 stocks in the Dow Jones Industrial Average (INDEXDJX:DJI). Shareholders have suffered through another annus horibilis, following a similarly rotten 2011. Over the last few tumultuous years, HP shares have lost nearly three quarters of their value. Forget tired – any shareholders who have held on for that entire time must just be sick.

The problems at HP extend further back than that. For more than a decade, the company has lurched from one strategy to another, recruiting outside leaders to try to fix the daunting problems it faced. Carly Fiorina was brought on from Lucent Technologies (NYSE:ALU) in 1999 with the goal of reinvigorating and repositioning the company to consumers, adding a sense of "speed" and "urgency" for the burgeoning Internet age. But her "new HP" stumbled over many of the same old management and strategic issues.

Mark Hurd came from NCR (NYSE:NCR) in 2005 to address execution and profitability problems. HP became leaner and more profitable – and the stock had a healthy run – but Hurd left the company suddenly in 2010 after an internal investigation into allegations of sexual harassment turned up some expense report improprieties. HP again looked outside the company, bringing in Léo Apotheker, who had been at German business software company SAP (NYSE:SAP).

Each CEO brought a new strategy, fueled by acquisitions, in search of growth. And each CEO faced internal conflicts that, individually and together, made clear how bungling and directionless HP's board of directors has been.

"The lack of stability at the board and CEO level, which are related, has made it very difficult for HP to reach any kind of a steady state, and the strategies that each CEO has brought forward have been dramatically different than their predecessor," says analyst Rob Enderle of the Enderle Group. "Carly Fiorina was heavily focused on consumer, Mark Hurd was heavily focused on cost reduction and corporate, Apotheker, for as little as he lasted, was heavily focused on software, and Meg Whitman right now is heavily focused on trying to fix HP. So the end result is they've had a lot of massive changes in terms of leadership and direction."

The years of turmoil in 2010 led Joe Nocera of the New York Times to call HP's board "the Most Inept Board in America" and the ongoing stream of news coming out of the company since then only reinforced that dubious distinction. The latest black eye, revealed to the world last month, was an astounding $8.8 billion writedown due primarily to what the company alleged were "serious accounting improprieties" by British software maker Autonomy, which HP bought last year for $11.1 billion. (The deal was done under Apotheker's watch, but Meg Whitman had voted for the purchase at the time as a recently installed member of HP's board.)

Even before HP raised its allegations of accounting fraud, the acquisition was clearly not going well. The promised financial benefits failed to materialize. Former Autonomy staff complained about HP's stifling bureaucracy. "We believe HP looked for ways to renege on the Autonomy acquisition soon after the deal was signed but unfortunately was unable to discover any evidence of improprieties until now," Jefferies analyst Peter Misek wrote after the writedown was announced. "Aside from possible fraud, we believe the integration as measured by financial results has been woeful. Less than two quarters after launch, growth slowed to almost nothing and serious sales issues arose."
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