Hurd Consolidates Control of HP

News Analysis: Replacing Dunn as chairman could lead to changes of product or direction.

Replacing Patricia Dunn with Mark Hurd as chairman of Hewlett-Packards board of directors should help calm the roiling controversy surrounding the technology giant, but it also bucks a trend in the United States of separating the chairman and CEO positions.

In the short term, the fallout from the boards investigation into news leaks will have little impact on HPs users, but it could lead to changes of product or direction now that HP President and CEO Hurd has consolidated his control over the company, analysts said.

"Hurd has the opportunity to shape the company a little more with his own ideas, and not be beholden to the previous ideas, which is what hed signed up for," said Roger Kay, an analyst with Endpoint Technologies Associates, in Wayland, Mass. "What hed signed up for was to execute the plan put in [place] under [former CEO] Carly [Fiorina]. At this point, that particular [condition] is off."

Hurd is scheduled to give the keynote speech Sept. 18 at the HP Technology Forum in Houston.

Dunn is at the center of a firestorm that has engulfed HP for the past two weeks, when it came to light that—to find who was leaking information to the media—the Palo Alto, Calif., company hired a private security agency. The agency used a legally questionable method called "pretexting" to obtain telephone records of board members and reporters. The investigation found that board member George Keyworth was the leak. It also led to another director, Tom Perkins, resigning in anger over the way the investigation was conducted.

In addition, several federal and government bodies are investigating, and one—the California state attorney generals office—has suggested possible criminal charges. Dunn will step down as chairman in January but will remain on the board.

HP customers said theyve been following the controversy but dont expect much impact on them. "Does it affect product delivery?" asked Charles Orndorff, vice president of infrastructure services for Crossmark Holdings, in Plano, Texas. "Does it affect [R&D]? Nah. I cant say it does. Its more of a PR nightmare, really."

"Its all noise and PR. Its not going to affect any of my buying decisions," Orndorff said. "I just kind of chuckled."

Paul Edmunds, senior systems programmer at Duke Energy, in Charlotte, N.C., agreed. "It may be a distraction for the board, but HP is deep enough that it wont be a problem," he said. "Its an unfortunate ethical lapse, but I dont see how itll affect their product delivery."

In the long run it could mean some changes, though not necessarily bad ones, said Cal Braunstein, an analyst with the Robert Frances Group, in Westport, Conn. In the wake of corporate scandals such as Enron and Tyco, the trend has been to have different people as chairman and CEO for better checks and balances, he said. For HP, appointing Hurd chairman was a good move, given its solid performance in the first year under his leadership.

"The stabilization and the confidence will allow the company to really focus on what they [need] to focus on," Braunstein said. "The last thing [investors and analysts] want to see is that their executives cant get their focus. Thats going back to Carly days."

In the end, this will likely have little impact on HP and its customers, said Endpoints Kay. "I think thats why you see the stock not really being affected by all this. This is all a circus for the masses. If you follow the money, this doesnt have an impact on any of that."

Kay compared the controversy with the issues now facing rival Dell, including a probe by the Securities and Exchange Commission.

"Its not so much the psychology of [controversies that hurt a company], which is what the media get caught up in," Kay said. "Its the financial impact. In Dells case, there could be significant impact. In HPs case, there really isnt."

Senior Editor Paula Musich contributed to this report.


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