Managing Leadership^®

The HP episode is developing into a case study of how the fundamentals can go wrong at the highest levels. It is worth considering why. To begin with, we should note that these aren’t an isolated incident, like a summer storm that came out of nowhere and will soon go the same way. They are indiicative of a deeper, systemic problem.

See here for a good, clean summary of the history of the problems now roiling the company’s board. You will see a story of board members with personal agendas that appear to be driven more by their interpersonal relations than by the needs of the corporation. Even basic differences in approach to work seem to be highlighted in the context of those personal relations, rather than aimed at the strategic goals of the firm. When the dynamics of a group are not animated by its purpose for being, secondary and superficial agendas like these tend to surface, and to attain a peculiarly determined and frenzied urgency.

One of the products of this unfocused purpose is a series of problems communicating. After all, if you don’t establish the basis of your communications, how can you agree on what they ought to be or how to pursue them? HP’s board has had difficulties maintaining everything from purposeful to civil discourse. The chair decided to investigate leaks that she felt were undermining a healthy atmosphere for free discussion of the issues. There quickly arose suggestions that this investigation was overly intrusive, which are now being investigated.

The chair, who ordered the investigation, now abhors its conduct. Similarly, she properly suggests that she serves at the pleasure of the board, and will resign if asked due to this scandal, but behind the scenes she had reportedly been struggling to keep her job. She allows that the aggressive behavior of contracted investigators represents a reprehensible violation of HP standards and ethics, but lays the core blame for this failing not on the board, nor, certainly, on herself as the author of the investigation, but rather on the target of the investigation.

That is to say, a director suspected of a rules violation is at fault, in her view, for the rules violations of the investigation which was set in motion to determine whether or not he was in fact guilty, actually, of rules violations. This sort of argumentation from the chair of the board of a major American company is unlikely to prove to be pesuasive, and, indeed, this is proven out in today’s news.

Interestingly, her departure may lead to a situation that exacerbates – or, at least, masks – a major element of the problem. One of the great burdens American boards labor under is the tendency for the CEO to also be chair of the board, and for there to be substantial representation on the board of senior executives as directors. Management loves this because it makes it easier to implement their initiatives. However, it is really an introduction of a Trojan Horse into the board stronghold, releasing the enemy to take it over and, all-too-often, to destroy it as a meaningful institution faithfully representing shareholder interests.

As it happens, HP announced today that the current CEO, who seems to be doing an effective job in that position, will take over as chair in January; the current occupant will remain as a director. Once again, a dual-hatted CEO/Chair (triple: the current CEO is also president) will have a strong interest in diffusing board attention from its real fiduciary duty to protect investor aims, to furthering managerial ambitions.

It has been argued that the current contentious character of the HP board began with an argument over the merger with Compaq Computer that alienated members of the founding familiy. Ideally, the board should be a venue for considered deliberation, not a field for combat in which management and owners engage in direct, heated confrontation. This particular battle was clearly the product of a situation in which management was far too influential in the board, resulting in direct engagement in, rather than mere informing of, board discussions on the topic. The inherent division of interests between management and owners (particularly when management refuses to acknowledge the legitimacy or the primacy of owner interests) led to this dispute becoming particularly acrimonious, and to the transformation of a reputedly formindable board to a manifestly dysfunctional one.

Directors need to communicate and to engage in meaningful teamwork just like anyone else. But just as with anyone else, this begins with framing the issues you are assembled to address, and then organizing yourself to address them. Too many boards fail in these two key areas. We all know what ultimately happens to a structure built on a poor foundation.