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H-P: Is There a Miraculous Recovery Ahead?

This article is more than 10 years old.

Ok, so due diligence isn’t exactly the H-P board’s strong suit.

Indeed, after the announcement of an $8.8 billion write-down related in part to "serious accounting improprieties" and "outright misrepresentations" by UK software company Autonomy, H-P’s board is being loudly castigated for failing to flag problems some say were hidden in plain sight.

Because of those purported improprieties, later disclosed during an internal H-P probe, the company acquired Autonomy in 2011 at what now seems to have been an exorbitantly inflated $11.1 billion price tag. According to reports, financial analysts had raised questions that H-P only addressed after the internal audit began.

Observers like Richard Windsor, a former technology analyst with Nomura, are unequivocal: H-P needs a new board of directors, period. To be sure, this board has a long history of conspicuous missteps, including successive controversies over the firing of former CEOs Carly Fiorina, Mark Hurd and Leo Apotheker. Meanwhile, relatively strong performance numbers during Hurd’s tenure has rekindled sharp criticism of the board for failing to stand behind him.

Although there is the inevitable speculation about her becoming a target, it’s noteworthy that we do not now hear the same explicit calls for current CEO Meg Whitman’s scalp as we do for a boardroom coup. In fact, in the blame game now raging, no one is playing their part more pointedly than Ms. Whitman. On the one hand, she has directly accused Autonomy of a “willful sustained effort” to misrepresent its top and bottom lines.

On the other hand, she has separated herself from her own company’s bungled due diligence. While not everyone is buying her arguments, she reminded us that Apotheker was responsible for the acquisition and, shrewdly, expressed her own bewilderment that, prior to her ascension as CEO, due diligence reported to “strategy chief” Shane Robison rather than to the CFO. “I’ve never seen that before in my career” and made a decision “right away” to fix it, said Whitman.

At the same time, Whitman has commandeered the current massive write-down, only part of which is directly tagged to Autonomy’s alleged malfeasance. To be sure, analysts are closely scrutinizing the charge.  Some have observed that the $5 billion attribution to accounting irregularities simply doesn’t “make sense.” Others point out that, even if we swallow that claim, the other $4 billion can only be blamed on the “boneheaded decision” to buy Autonomy in the first place.

Yet irrespective of how the specific write-down numbers are interpreted, H-P has seized on the Autonomy debacle as an opportunity to wipe the slate clean. One way or another, a new era can begin.

Or at least there’s that possibility. A simple question still looms Damocles-like, and it goes well beyond bookkeeping or due diligence. The question is: What happens next?

Any answer to that underscores what has really been the H-P board’s principle failure over the last few years, a failure amply shared by the company’s officers. It is a strategic failure in every sense of the word. Underlying all the mistakes of which Autonomy is the latest example, there has been the persistent inability of the board to actually define the company it manages.

What can be a more fundamental boardroom responsibility than to insist on a coherent strategic plan girded by realistic growth projections and, crucially, guided by a sense of what the company actually sells? Is H-P a tablet company? A printer company? A software company?

No due diligence in the acquisition of a Compaq or an Autonomy can ultimately serve the shareholders absent this very basic sense of what the company is all about. No deliberations over a Hurd or an Apotheker can mean much when the board is content to let a company like H-P lurch from pillar to post in hopes of quick revenue injections to stave off inevitable market share erosions.

Assume that Autonomy was beyond reproach in every particular. Why was H-P buying it, was the price realistic, would it fit into an existing business model? Whitman may have effectively jockeyed to buttress her power in 2013 but she is only delaying the inevitable if she and her board do not come up with a short- and long-term agenda to which a majority of shareholders can confidently sign on.

Response to the current write-down proves the point. It’s not just H-P’s failed due diligence that concerns the marketplace. To an even greater extent, it’s the company’s multiple other failures represented in the numbers. No wonder some view H-P’s move simply as a cover-up of its own mismanagement (a view powerfully expressed by Autonomy founder Mike Lynch in no uncertain terms and within hours of H-P’s announcement).

Yet even if one does take that jaundiced view, the good news is that H-P has at least gained some critical breathing room despite share prices sinking to 10-year lows. If a stunning corporate recovery is in the offing, it will be the result of a new focus by the company’s leadership, a collaborative leadership in which officers and directors set a single definable course and stick to it.

If that’s a realistic possibility, the current write-down with all its attendant controversy can turn out to be an effective medicine, albeit a bitter one.

Follow Richard Levick on Twitter and circle him on Google+, where he comments daily on financial crises and corporate brands.

Richard Levick, Esq., President and CEO of LEVICK, represents countries and companies in the highest-stakes global communications matters — from the Wall Street crisis and the Gulf oil spill to Guantanamo Bay and the Catholic Church. Mr. Levick was honored for the past four years on NACD Directorship’s list of “The 100 Most Influential People in the Boardroom,” and has been named to multiple professional Halls of Fame for lifetime achievement. He is the co-author of three books, including The Communicators: Leadership in the Age of Crisis, and is a regular commentator on television, in print, and on the most widely read business blogs.