‘HP Way’ Obsolete in Silicon Valley
Hewlett-Packard Co. helped establish Silicon Valley’s culture of egalitarian idealism and fair dealing. But the technology pioneer’s corporate spying scandal has many in the region questioning whether that culture is as gone as the slide rules HP calculators replaced.
“HP is an emblem of the loss of innocence,” said Jeffrey Pfeffer, a professor of organizational behavior at Stanford University. “But that innocence has been lost for a while.”
The Palo Alto company has been dogged by allegations that it hired private eyes who tailed its own directors, sent reporters computer spyware and pried into private phone records -- all to ferret out the source of boardroom leaks.
HP faces criminal investigations by the FBI and California Atty. Gen. Bill Lockyer as well as inquiries by Congress and the Securities and Exchange Commission. Two board members and HP’s chairwoman have resigned.
The imbroglio at HP erupted just as another Silicon Valley scandal was starting to die down. That one is about alleged manipulation of stock options that technology firms granted during the dot-com boom.
Combined, they highlight the tension between tech companies’ carefully tended -- and partially true -- image as a bunch of creative geeks working to make the world better and the reality that many are multinational corporations whose highest goal is profit.
“These are huge, worldwide businesses,” said John A. Young, chief executive of HP from 1977 to 1992. “They are subject to the excesses of large businesses.”
Nonetheless, the idea of criminal charges swirling around top HP officers would have seemed inconceivable to its late founders.
William R. Hewlett and David Packard, fishing buddies and graduates of Stanford’s electrical engineering program, started HP in 1938 in a Palo Alto garage, using $538 in working capital. Their first product, an oscillator to test sound equipment, began a string of scientific and business successes almost without peer in high tech.
In 1942, HP opened its first building, a combination factory, office and lab that used what was then a radical design: a single large room. The idea was to encourage informal interaction and collaboration, a foreign approach to most businesses of the era.
“We all had our desks out in the open,” said Norm Glaeser, who started building calculators and scientific instruments at HP in 1964. “It allowed for easy discussions not only with peers but with management.”
HP established one of the first company health plans and a program of flexible work hours to promote a paternalistic bond with employees. The philosophy, later codified in the HP Way, was based on trust and respect for individuals, teamwork, the creation of useful and important products, openness and honesty.
The approach engendered a sense of family, former employees said, even as HP grew into a corporate giant.
“There wasn’t someone hovering over you all the time cracking the whip,” said Carl J. Cottrell, a former HP executive who retired in 1991, after 39 years with the company. “You were given a job and expected to do it.”
As the company’s practices began to be copied by competitors, its ethical principles extended to the larger society.
“Dave [Packard] and Bill [Hewlett] felt that the company also had a civic responsibility,” Cottrell said, “to be a good citizen in the communities in which you lived.”
Hewlett and Packard established multibillion-dollar foundations that rank among the world’s largest. Those philanthropies helped spark a wave of charitable giving by Silicon Valley’s more recent millionaire entrepreneurs.
Loyalty to HP spawned dozens of retiree social clubs and online forums in at least 10 nations. In keeping with the HP Way, many of those groups offer insurance plans and engage in community service.
But the HP Way had begun to unravel long before the recent snooping revelations, with the arrival in July 1999 of Carleton S. “Carly” Fiorina -- the first outsider hired as chief executive.
Fiorina, formerly an executive with AT&T; and Lucent Technologies, was a charismatic, fast-paced pragmatist. She was determined to retool HP for new challenges. Observers said Fiorina paid lip service to the HP Way but understood little of its role in the company’s success.
She had the bad luck to arrive just before the dot-com bust hollowed out the burgeoning Internet economy and sank sales of important HP products.
Facing a cutthroat market for personal computers and printers, she rapidly centralized power, streamlined the organization and imposed a series of pay cuts and mass layoffs -- the first in company history. The pressures of global competition seemed to be behind her most draconian moves.
“If you don’t run a pretty tight ship here, someone else will in China or someplace,” Cottrell said. “I understand why management is driven to do what it has to do, but it doesn’t make it as nice a place to work.... The good old days are gone.”
Company insiders said HP’s obsession with board security began in 2001, when Fiorina announced a plan to acquire Compaq Computer Corp., then the second-biggest PC maker. The move was intended to help HP compete in a global market characterized by falling prices and rising competition.
The proposal pitted her against HP traditionalists, leading to accusations that Fiorina was stifling internal debate.
“Carly basically told her team that they would support the merger or they would be gone,” said Stanford’s Pfeffer. “That’s not the HP Way.”
Walter Hewlett, son of the co-founder and then a member of the board, opposed the merger in a bitter shareholder proxy battle. Fiorina won that skirmish, but she lost a larger fight. The board fired her in 2005 for failing to integrate HP and Compaq effectively.
Fiorina was replaced as chief executive by Mark V. Hurd, and her replacement as board chair was Patricia C. Dunn, who joined the HP board in 1998 after rising through the ranks at Barclays Global Investors. Soon after taking over as chairwoman, Dunn became incensed that board discussions -- including some about Fiorina’s fate -- had been leaked to the media.
To find the source of the leaks, Dunn authorized the investigation at the center of the current scandal.
Board members George A. Keyworth II and Thomas J. Perkins were among those targeted and Keyworth was identified as having talked to reporters. He was asked to resign but refused. Instead, Perkins quit in protest of the invasive methods and reported the probe to state investigators.
This month, Keyworth resigned from the board.
Dunn -- who has admitted ordering the spying but denied knowledge of illegal or unethical tactics -- followed Perkins and Keyworth on Friday.
Hurd apologized for HP’s actions Friday but said he was not as aware of its details as he should have been.
The HP mess has shocked Silicon Valley, but perhaps in the way Capt. Renault was “shocked, shocked” to find gambling at Rick’s American Cafe in “Casablanca.” For instance, Oracle Corp. chief Larry Ellison admitted in 2000 that he had hired private investigators to dig through Microsoft Corp.’s garbage for competitive intelligence.
Since then, other valley companies have been revealed as lax about business ethics, stretching out fiscal quarters and recording phantom sales to show profits on paper, experts said. Ruthless poaching of competitors’ talent has become commonplace.
Many executives in Silicon Valley “felt they were masters of the universe,” said Richard Koppes, a corporate governance expert at law firm Jones Day. “It was like the rules don’t apply because ‘we’re the engines of the economy.’ ”
Even Google Inc., with its famous “Don’t be evil” motto, has been harshly criticized for agreeing to censor its Chinese website in exchange for access to that burgeoning market.
Questions about stock option accounting have emerged as one of the worst financial scandals of the post-Enron era. Federal authorities are investigating whether companies improperly changed dates on option grants so that employees could realize immediate profits -- in some cases, multimillion-dollar windfalls at shareholder expense.
At least 30 valley companies, including Apple Computer Inc., are the subjects of federal investigations, and two former executives of Brocade Communications Systems Inc. have been charged with securities fraud.
Despite its internal turmoil, HP seemed to still be above crass ethical lapses.
“Now you have the granddaddy of them all, HP, whose name raises an image of being pure as the driven snow, being in this mess,” said Chuck House, science policy and societal impact director for semiconductor giant Intel Corp. A former HP engineering executive, House is coauthor of a forthcoming book on the company.
“It will be damaging to the industry for a long time,” he said.
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Times staff writers James S. Granelli and Kim Christensen contributed to this report.
