Profits may not equal success

Eleven years ago, Carly Fiorina, who proudly touts herself as a one-time secretary and law school dropout, was hired as chief executive of tech giant Hewlett-Packard Co. Her mission: to breathe life into the slumbering electronics giant, which was missing out on the technology boom going on around it.

Fiorina was by then a seasoned AT&T; and Lucent Technologies executive who had been named the most powerful woman in business by Fortune magazine. As she marched into HP wielding a mandate for top-down change, her quest to streamline the sprawling, egalitarian company was complicated by her rock star persona and a case of bad timing.

In 2001, as the dot-com bubble burst, she masterminded one of the largest tech mergers in history -- HP's $19 billion purchase of Compaq Computer Corp. An eight-month battle royal ensued as the families of the company's founders and many HP employees turned against her. She won a proxy vote by a sliver in 2002, and began the enormous task of integrating the two companies.

Less than three years later, she was abruptly fired, a blow cushioned by compensation worth about $42 million. Her ability to execute her vision was found lacking by the very board of directors that had supported her through the difficult merger fight.

"The stock took a beating, but she was absolutely correct," said venture capitalist Tom Perkins, a supporter despite having been a member of the HP board that fired her. "The merger was a brilliant move. Look where HP is now: the biggest computer company in the world."

HP is not a better company, though, said David Woodley Packard, who opposed the merger. "I feel she destroyed the culture of my father's company," he said.

But Packard doesn't blame only Fiorina: "To be fair to Carly, the HP board should have known better when it hired her. If you have a pet bunny and get a pet ferret, you can't really blame the ferret for eating the bunny. That's what ferrets do."

Fiorina and her husband, who own a mansion in the Bay Area community of Los Altos Hills and a luxury condo in the Washington neighborhood of Georgetown, could have sailed into retirement on one of their two yachts (Alchemy V and VI).

Instead, Fiorina, 55, hopes Republican voters will give her a shot at Democratic U.S. Sen. Barbara Boxer's seat.

Fiorina's personal story, which includes treatment for Stage 2 breast cancer, has made her an appealing figure on the campaign trail. Her fortune has made her a viable one: She has lent her campaign $3.6 million so far.

She describes her Republican primary opponents -- former Rep. Tom Campbell, who has led most polls this spring, and Irvine Assemblyman Chuck DeVore -- as professional politicians and argues that running one of the world's largest tech companies gave her the "real-world" experience that voters seek.

But the imperatives of operating a global business have been known to clash with what voters may consider the greater good. At a time when employment is a top concern of voters, Fiorina's aggressive push to move jobs overseas, coupled with extensive layoffs on her watch at HP, have made her vulnerable to charges that she put profits above American jobs.

As she tries to carve out support for herself on with her party's tax-averse right flank, Fiorina has had to explain why she appeared to support taxation of Internet commerce while running HP. And despite her calls for harsh sanctions against Iran as it develops its nuclear program, an HP subsidiary sold products to Iran through an intermediary while she headed the company, even though a trade embargo was in effect.

Fired from HP

When Fiorina was fired from HP in February 2005, few shed tears for her. Her stewardship had been so rocky that half a decade later the jury is still out on whether she was a success or failure.

Her supporters say she was a strategic genius who, despite intense shareholder opposition, stuck to her plan to breathe life into a stodgy, decentralized technology giant, thereby setting the stage for its current success.

Her detractors see a brilliant careerist who laid waste to the collegial ethos of the original Silicon Valley startup in her quest to remake the company in her own image, poisoning its stock price, which dropped more than 50%, along the way.

She axed tens of thousands of jobs, killed HP's beloved profit-sharing plan and, in the eyes of her many passionate critics, exorcised the benevolent ghosts of company founders Bill Hewlett and Dave Packard, whose worker-friendly management practices were known as "the HP Way."

The issue of whether Fiorina created jobs may loom over her if she becomes the Republican nominee. Her record of layoffs and aggressive outsourcing is tailor-made for the Democrat-supporting labor unions that have already mobilized against her.

"I will fight for every job," Fiorina said in a March speech. "And I use the term very deliberately because Nevada fights for our jobs, Texas fights for our jobs, North Carolina fights for our jobs and so does Mexico and Guatemala and Brazil and China and India and Poland and Russia and the list goes on and on."

She is careful in her speeches to emphasize that by "fighting" for jobs, she means cutting regulations and lowering taxes. She does not mention that, as a corporate chieftain, she was an enthusiastic proponent of "offshoring," even sometimes referring the practice of exporting American jobs as "right shoring."

In January 2004, Fiorina drew howls from labor on the left and protectionists on the right when she told Congress, "There is no job that is America's God-given right anymore."

The response was so pitched that Fiorina penned an essay -- "Be Creative, not Protectionist" -- for the Wall Street Journal. "Spending our time building walls around America will do nothing to help us compete for the millions of new jobs being created." The focus, she wrote, must be on "next generation" jobs and industries -- biotech, digital media, etc.

In an interview, Fiorina insisted that in her time at Hewlett-Packard, which was racked by layoffs -- as many as 33,000 by some estimates -- she created more jobs than she eliminated.

"We had more employees by the time I left HP than either pre-merger HP or pre-merger Compaq had, combined," she said.

That claim is difficult to back up. According to HP's government filings, the company had 84,400 employees worldwide in 2001, the year before the merger. In 2001, Compaq had 63,700 full-time employees. Together the two companies would have a total workforce of 148,100.

But in that same period, HP bought more than a dozen other U.S. companies with at least 8,000 employees, according to company filings, press releases and news reports. And in 2005, when Fiorina was fired, the company reported a worldwide workforce of 150,000.

She acknowledged moving American jobs to other countries but said: "We also added jobs in this country. Those are just the facts. And if you go into the proxy statements and track it, you'll see that."

Proxy statements, however, do not offer information about the location of employees. "Unfortunately we don't have that breakdown available," an HP spokeswoman said. "We only release the total worldwide numbers."

When asked if she could document her claim that HP increased the number of jobs in the U.S. during her tenure, Fiorina's campaign sent two news clips. One was an Associated Press account from May 30, 2002, which said "Palo Alto-based HP has 74,000 U.S, employees and 150,000 overall." A news report from 2006 said HP had 80,000 U.S. workers.

But on Feb. 13, 2004, in her Wall Street Journal essay, Fiorina had written, "[W]e have 60,000 workers here." Thus, between May 2002 and February 2004, the number of HP's U.S.-based employees had dropped by nearly 20%.

"I would say she has created a lot of jobs," said veteran Hewlett-Packard engineer Dan Dove, 55, who has worked at the company's Roseville, Calif., site since 1980. "But they are not in the United States."

Fudging facts?

At times, Fiorina has been accused of fudging facts or previous positions. In those moments, she shows glimmers of the chief executive who won't be contradicted.

During a debate, she became testy when DeVore tweaked her about missing meetings as a member of the Defense Business Board, a group of American business executives who give advice to the Defense Department. DeVore accused her of attending only two of seven quarterly meetings; the board's records for 2007 and 2008 show she attended three.

"Of course, I was battling cancer last year and unable to travel," she said.

When DeVore pointed out the missed meetings occurred before her cancer was diagnosed in February 2009, she snapped, "Did you hear what I just said, Chuck? Did you hear what I just said? Did you hear what I just said?"

"Just repeating what the Pentagon told me," DeVore replied.

Fiorina also has been dogged by her shifting position on Internet taxation, something she once pronounced inevitable. In her famous "Demon Sheep" ad, she attacked Campbell for supporting the rights of states to impose taxes on Internet commerce.

But in 2000, she appeared to accept the idea.

"While it's unrealistic to forever exempt e-commerce from taxation," she said at the Aspen Conference, "it would be a tragedy to apply our medieval tax system to the Internet. Wouldn't it be wiser to reform the old tax system with all its inefficiency, its complexity, and then apply the new system equally to both the online and offline worlds?"

In an interview, she said it was "crystal clear" that she has always opposed such taxes. Those who disagree, she said, "are looking to be confused." Indeed, Fiorina is apt to insist something is true because she says it is: "The facts are the facts" is a favorite expression.

In February, a reporter for San Francisco's KGO-TV asked her about a 2001 pilot program for taxing Internet commerce that HP tested in four states with the software company Taxware International. "I have no idea what you're referring to," she replied. "We weren't running a pilot program to tax the Internet." Later that day, her spokesperson said Fiorina had forgotten about the program.

Iran embargo

The charge that Hewlett-Packard violated the U.S. trade embargo against Iran on Fiorina's watch has been raised repeatedly by DeVore.

"When she calls for sanctions against Iran, which we can certainly agree with, the hypocritical thing is that she participated as CEO in undermining those very sanctions," DeVore said in a debate.

"These accusations that we, that HP did something unlawful are false," Fiorina replied.

She's technically correct, trade law experts say. Under President Clinton's 1995 executive order banning almost all trade with Iran, Hewlett-Packard did not break the law because the sales came from a subsidiary that HP owned but which HP's American operation did not control.

For a sale to violate the embargo, an American company has to both own and control the overseas branch responsible for the sales, said attorney Victor Comras, a former senior sanctions expert for the State Department.

"What HP has been saying, and what many other companies engaged in the same kind of direct trade with Iran say is, 'We may own these subsidiaries but we don't control them,' " Comras said. "And that has been a very effective loophole. They are not technically breaking the law. But are they circumventing the law? I would think so."

Fiorina spokeswoman Julie Soderlund said the issue was first raised by Democrats in 2008, when Fiorina's name was floated as a running mate for Republican presidential nominee John McCain.

"These politically motivated allegations are false, based solely on speculative media reports," Soderlund said in an e-mail. "Redistribution of printer ink is not a national security issue."

But the first media report about HP printers in Iran was not published until nearly eight weeks after the 2008 election. Ten days after the Boston Globe broke the story on Dec. 29, HP announced it would prohibit distributors from selling its products in Iran.

"HP has a policy of complete compliance with all U.S. export laws," the company said. "Having recently examined the situation, we believe it's important to go beyond the letter of the law."

In an interview, Fiorina defended the sales.

"Hewlett-Packard complied with every export law," she said. "The facts are crystal clear. And I don't think there is anything to explain further."

robin.abcarian

@latimes.com

This is one in a series of articles examining the backgrounds of the major candidates for California governor and U.S. Senate in the June 8 primary election.

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(BEGIN TEXT OF INFOBOX)

Carly Fiorina

Political party: Republican

Occupation: Former business executive

Age: 55, born in Austin, Texas

City of residence: Los Altos Hills and Washington, D.C.

Personal: Husband Frank Fiorina; two stepdaughters (one deceased), two granddaughters

Education: Bachelor's degree in history, Stanford University; MBA, University of Maryland; M.S., Sloan School of Management, MIT

Career highlights: Senior executive, AT&T; and its 1996 spinoff Lucent Technologies 1980-1999; chief executive and president, Hewlett-Packard, 1999-2005; chairman, Hewlett-Packard, 2000-2005. Only woman to have headed a Fortune 20 company.

Platform: Encourage economic growth and job creation with lower taxes, less regulation. Against abortion and same-sex marriage. Repeal and replace healthcare reform. Bring relief to Central Valley farmers by overturning water regulations protecting the delta smelt. Keep Guantanamo Bay prison open.

Campaign website: carlyforcalifornia.com

For The Record Los Angeles Times Saturday, May 22, 2010 Home Edition Main News Part A Page 4 News Desk 2 inches; 58 words Type of Material: Correction Carly Fiorina: An article in Thursday's Section A about former Hewlett-Packard CEO Carly Fiorina's quest for the Republican U.S. Senate nomination said allegations that the company had evaded the U.S. trade embargo against Iran first surfaced in a December 2008 newspaper report. Several reports had been published before then mentioning HP among companies suspected of skirting the embargo.
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