August 10th, 2010 © 2010 MGI RESEARCH, LLC
The task of replacing Hewlett Packard's just-departed CEO Mark Hurd won't be easy. With revenues of $120 billion, HP is the largest IT global provider of IT hardware, software and services in the world. During his tenure as CEO, Hurd had more than doubled the market capitalization of the company, and launched a number of major initiatives - many of which are incomplete. As we highlighted in a companion piece (see MGI Research "Departing CEO Hurd Leaves Hewlett Packard Shares Dead Money", the company is in good financial health, as evidenced by its strong MGI-X score of 2220. The incoming CEO needs to bring a breadth of skills appropriate to the job - and herein lies the challenge for the CEO search committee of Hewlett Packard board of directors.
Here's a summary of the key requirements for a candidate to be considered:
- A successful track record of running a $20+ billion business.
- An individual who is both experienced with and is well-respected by institutional investors. HP needs to recover almost $9 billion in lost market capitalization due to the fallout of Mark Hurd's departure.
- Understanding of complex technology or industrial businesses - experience with enterprise computing and large corporate and government sales environments preferred.
- Experience with large M&A transactions. HP needs to make the EDS integration a success. This remains an unfinished question mark and past HP buys (both before and during Hurd's tenure) have had mixed long-term positive results, to state it mildly.
- Track-record in driving financial performance, with a preference for stimulating innovation and building new revenue streams.
- Vision to leverage HP's position as the world's largest enterprise technology supermarket into compelling high-margin, high-growth product and category excellence.
- Outstanding personal leadership skills - vision, charisma, energy, competence, and integrity.
- Age- in a perfect world, the board would like a relatively young executive who could lead the company for five years+. However, it's conceivable that the board would hire an older caretaker candidate who could manage the company through the next 3-5 years with no expectation of staying longer than five years.
The Dow 30 List of Potential Candidates
Executives out of one of these companies in the Dow 30 would bring necessary management breadth and depth, complex product lifecycles, sophisticated sales and contracting landscapes, M&A deal-making and integration experience (nota bene - Lockheed Martin is not in the Dow 30, but close enough to be considered). While the IT industry may be different than others, we believe that any complex industrial product/services company with revenues greater than $30 billion provides ample training for an executive to provide effective leadership to a large IT company. Ford CEO Alan Mullaly exposed the myth of the single-industry experienced CEO. His retort to those who dismissed his lack of automotive industry expertise was direct - "I don't know the auto business, however I'm accustomed to delivering a product that flies 500 m.p.h. at 40,000 feet, has an operational life of greater than 25 years, and is made of more than 600,000 parts manufactured by suppliers around the globe." Senior executives from this list of companies are likely to have the right stuff - and depending on the individual, could lead HP into the next decade.
- United Technologies
- Lockheed Martin
The Dark Horse Candidates
- Ray Lane, partner, Kleiner Perkins (KPCB). Billionaire Lane is credited with having built Oracle's robust consulting division and transforming the company into a process-driven machine. As COO of Oracle, he helped scale revenues from $1 billion to $10 billion, and was widely respected on Wall Street. Although he is local to HP's headquarters, it would take a hard sales pitch to lure Ray back into the day to day operations and travel grind required to run a global business.
- Accenture - there may be one or two partners inside consulting firm Accenture who could bring the organizational and leadership skills necessary to run HP.
- Tim Cook, Apple. Well-respected Cook has been a loyal Apple insider, and is recognized for his steady hand on the rudder through the tumult of Apple founder and CEO Steve Jobs' health issues (not to mention Jobs' famous temperament). With the Apple CEO-slot within reach, and the opportunity to be #2 at the most innovative company on the planet at present, Cook is a long-shot candidate.
- Safra Catz, President, Oracle. Catz has been Ms. Insider to Oracle CEO and founder Larry Ellison's Mr. Outsider. With Ellison showing no signs of letting go of the reins anytime soon, Catz may not get a shot to run Oracle, and the CEO position at HP could be a tempting challenge. She brings the full package - having served as Oracle CFO, led numerous acquisition and integration projects, has a thorough grasp of corporate and government IT buyers, and a laser-like focus on profitability and shareholder value. HP shareholders could be richly rewarded by a leader familiar with Oracle's operating model and valuation metrics.
Todd Bradley, age 51. Of the current crop of HP executives, only one appears to us as possessing an attractive mix of skills, management breadth, strong health, and capable of passing most, if not all, of the requirements listed above.
The board of directors of Hewlett Packard is now confronted with the reality of its decision to negotiate the exit of Mark Hurd - namely the unenviable job of finding a new CEO. HP has a huge carrot to dangle in front of potential hires - the biggest job in IT today. Finding someone willing to engage with HP given its past decade of CEO and board shenanigans is a tall task, not to mention the challenge of finding an individual with the panoply of skills required to succeed in the job.