Face-off: Behind the struggle for HP

When it announced plans to acquire rival Compaq Computer, Hewlett-Packard expected some people to react negatively.

But HP's management claims the company had no inkling that one of the loudest opponents would be a member of its own board of directors, not to mention a scion of one of the company's two founding families.

In Walter Hewlett, HP encountered a passionate opponent to the plan, one who willingly spent millions of dollars to give voice to his objections. The battle soon turned ugly, with all sides slinging enough mud to fill Boston's Big Dig.

After months of fighting, HP CEO Carly Fiorina declared victory at a March shareholders meeting. But Walter Hewlett was not done and sued the company his father helped create. Only after a bitter proxy fight and a multimillion-dollar advertising campaign did Fiorina finally carry the day.

The debate goes on. Was the deal a good one? Were HP's tactics in the final days leading up to the all-important shareholder vote in spirit with the much-talked-about 'HP Way'? Two new books with two very different takes on the HP-Compaq merger are sure to reinvigorate the debate: "Perfect Enough," by Fast Company editor George Anders and "Backfire" by BusinessWeek editor Peter Burrows. The two authors sat down recently for a roundtable discussion with CNET News.com.

Q: Why didn't the board make certain that Walter Hewlett was in support of the deal? Members of the board talked about not understanding the depth of his opposition, but it's clear that they didn't have him signed on.
A: George Anders: They thought he was essentially there. They thought he was a straggler. Fundamentally, they misread the guy. They misread him profoundly. His objections were deep, and they became far more developed. The board thought it was on the right path and thought Walter would catch up, and took what were equivocal public answers from him as 'close enough.'

Peter Burrows: I think that's generally true and that they thought he might catch up. On the

There's no way to fade into the background as a female CEO, and there are no routine days when you are Carly Fiorina. --George Anders, editor, Fast Company

other hand, there were three votes where he had a chance to say, 'Should we continue with the talks?' Each time he said no. One time, they were concerned enough that he might talk to the (Hewlett) Foundation about his inability (to support the deal) that Carly had to confront him and say, 'You're on the board. You can't be talking about this outside.' I think they knew more than they say about the depth of his opposition.

How much of the criticism directed at Fiorina is due to the fact she is a woman?
Anders: There's no way to fade into the background as a female CEO, and there are no routine days when you are Carly Fiorina. I think in some cases that translates into people who will endorse almost anything she does and feel like she is the next president. At the other end, there are people who feel it's time to get the girl out. You've got people with extreme views about this that you would never see talking this way about (Cisco CEO) John Chambers or about (Agilent CEO) Ned Barnholt. That's part of being a female CEO.

Burrows: I'm not so sure. I think it is a question of degree. If there is a gender-blind company, this is as close as you are going to get. Carolyn Ticknor was running HP's LaserJet group, and Ann Livermore was the runner-up for the CEO job. HP was known as a progressive company because it was progressive.

If HP was trying to sell the deal now, would it have a tougher or an easier time?
Burrows: I don't know if they would have such an easy sell with this deal at any time. You've got to remember the reaction was pretty miserable with or without Walter Hewlett. (HP's stock) was down 23 percent on Sept. 10 and 35 percent, two weeks later.

Looking at the proxy fight, it was no doubt ugly. But was it a fair fight? Was it clean?
Anders: I said in my book that proxy fights are like mud wrestling in a cage. So, as mud wrestling goes, this was fairly clean. I was surprised how little evidence Walter Hewlett had in the courtroom. He had an enormous amount of frustration that he lost by such a small margin.

Burrows: I think it was a fair fight by proxy-fight standards. HP used to be considered this hallmark company that wouldn't get near a mud-wrestling match. I think you can criticize some of the activities. The biggest one to me was they were giving investors the sense that (former Compaq CEO) Michael Capellas was going to be there and was going to be the perfect operations right arm for Carly Fiorina, when in fact he'd had this deal to move within a year.

Management talked about the preservation of the HP Way and said that was a reason to do the merger. Walter Hewlett said the merger worked against the HP Way. Do either of them really have a claim to carrying on the legacy, leaving aside the question of whether it even remains relevant today?
Anders: By the end of the contest, the HP Way probably became much less meaningful than it had been. It was tugged back in so many directions that it could be used to justify anything. The HP Way turned into a cul-de-sac.

Burrows: I disagree. I think more of this fight was about the opportunity to execute the HP Way in the fashion it should have been executed. I would argue that most people at Hewlett-Packard think the HP Way (embodies) their values. It is not a namby-pamby or a socialistic sort of view. It never was when the company was working well.

What was the most surprising thing each of you learned while writing the book?
Anders: Carly wanted to win more than Walter did. I went into this thinking this is Walter's life mission. He cares about the best of HP more than anyone else. His family name is on the door. What amazed me about Carly is that she brought even more to it. There were these (proxy) lists of all the people they would need to call. Walter would look at his list and say, "Oh my God, do I really have to do this?" and then say, 'OK, fine.' Carly would get her list and say, 'You got any more names you want me to call?'

Burrows: In the final days of the proxy contest, some of Walter Hewlett's advisors--some of whom had a big success fee (a fee at stake payable only if they won)--talked about a plan to buy 500 million dollars' worth of stock. They had set up a credit line. They started to look for buyers and do a transaction where they could get not only the stock, but also get the voting rights. According to the advisors--and to Walter himself--he decided, 'No I'm not going to do that.'
You've got to remember that at this point, nobody knew whether this was going to be enough to get him over the top. He said he was out to do one thing: Not to kick Carly out or take over the board, but to knock down this deal. He wanted to present an option for investors who felt likewise. I found it surprising that it could have come down to that, and I also found it surprising that he didn't go along with that.

I think more of this fight was about the opportunity to execute the HP Way in the fashion it should have been executed. --Peter Burrows, editor, BusinessWeek

Anders: Also, the Heloise and Abelard thing just rang me up. (Fiorina, a medieval studies major, referred to the shell company that was buying Compaq as the Heloise Merger Corporation, a coded reference to a 12th century French love story.)

Everyone has made a big deal of Capellas being Abelard, since in the story Abelard ends up getting castrated. But no one has mentioned what happens to Heloise at the end of that story.
Anders: She ends up in a convent. She doesn't do so well either.

Burrows: I thought that was a fascinating anecdote that I wished I'd had. I thought it spoke so much to Carly's determination to bring this thing through, but also to her personality. What a risky thing to do! What happens if one of the 60,000 people at Compaq figures out who Heloise is? What happens to this deal?

Anders: The breathtaking audacity. It's a prank in a very public setting at enormously high stakes. Both of us found an element of Carly Fiorina's personality, in years gone, where there was a sense of mischief and audaciousness. In a way, it's a pity that as she's metamorphosed into a big company CEO and has had to become very serious, we've kind of lost the outrageous side of Carly.