Merger would be bittersweet victory
Carly Fiorina claims victory in her quest to acquire Compaq Computer, but her biggest battles will be yet to come.
Hewlett-Packard's chief executive may have emerged from the months-long struggle with the coveted prize but without a clear mandate. Although the two companies have poured hundreds of thousands of man-hours into planning how to become one, a substantial number of the employees tasked with carrying out those plans bitterly opposed the deal.
In addition, a significant percentage of shareholders, not to mention Hewlett and Packard family members, also opposed the deal
"Overall, the feeling is that, yeah, this thing will probably happen, but few people approve of it," technology analyst Jeremy Davies said Monday.
Offsetting that sentiment will be tough. Depending on whose surveys you believe, anywhere from one-third to two-thirds of HP workers oppose the deal. Motivating those workers will be a difficult but critical task. The fact that some 15,000 job cuts are planned once the deal goes through makes the challenge all the greater.
"This is sort of uncharted territory," said Steven Currall, an associate professor of management at Rice University in Houston. "This is going to require skills that we don't know (Fiorina) has. We don't know that she doesn't have them, but this is a really challenging management task."
For her part, Fiorina says she is prepared to make believers of her skeptics.
"You know, change is necessary, and resistance to change is inevitable," Fiorina said in an interview earlier this month. "I think it was Jack Welch who said in his book that for the first several years he was at GE he had 30 percent of his employees with him."
Robert Hogan, a Tulsa, Okla.-based management consultant and former psychology professor, said that leaders must demonstrate four qualities to command needed respect: trustworthiness, vision, decisiveness and competence.
| The case for the merger According to Hewlett-Packard CEO Carly Fiorina, merging with Compaq will: • Make the company a larger player in the storage and services businesses • Give it more scale in the PC business, providing a path to cutting the red ink • Provide $2.5 billion in cost savings by 2004 while cutting revenue by only 5 percent • Add $5 to $9 per share in value |  |
"I think they are going to have terrible problems with the employees," Hogan said. "I think it's just damage control. The people that are fired are going to be mad, and the people that are left are going to be paranoid."
HP, which has historically had low turnover, runs the risk of losing key employees, said Philip Barquer, president of consulting firm HR Alternatives in Newport Beach, Calif.
"You can motivate a satisfied employee, but you can't motivate a dissatisfied employee," Barquer said.
There are also the cultural issues of merging the Texas-based PC maker with HP's Silicon Valley way of doing things, or what some have called the issue of "boots vs. Birkenstocks." HP has said it has spent significant time on these issues as well, with those efforts headed up by Susan Bowick, HP's vice president of human resources.
In addition to the potential divide among employees, HP must find a way to bridge the divide with all the shareholders that oppose the deal, most notably members of HP's two founding families.
Experts say Fiorina would be well-served to reach out to board member Walter Hewlett and other opponents of the deal.
"Given the ferocity with which they attacked the other side, I think they are going to have a tough time," said Charles Elson, a professor of corporate governance at the University of Delaware. "But if you ignore that substantial minority, the next time something goes wrong you just started with a 50 percent block against you."
Friends with the enemy
Some suggest that a good step would be to keep Hewlett on the board, or at least another member of the Hewlett or Packard families.
"I would hope you would. I think prudence would tell you to," Elson said. "I think that's been the problem with this whole thing--there seems to be a lack of concern for dissenting viewpoints."
During a March interview, Fiorina said the founding families would always be a part of HP, but she declined to say whether Walter Hewlett or any other family member should be a permanent fixture on HP's board.
"We have a process in HP which elects board members annually," Fiorina said. "And so there's an opportunity every year to consider that question, and we will do so in a timely way."
As for product plans and other nuts and bolts of bringing the two companies together, Fiorina said that work is essentially done. HP plans to quickly fill customers in on the plans, which the company has been working on since the deal was announced in September.
But Davies, who works for London-based market researcher Context, said he hopes the company has also given thought to little details such as the laws in various European countries that require consultations with unions and others before layoffs can occur. That can slow the integration of the two companies as well as delay cost savings.
"When Compaq did the Digital (Equipment acquisition), it took them ages to do it all the way," Davies said.
Of course, HP will gain the expertise of many veterans of that merger, as well as that of two members of its own board that have presided over large mergers: retired Vodafone AirTouch chief Sam Ginn and Boeing CEO Phil Condit, who oversaw that company's acquisition of fellow aerospace giant McDonnell Douglas.
"I think the key lesson for both of us is first-class integration planning," Condit said in a teleconference with investors and reporters last week. "And (in) the HP-Compaq case the board has carefully reviewed the integration plans, and we do it regularly."
Some, including investment adviser Institutional Shareholder Services, have even suggested that Walter Hewlett's opposition has made HP all the more diligent in its integration plans.
Even though Wall Street and the media will be clamoring for attention from HP, Rice professor Currall argues that company executives should focus on the integration process. Currall said Fiorina should spend a little time in the immediate aftermath of a victory with the press and Wall Street, but then turn her attention to the employees and her board of directors, and to integrating the two companies.
"Wall Street will come in line if they are seeing the progress they want," Currall said.
News.com's Dawn Kawamoto contributed to this report.