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A meritocracy of dunces?

HP believes that retaining executive talent is what will make the Compaq merger succeed. But history shows that heroes with lofty resumes aren't always enough to turn things around.

Tech Industry
Management is the defining paradox of American corporate life. Consultants, authors, investors and PowerPoint-addled motivational speakers all subscribe to the theory that success depends upon a cadre of supernaturally skilled leaders.

Yet, general experience shows that the organizational ranks of even successful companies are stuffed with plodding blockheads and Yes-men. Like many, my secret ambition is to land one of those positions where I can be blatantly incompetent and still enjoy deference and respect. ("You're halfway there," my wife says.)

Management has emerged as a crucial issue in the HP-Compaq merger. To recap, Hewlett-Packard intends to acquire its longtime rival in a multibillion-dollar deal to create the world's second-biggest computer conglomerate.

HP has justified the merger on the grounds that it will create a corporate animal with the size, reach and technical expertise to take on IBM, the giant squid of computer companies, as well as the ever-tenacious Dell.

But as the merger plans unfold, it is rapidly becoming clear that the company believes the success of the merged company really depends on honing a central leadership core that can guide the sprawling organization. There is no other way to explain its personnel policies.

According to dissident director Walter Hewlett, HP CEO Carly Fiorina stands to receive a pay package worth $168.5 million in salary, bonuses and stock over the next two years--well over the $33.1 million she got in HP's fiscal years 2001 and 2000 (including stock options now underwater). HP disputes Hewlett's contention, saying no compensation package was formally decided for Fiorina or Compaq's Michael Capellas. But let's just play with the published numbers as an indication of the sort of ballpark we're talking about.

Great leaders rise up in times of great crisis, but if the crisis hits only the moderate stage, you get a mattress-store manager.
Even if you pro-rate the $65.6 million stock grant she got in 1999 over three years, the most recent two-year total comes to $77 million, or less than half the amount for entering into the controversial merger.

Compaq's Capellas stands to pull in $47.6 million over the coming two-year period. Further down the totem pole, HP will award 6,000 managers, or 7 percent of the company's total employees, bonuses in excess of 50 percent of their salary to stay with the company. Compaq will spend $242 million on a similarly exclusive reward program.

Meanwhile, approximately 29,500 employees will be laid off once the merger, announced Labor Day, is complete.

One could try to portray Fiorina as greedy. In fiscal 2000, for instance, she received "$105,657 for incremental cost of company-required personal use of corporate aircraft," according to documents filed with the Securities and Exchange Commission.

But the characterization would be incorrect. She already has more money than even a deranged shopaholic could spend in a lifetime. Instead, it boils down to rewarding the appropriate people.

"Bill Hewlett and Dave Packard were famous for going to reviews, and if they didn't like something that was said or done in the review, the next day the person was gone," Fiorina said in interview last year when asked about the famed "HP Way." "But I think some people had lost track of what a performance-based meritocracy is all about. And those people didn't like it."

Somehow, HP has thrived these 60-plus years by seemingly avoiding hiring anyone with excessive amounts of charisma.
The problem with HP's current take on meritocracy is that it seems too extreme. The 6,000 samurai might be talented, but they will have difficulty compensating for the void created by the layoffs. Someday, the copy machine will break, and highly qualified teams of experts at HP will argue over who has to fix it.

Further, history shows that ability counts for far less than luck or circumstances. Great leaders rise up in times of great crisis, but if the crisis hits only the moderate stage, you get a mattress-store manager. If John D. Rockefeller had been born to a family of Cossacks, few would have heard of him. Conversely, three hamsters could have run the Cisco sales department in 1998 and been hailed as geniuses.

Talented individuals also rarely shine for long. In reality, the power within is fairly finicky. Coaches form championship teams that fall apart two years later. Mathematical geniuses begin to burn out after 30.

The limits of charisma can be seen in many of the start-up fizzles. Onsale had a huge head start in the online auction market. The company was backed by venture heavyweight Kleiner Perkins and run by former Silicon Valley whiz kid Jerry Kaplan. Yet it got trounced by eBay, a company created by people looking for a place to sell Betty Ford Pez dispensers. Linuxcare, Commerce One, CMGI, Excite@Home, Netscape, SGI, Transmeta--they all had prestigious executives.

Faith in talent was also one of the factors that led Compaq to buy Digital Equipment. At PC Expo in 1998, I asked a senior Compaq VP why he thought Compaq could succeed with Alpha and other technologies where Digital failed. "We know how to run things better," he said. Ten months later, Chairman Ben Rosen was cleaning house.

Somehow, HP has thrived these 60-plus years by seemingly avoiding hiring anyone with excessive amounts of charisma. Ask any former employee and they will describe it as a consensus-driven, almost bureaucratic organization that frowns upon conflict and naked ambition. It's like a school board, but with 88,000 members. I doubt if the training budget includes fire walking or snake handling.

The lack of outward aggression, though, has allowed the company to become a trusted digital servant around the globe. Printers are boring, after all, so why not buy them from a company that's at least sincere about toner-cartridge ergonomics.

Lean and mean just may not be the right style.

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