By Jia Lynn Yang and Peter Whoriskey
Washington Post Staff Writer
Saturday, August 7, 2010; A01
Hewlett-Packard, the world's biggest PC maker, announced late Friday that star chief executive Mark Hurd had resigned after an investigation into claims of sexual harassment against him turned up evidence of other misconduct.
Hurd has been credited with reviving one of the nation's most storied tech firms, but he was forced to step down after a former HP contractor came forward with charges several weeks ago that he had sexually harassed her while working on the company's marketing activities. The board launched an investigation and found that Hurd had a personal relationship with the contractor that he had not disclosed. Hurd also filed several inaccurate expense reports meant to conceal his relationship, the board found.
The fall of HP's leader stunned the business world, in which Hurd had a sterling reputation. He took over a company in 2005 that was foundering after the bitter ouster of its leader, Carly Fiorina, and he turned it into a tech powerhouse. He aggressively cut costs and built up the company's software and corporate services divisions. The Palo Alto, Calif.-based company's stock richly rewarded investors, soaring 135 percent during Hurd's five-year tenure.
The investigation determined that Hurd, who is married, had not violated HP's sexual harassment policy, but general counsel Mike Holston said Hurd "demonstrated a profound lack of judgment."
Hurd stepped down immediately. Chief financial officer Cathie Lesjak, a 24-year veteran of the company, was appointed to take over on an interim basis. Hurd will receive a $12.2 million severance payment as well as stock awards, according to documents filed by the company on Friday.
"As the investigation progressed, I realized there were instances in which I did not live up to the standards and principles of trust, respect and integrity that I have espoused at HP and which have guided me throughout my career," Hurd, 53, said in a statement. "This is a painful decision for me to make after five years at HP, but I believe it would be difficult for me to continue as an effective leader at HP and I believe this is the only decision the board and I could make at this time."
In a conference call, HP said the contractor had received compensation for which there seemed to be no justified business reason. The company said the dollar amount of the improper expense reports was "immaterial."
The woman, who was a marketing consultant and was not identified by the company, worked for HP from the fall of 2007 through the fall of 2009. The woman's attorney, Gloria Allred, said in a statement Friday night that "there was no affair and no intimate sexual relationship between our client and Mr. Hurd." Allred did not name her client and declined to comment further.
It is the second time in recent years that a top HP official has resigned amid scandal.
Former chairman Patty Dunn stepped down in 2006 after a "pretexting scandal," in which HP executives hired investigators to determine who leaked confidential company information to the media. The investigators obtained personal information about employees by posing as someone else, a practice known as "pretexting."
Otherwise, it has been rare for prominent executives to step down for a reason other than financial performance. Boeing's Harry C. Stonecipher was ousted in 2005 after the company's board discovered he was having an affair with a female employee, and BP's Lord Brown stepped down in 2007 after a newspaper won a court fight to print details of his private life.
"This was a painful decision . . . but it was a necessary decision," said Netscape founder Marc L. Andreessen, an HP director and a member of a board committee formed to find a new chief executive.
The investigation indicated that the misbehavior "was not broader" than what was revealed Friday, Holston said.
Post-market trading in HP stock was suspended briefly Friday afternoon because of the announcement. When trading resumed, the company's shares fell nearly 10 percent, to $41.85, down from a close of $46.30 in the regular session.
Analysts said the allegations against Hurd will make people wonder whether there are further troubles yet to come to light.
"It raises some questions," said Aaron C. Rakers, an analyst at Stifel Nicolaus. "Is this an indication that there are deeper things? I don't think so. But it puts a black cloud over the company."
Rakers credited Hurd with turning around HP. "Mark Hurd was a big part of the story from an operational standpoint," Rakers said. "He was a cost cutter."
HP has long prided itself as a model for a values-driven company. Since its founding by Bill Hewlett and Dave Packard in a garage in Silicon Valley in 1939, HP has espoused principles of respect for its employees. Countless business schools study "the HP way" and its flat, egalitarian management structure.
HP executives emphasized Friday that the company is still well-positioned financially. At the same time it announced Hurd's resignation, it released third-quarter earnings estimates that were above Wall Street expectations.
Executives said the company will continue running smoothly without Hurd.
"HP is not about any one person," Andreessen said.
Staff writer Ariana Eunjung Cha contributed to this report.