A tale of two CEO scandals

Hewlett-Packard shocked the business world in early August 2010 when it announced that CEO Mark Hurd was to step down following an investigation into sexual harassment claims against him.

Although the investigation found no evidence of sexual harassment, it did uncover “questionable” payments made to Hurd’s accuser, marketing consultant and former adult film star Jodie Fisher.

Some questioned the wisdom of ejecting Hurd. Oracle CEO Larry Ellison, a personal friend of Hurd, said it was “the worst personnel decision since the idiots on the Apple board fired Steve Jobs many years ago” and against the “best interests of HP employees, shareholders, customers and partners.”

Just days before, two of the largest trade unions in the US had called for the resignation of Michael Dell, CEO and chairman of the hardware vendor that bears his name.

The unions wrote to the company’s board of directors after it paid $100 million to settle claims by the Security Exchange Commission (SEC) that it had failed “to provide adequate disclosures with respect to the company’s commercial relationship with Intel prior to Fiscal 2008.” The SEC is currently investigating whether Dell received payments from Intel to use its chips exclusively.

“Based on the allegations in the SEC’s complaint against our company and Michael Dell, we believe that shareholders would be better served by the removal of Michael Dell as the chairman of our company’s board of directors,” the unions said in their joint letter.

However, the board was not convinced. “Dell’s board reaffirms its unanimous support for Michael Dell’s continued leadership, and the management team in its ongoing commitment to transparent accounting, integrity in financial reporting and strong corporate governance,” it said in a statement.

The details of each scandal are still unfolding and the alleged offences are hardly comparable, but observers nevertheless wondered why the two matters had such different outcomes.

Perhaps Dell inspires such loyalty because he is the company’s founder. Perhaps HP moved quickly to  avoid the reputational damage caused by an association with sexual harassment, despite finding no evidence to support the claims against Hurd. Shortly after the story broke, newspapers reported that the IT giant had ditched its chief executive on the advice of its public relations advisers.

Paul Hodgson, senior research associate at consultancy the Corporate Library, says that different circumstances allowed one CEO to stay on while the other left

The major distinction between the two may come down to something as simple as Michael Dell founded Dell Computers and Mark Hurd was hired as CEO. Each of these companies likely already has policies and procedures in place to prevent CEOs from either improper recognition of revenues, or falsifying expense accounts, or sexual harassment.

Having such policies and procedures does not mean that CEOs or other employees will never violate them. But another key difference is that Dell has not admitted or denied any guilt in the matter – and is therefore staying – while Hurd has admitted guilt and has resigned.

Christopher McClean, an analyst at Forrester Research, believes that the respective scandals will have long-term repercussions for both companies

Shareholders and employees will naturally be concerned about whether it reflects an environment of poor controls overall, whether they are likely to see other problems emerge, and whether top executives will be distracted from their actual business responsibilities.

There can be an additional level of frustration among employees as well, as they are expected to behave ethically and mitigate risks to the company on a daily basis. If they see potentially inappropriate actions in upper management, they know that the extra effort they put in to do the right thing can be quickly negated.

Peter Done

Peter Done is managing director of Peninsula Business Services, the personnel and employment law consultancy he set up having already built a successful betting shop business.

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