Mark Hurd falls, could Larry Ellison and Steve Jobs be next?

Posted by Rob Enderle

 Mark Hurd has fallen. Could Larry Ellison and Steve Jobs be next?

You would hope not but that is what Larry Ellison’s letter to the New York Times, nicely covered by Ashley Vance, implies and it says a lot of about the uneven state of corporate governance at the moment.

Steve Jobs was fired once and likely came close to being fired again for infractions that seemed far less damaging than what took out Mark Hurd, and Larry Ellison is infamous for having affairs with subordinates himself suggesting his concerns may be very real in this post-crash world of boards who are increasing afraid they may be held personally liable for executive mistakes.

Ranking the CEOs with the most individual power in the valley you would typically put Steve Jobs first, Larry Ellison second and Mark Hurd third before he was fired.

If Hurd can be fired in this new world could Larry and Steve be next? It depends, let’s explore that.

The Problem of Corporate Governance

We place a lot of power and responsibility into the hands of chief executives and expect the board of directors for their respective companies to keep them focused on stockholder needs.

All are paid very well for their roles with CEOs making millions and boards typically pulling down several hundred thousand a year for what amounts to a part time job. The power a CEO has is designed to let them direct their respective companies without a lot of oversight or consensus. The perks they have access to are often over the top as well as these executives are expected to effectively give up their personal lives for the company.

These perks include the use of corporate jets, resorts, and access to celebrities in sports, media, and politics. In short, CEOs are likely the closest thing we have to royalty in this age and, as a result, their temptations are also unprecedented. When they cross the line and open their respective companies to liability the board is expected to act decisively to either correct their behavior or replace them and it is just such an act that apparently resulted in Mark Hurd’s resignation.

However, judgment - whether by an individual or group - is not perfect and just as the CEO can make mistakes so can a board both in firing a CEO and, among other things, selecting him or her in the first place.

So the HP board could have made a mistake, but did they?

HP vs. Oracle vs. Apple: Similarities in CEO Power

Steve, Larry, and Mark all have (or in Mark’s case had) unprecedented power even for a CEO in their respective firms. All three men have boards in subservient positions and have largely handpicked both their boards and their top executives. This, in theory, gave all three a nearly unprecedented level of protection from replacement by either a coup from below or one above even if they made a significant mistake.

All three men are perceived to be critical to their companies’ current success and the decline in HP’s stock showcases what would likely be a similar but more dynamic fall should either Larry or Steve leave their companies.

Any board replacing any one of them would face not only significant personal misgivings about the action but a dramatic decline in valuation for their companies and that too was exemplified by HP’s decline after Hurd’s departure. Removing any one of them would be extremely difficult with extraordinary obstacles.

HP vs. Oracle vs. Apple: A Difference in Policies a Difference in CEO Value

There is a distinct difference between Oracle, Apple and HP. Both Steve Jobs and Larry Ellison are credited with founding their respective companies and in making them successful. These two men are part of the company’s brand identity and it is hard to imagine either without their respective CEOs at the helm.

HP, on the other hand, has been led by professional managers , as opposed to founders, for decades and Mark Hurd resisted any attempt to make himself part of HP’s brand.

This means his value to HP is significantly less for Mark Hurd than the value that Larry Ellison to Oracle or Steve Jobs to Apple. In addition, both Apple and Oracle were founded with the idea that the Steve and Larry were special. 

While that didn’t initially protect Steve initially, once Apple was reborn under him that special nature was both strengthened and enhanced. In short, their respective companies accept that rules are different for their top executives who are not expected to adhere to them.

At HP the tradition is to have the rules apply to all employees including the top executive and while that tradition was badly bent under Carly Fiorina, Mark Hurd reinstituted it even applying salary reductions to everyone including himself.

The combined impact was that he was both less valuable than Steve or Larry and more exposed because he could no more break certain rules than any other employee could and, should he break them, the penalties would be the same.

Wrapping Up: Hurd’s Exposure May Mean that Larry and Steve are Exposed as Well

As a result of all of this Mark Hurd was far more exposed than Larry or Steve are however we are in a world where government oversight is vastly stronger and no one is invulnerable.

In Mark Hurd’s case, while he wasn’t fired for having an affair, he was fired for falsifying documents. Although he might have even survived that mistake, the the risk that his errors in judgment would be exposed due to the involvement of a high profile celebrity lawyer like Gloria Allred likely forced to board’s hand  and created a risk the board could not accept.

It is this last point that should concern both Larry and Steve because, should they make a mistake that results in either the risk of an SEC investigation, wrongful termination suites by ex-employees fired for similar things, or viable stockholder suite their respective boards may act similarly to protect their own necks and the company.  

So while it would be far more difficult to fire Larry or Steve, they should take Hurd’s situation as a warning and avoid pushing the envelope on their own respective behavior. If they don’t they likely will find that the old saying that "no one is irreplaceable" does indeed apply to them as well.

Better protected doesn’t mean invulnerable. I think you can understand why Larry felt he needed to write that letter to the New York Times and I'll bet there are other CEOs sweating bullets at the moment. I'll also bet that Steve Jobs wishes Larry hadn't included him in that letter.   

Afterthoughts:

Typically I’d end here but I wonder what you think about unique privilege. My first experience with that was in my home town and being pulled over for doing 35 in a 25 zone and watching a car go by going about 60 which was driven by the mayor’s son.

I just pointed my finger and the officer said he couldn’t write him a ticket because of the kid’s father, and luckily he let me pass as well as a result. Clearly rules that apply to us don’t apply to those of privilege; but should they?

Given Steve Jobs, for instance, is critical to Apple’s success is there anything short of eating live babies on national TV that he should be fired for? Where would you draw that line or should he be held to the same rules and laws that the rest of us are held to?

Most CEOs are not but is a little corruption OK or should they be satisfied with simply getting paid a massive amount of money and being surrounded by luxuries and perks the rest of us can’t even imagine?

I’m kind of curious where you come down on this and why.

One final thing to think about: Mark Hurd took over the chairmanship of HP.

When he had the initial sexual harassment problem, because of a conflict of interest, he couldn’t even participate in the board discussion that led to his termination let alone drive it. This allowed someone else to emerge to drive the conversation suggesting his very grab for power may have actually been what caused him to face the extreme penalty.

Definitely something else to think about.

Rob Enderle is one of the last Inquiry Analysts. Inquiry Analysts are paid to stay up to date on current events and identify trends and either explain the trends or make suggestions, tactical and strategic, on how to best take advantage of them. Currently, he provides his services to most of the major technology and media companies. The opinions expressed in this commentary are solely those of the writer.