By Aaron Ricadela
Hewlett-Packard's (HPQ) board shakeup, including Ray Lane's exit as chairman, gives Chief Executive Officer Meg Whitman a clearer path to revive growth and shake off years of tumult at the world's largest computer maker.
A former president of Oracle (ORCL), Lane failed to use his extensive experience in enterprise computing to help Hewlett- Packard's turnaround. His public gaffes -- including being photographed using an Apple computer -- also sometimes served as an embarrassment to the company.
Lane, 66, instead bore the stain of the disastrous 11-month tenure of former CEO Leo Apotheker and the company's acquisition of software maker Autonomy, which led to an $8.8 billion writedown and accusations of accounting fraud. To build on the momentum that Whitman has begun to show, the board is seeking a new chairman with global experience and who can devote more time and energy to revival efforts, Pat Russo, a company director, said in an e-mailed statement. Until then, Ralph Whitworth will serve as interim chairman.
"Somebody has to be symbolically accountable," said Jeffrey Sonnenfeld, a management professor at Yale University in New Haven, Connecticut. "The hope is that it puts this behind them so it doesn't become a governance sideshow."
In addition to Lane's move, directors G. Kennedy Thompson and John Hammergren are departing, Palo Alto-based Hewlett-Packard said Wednesday in a statement. Lane "decided to step down," Whitworth wrote in a blog posting.
Lane and Whitworth didn't respond to requests via telephone and email for comment.
Lane, a distinguished-looking, gray-haired elder statesman of Silicon Valley, is known as something of enterprise computing's Mr. Fixit. He helped repair Oracle's relationships with its customers in the early '90s and disciplined the company's freewheeling sales culture during his seven-year tenure there. He then stepped in alongside Apotheker after the departure of CEO Mark Hurd, who left in August 2010 after the board said Hurd violated Hewlett-Packard's code of business ethics.
Lane and Apotheker weren't able to make a transition from the lower-profit personal computers and other hardware the company traditionally sold, to more lucrative software, despite a mandate to expand in that area.
Lane is giving up his chairmanship two weeks after investors re-elected him in a narrow majority of votes, issuing a rebuke of his oversight of the botched Autonomy acquisition.
"It's not typical to get a withhold vote, and if you do you'd usually resign," said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. "Lane deserves credit for stepping down. If he'd stayed on he'd become the issue."
After the March 20 vote, during the company's annual shareholder meeting at the Computer History Museum in Silicon Valley, Lane believed he wasn't given sufficient credit for remaking the company's board and ousting Apotheker, a person familiar with his thinking said. Shareholder unrest was also making it difficult for Hewlett-Packard to attract additional, high-quality directors to its board, this person said.
The second board overhaul in two years underscores shareholders' dissatisfaction with the company's performance and the takeover of Autonomy. The writedown of Autonomy in November capped three years of management upheaval, strategy shifts and slowing growth that hammered the shares and complicated Whitman's turnaround efforts.
"Lane is clearly the fall guy for the botched Autonomy acquisition," said Bill Kreher, an analyst at Edward Jones & Co. who rates Hewlett-Packard a sell. "When he was announced as the chairman, we were pleased with that decision, but at this time it's in the best interest of the company to move on."
Hewlett-Packard and its investors looked to Lane -- a former No. 2 at Oracle with deep roots in enterprise technology and venture capital -- to bring stability and help navigate a transformation away from personal computers into products and services for corporate customers.
His reign instead came to be associated with the ill-fated tenure of Apotheker, who was ousted after 11 months on the job; strategy shifts, such as a flip-flop over whether to sell the PC division; and acquisitions, including Autonomy, that did little to revamp Hewlett-Packard.
There were also occasional remarks that came across as condescending to Whitman. After the former EBay Inc. (EBAY) CEO took the helm, Lane told employees that he was ready to "take Meg's training wheels off," according to an article in Fortune.
"It's the right thing, even if a little late," said Erik Gordon, a professor at the Ross School of Business at the University of Michigan. Lane "was just barely re-elected to the board and was chairman during HP's most horrible years. His legendary status didn't do anything for HP."
Dismay with Lane came to a head in March when he, along with Thompson and Hammergren, were re-elected in slim majorities at Hewlett-Packard's annual shareholder meeting.
Lane, who will remain on the board, received significantly more compensation in Hewlett-Packard shares than other directors during his tenure. In fiscal 2011, Lane received a special equity award of 1 million shares in connection with his appointment as executive chairman, in lieu of the equity retainer of $175,000 that other directors received.
Hammergren and Thompson's tenure will end after a board meeting scheduled for May, and the board has begun a search for new directors, Hewlett-Packard said.
"In the coming months you will see further evolution of our board," Whitworth wrote in the blog entry posted on the "HP Next" website set up to chronicle turnaround efforts. "We will recruit a world-class chairman to take my place as soon as possible, and we also hope to recruit at least two other outstanding directors before the end of this year. While sooner is better, rest assured we will not allow the rush of time to compromise our focus on recruiting the best of the best."