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HP Chief Faces Short Honeymoon

TRANSITIONS

DARTS & ROSES

DART…

  • RICHARD NOTEBAERT of Qwest Communications for his bid to take over MCI. Qwest is damn near bankrupt. Notebaert must be delusional€¦”or have a case of “Rocky Mountain High.”

ROSE…

  • PHIL PURCELL, at Morgan Stanley. Don’t let those cranky New York investment bankers and traders get you down. Just give them a little spanking and send them back to their corners. Call it tough love, Chicago-style, for the white shoe boys.

TRANSITIONS
HP Chief Faces Short Honeymoon
LESS TALK, more execution. That’s what Hewlett-Packard needs in newly minted CEO Mark Hurd. Hurd, 48, replaces Carly Fiorina, who was unceremoniously dumped by HP’s board in February. Hurd is a low-key guy. He’s as comfortable with the engineers as he is with the sales force, with a reputation for promising little and delivering more than expected.

Of course, that may be easier when you’re the CEO of Dayton, Ohio-based NCR, which is a bit more sheltered from Wall Street’s glare than HP. Nonetheless, as CEO of the $6 billion ATM-machine maker for just about two years, Hurd managed to increase sales 7 percent, helping boost the company’s stock by an eye-popping 332 percent. “He’s a guy who’s shown a lot of courage in making tough business decisions,” says Umesh Ramakrishnan, vice chairman of the executive search firm Christian & Timbers, which brought Fiorina to HP in 1999. Investors will now be looking for a repeat performance at HP, which languished under Fiorina’s tenure, crippled largely by a disastrous Compaq acquisition.

Can he do it? Hurd provided few details of his plans after his appointment, but one message is clear: The showmanship that was a hallmark of the Fiorina years at $80 billion HP is gone. In his first public appearance at HP’s Silicon Valley headquarters on March 30, Hurd displayed the careful yet meticulous nature that made him a darling of NCR’s investors. Asked whether he planned layoffs or if he’d hire a strong COO, he replied: “I can’t give you any guarantees on anything.” He vowed to approach his new job with “excitement and humility.”

Good thing, because his challenge is humbling: repairing employee morale, squeezing more profits from a struggling commodity hardware business, fending off rivals like powerhouse Dell, and making hard decisions, such as whether the company should spin off its lucrative printer business. And time is of the essence. Analysts and investors are already frothing for visible change. Hurd will have to prove himself before his very brief honeymoon is over.

Welcome to a really hot seat.

€¦quot;Kim Girard

 
 
DARTS & ROSES

ROSE…

  • SANYO’S BOARD, for bucking convention and hiring veteran female journalist Tomoyo Nonaka for the CEO spot. Let’s hope she can convince her former colleagues that a turnaround isn’t a fantasy.

DART…

  • STEVE JOBS. Don’t be so cranky that Apple customers are anxious to talk about your new products on various Web sites. Unleashing the Gestapo on customers isn’t Mac-cool.

LASTING IMPRESSIONS
Investors Doubt CEO Ethic
NO MATTER HOW aboveboard CEOs operate, when it comes to investor trust, they can’t seem to get no respect.

Less than half of all retail investors have confidence that CEOs of public companies are engaged in ethical business practices, per a new survey by Opinion Research Corp. (OPC). About four in 10 have very little or no confidence in the ethical standards of top execs. “That’s not a good number,” muses Jeffrey T. Resnick, managing director of the Princeton, N.J., firm.

True, the numbers have improved from a low in June 2002, but there’s still a long way to go, says Resnick, who also runs OPC’s corporate reputation management practice. “There is a trust chasm between where executives probably believe they are and where the public believes they are,” he says. Nearly half of investors surveyed said CEOs do not care as much as they should about the reputation of their companies.

But assuming CEOs do care, and if most are acting ethically, why is it not translating to the masses? Paul Argenti, professor of corporate communication at Dartmouth’s Tuck School of Business, says that ethical behavior, along with corporate reputation and communication in general, have been seen as too intangible to value or invest in. “But some 80 percent of the value of a corporation is based on intangibles,” Argenti says. CEOs must get creative about quantifying the impact of ethical behavior and reputation on future profits, he adds, just as they measure the impact of an ad campaign on sales or other “squishy” numbers.

The other thing CEOs can do, Argenti suggests, is to consistently go beyond just the letter of the law. “There was nothing written down that said that [Boeing CEO Harry] Stonecipher couldn’t have a relationship with a female executive of the company, but if he’d asked, someone else in the company could have told him that,” he says. All CEOs would benefit from being more proactive about analyzing their company’s reputational risk, he adds.

That said, analysts and investors, who helped create this problem, will have to do their part to solve it. “By putting this much pressure on people to perform, perform, perform or we’ll whack you, they force people to act in ways that cut corners,” says Argenti. “They want ethical behavior, but they’re not willing to wait for it.”

€¦quot;C.J. Prince

 
 

CEO CONFIDENCE INDEX
CEOs Treading Water
MOST CHIEF EXECUTIVES seem to be doing a lot of waiting and watching these days. Among the factors keeping them on edge are oil prices, interest rates, global competition and U.S. trade and fiscal deficits. Reflecting their hesitation, overall CEO Confidence Index declined by 6.5 points this month to 163.6. Two important components of the benchmark, namely Current Confidence and Future Confidence, also declined (see chart, top).

Energy appears to be the one industry that is a notable exception to the tone of caution in this month’s email polling of readers. “The economy is white hot,” wrote Nick Carter, president of Natural Resource Partners in Houston. “It is difficult for us to find labor in our industry. Capital goods are in short supply and waiting lists are getting longer. Everyone needs to step back and give this administration in Washington, D.C., credit for the unbelievable job they have done in bringing this economy back from the post 9/11 depths.”

The majority of chief executives, however, are not as ebullient, judging from the responses of a record 620 readers. “I think consumer confidence will erode somewhat due to the impact of interest rate hikes and oil price increases,” said Bob Tunno, chairman of Breeze Industrial Products in Saltsburg, Pa., a maker of clamps. “If we see any type of supply shortages, then we could see a major retreat in the growth we have experienced.”

In a bonus question, we asked readers specifically about interest rates and their expectations. For now, the largest number, or 48 percent, say they do not expect their company’s level of debt to change in the next 12 months, whereas 28 percent said it would increase, and 24 percent said it would decrease (see chart, middle). In the short term, at least, most CEOs don’t seem to be planning to borrow much money.

But if interest rates continue to rise, as the Federal Reserve has been signaling, there could be further trouble ahead. “I have a real concern that the Fed truly understands the impact their rate increases have,” said Thomas E. Fillingim, president of Manchester Wholesale Distributors in Manchester, N.H. “Don’t they realize that an increasing cost of money helps to fuel inflation through rising prices? Couple that with the extraordinary rise in fuel costs and they are cooking up a recipe for disaster.”

Just where is the point of pain? With the Fed’s fund rate at 2.75 percent and the prime rate at 5.75 percent, another full percentage point wouldn’t rattle too many executives (see chart, bottom). But more than a 1 percent jump over the next 12 months would hurt business, some 43.5 percent of respondents indicated.

Some CEOs also are worried about Washington’s overall economic policy management. “Foreign trade deficits and budget deficits are appalling,” said Ron Parkinson, chief operating officer of Ames Textile in Lowell, Mass. “Republicans have forgotten their economic policy foundations. The loss of manufacturing to subsidized imports will turn us all into hairdressers and used-car salesmen.” As on most other issues, there is a healthy debate among CEOs on U.S. economic prospects.

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