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Does Walter Hewlett Deserve an Oscar?
By Stephen J. Butler |
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When I'm asked about my column by my Safeway grocery checker, it tells me why, at a fundamental level, the proposed merger of Hewlett Packard and Compaq is more important to all of us than the outcome itself. My own thoughts on the subject begin with what I know about Walter Hewlett.
Walter was a college classmate. He is a very smart, quiet, and
unassuming guy. He drives a bright red, General Motors electric
car and he was a conscientious objector during the Vietnam Era.
Last spring, I peered under his huge sombrero to chat with him
between numbers as he was playing a Mexican acoustic bass guitar
in a Mariachi band. Music is a big part of Walter's life. He has
a PhD in the subject from Stanford. For what it's worth, music
majors were once considered to have some of the best innate talent
for writing computer code. Perhaps it's not surprising that the
son of a gifted engineer found himself attracted to an art form
that dovetails with computer science.
Sensing that the merger wasn't passing the smell test, Walter's apparent early decision was to enlist the advice of boutique investment banking firm, Friedman Fleischer & Lowe. Tully Friedman is an icon of the Bay Area investment community whose former firm, Hellman and Friedman, had advised on a number of high-profile transactions such as the move to take Levi Straus private. With Walter showing no hesitation to act on what he feels is right, and Tully helping to determine what IS right, proponents of the HP-Compaq merger found itself heading toward a buzz saw they never anticipated.
At the moment, the outcome of the proxy vote is still uncertain, but the true value of Walter's effort lies with the dialogue he spawned. It's a safe bet that either outcome will involve people working harder over the next five to ten years to validate whatever set of votes prevailed. It stands to reason that if the merger takes place, an extra effort will be made by the "survivors" (those not among the 15,000 to be laid off) to vindicate the winners of this close vote. It is a good bet, after all this, that company senior management five years from now will not be sitting around counting their up-front bonuses and reminiscing about how disappointing it was that things didn't work out. Instead of some sleepy big-company merger statistically doomed to failure, this one should have participants straining every fiber to make it succeed. AVIS should donate some of their "We Try Harder" buttons.
On the other hand, if the merger does not succeed, HP employees better recognize what Carly Fiorina is essentially trying to tell them... that they have reached a plateau. Back in the seventies, I talked with Bob Chambers who had started Consolidated Capital after making a lot of money on the Shopsmith ... a multi-tasking home-workshop tool. Consolidated was one of the earliest venture capital firms in the Bay Area, and Bob told me that the biggest nuisances in his business were the companies in his portfolio that had become "the living dead." These were companies that were providing a wonderful lifestyle for their senior management and employees, so they were not failing. However, they were just marginally profitable and offered no potential for the explosive growth and huge payoff all venture capitalists are expecting in return for their high- risk capital.
Could HP in its present form be just a huge version of "the living dead?" Steve Davenport, a former boss of mine, used to say, "When you quit getting better, you stop being good." Many CEO's have been fired when they couldn't "pull the trigger" and make the final decision to plunge their otherwise comfortable companies into what some term as the "creative destruction" that continuing success demands.
Walter's campaign, regardless of the outcome, will have served a useful function as a learning tool. As a nation of public stockholders, we are novices at shouldering the responsibility and looking out for ourselves. Until the early part of this century, there were very few public companies. Most large industrial concerns were owned by several generations of families. The idea of the professional manager and the growth of public ownership is really only about seventy years in the making. C. Wright Mills, in the book "The Power Elite," pointed out the low level of accountability enjoyed by the entrenched management of most public companies. The book is forty years old, but it could have been written yesterday.
Meanwhile, the proliferation of 401(k) plans, that wonderful accident of legislative history, has transformed over half of America's working population into a group with an intense self interest in how the companies they effectively own are being operated. Before, most of us never had a reason to care. We were several steps removed from a pension system offering only a vague promise of a benefit...and then only for the few of us who worked for one company most of our lives. "This time it's different." We 401(k) participants have five times the retirement resources we otherwise would have had under the old system, and this is our money we each control. Suddenly, the business of America has become everyone's business, and the glare of publicity can only be a positive element in the minds of directors.
Walter Hewlett is a rare commodity. He is a single director in the unique position of controlling 5% of a major national institution, and he happens to be a guy with no qualms about standing up for what he feels is right. He doesn't need this. He is doing it for us. Whether you agree with him or not, you have to admit that he deserves an Oscar for his effort.
BUYandHOLD does not recommend any securities. The securities mentioned above are being used for informational purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy.
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