NEW YORK (Reuters) - Mark Hurd is walking away from Hewlett-Packard Co under a cloud of scandal, but he won’t go empty-handed: the former Silicon Valley CEO is coasting out on an estimated $34.6 million exit package.
Hurd is not the first CEO — and likely will not be the last — to rake in a huge payout despite leaving amidst controversy.
But while many corporate chiefs get pushed out for poor financial performance, HP’s well-regarded leader quit following a stunning personal stumble. HP said he falsified thousands of dollars in expenses to hide his relationship with a female contractor.
“I don’t believe it’s always the norm to turn the CEO over on an expense-related violation,” said David Becher, associate professor of finance at Drexel University.
He estimated just a quarter of CEOs found to have been indiscreet — everything from substance abuse to sexual misconduct — actually get pushed out.
“We’re seeing more public scrutiny of firms and holding management to higher standards,” he said. “Being a CEO is a risky job and it’s pretty typical to have severance packages in place.”
Hurd is getting $12.2 million in severance, plus millions more in vested options and restricted stock for a total of $34.6 million, according to an analysis by pay consultant James F. Reda & Associates LLC.
He would likely have left HP with a lot less had he been terminated “for cause.”
Because he resigned instead of getting fired, the HP board likely had little choice but to provide him with exit payouts, said Charles Elson, a corporate governance expert and professor at the University of Delaware.
“It’s contractual,” Elson said. “There is nothing you can do about it. If there’s an objection, it should not be now. It should have been at the time that the contract was entered into.”
Firings are rare in the chief executive suite. They can occur if there have been violations of a company’s code of conduct, such as sexual harassment, or if an executive is convicted of a serious crime.
Outside contractor Jodie Fisher had accused Hurd of sexually harassing her. The HP board said the internal probe found that Hurd did not violate HP’s harassment policy but that he had misstated his expense reports.
Hurd’s severance dwarfs by far the $20,000 or less in expenses that HP has accused the CEO of falsifying.
The executive’s rapid departure — which caught the tech and investment community by surprise — has led experts to question the actual nature of any alleged indiscretions and whether the board, which has grappled with several high-profile scandals in past years, overreacted.
“The question that comes to mind is what else is there that we’re not seeing to justify what HP’s doing,” said John Collard, chairman of Strategic Management Partners, a Maryland-based turnaround management and equity advisor firm.
“It seems odd that this instance is sufficient enough to cause the ouster,” he said.
Hurd, who had been one of corporate America’s best-paid executives, is not the first CEO to get millions in exit pay after resigning. His payout is relatively small compared with some other examples.
Merrill Lynch & Co Inc CEO Stanley O’Neal left in 2007 with about $161 million in retained stock awards and benefits after the company reported its biggest-ever quarterly loss.
Former Home Depot Inc CEO Robert Nardelli walked away from the retailer with about $210 million in exit pay, while ex-Pfizer Inc CEO Hank McKinnell got about $198 million upon departure. Investors complained that the payouts came after poor financial results under their tenures.
HP shareholders could potentially try to bring legal claims against the company’s board over Hurd’s departure package.
However, it could be difficult to bring a successful case because courts usually defer to the business judgment of board members, said Reed Kathrein, a partner at plaintiffs’ firm Hagens Berman Sobol.
A lawsuit over former Walt Disney Co President Michael Ovitz’s $130 million severance failed a few years ago, with a Delaware judge finding that the board did not breach its responsibilities in awarding Ovitz a hefty payout even though he only was on the job for 14 months.
Reporting by Martha Graybow; Additional reporting by Sue Zeidler in Los Angeles and Dan Levine in San Francisco; Editing by Phil Berlowitz