The rise and fall of Carly Fiorina: an ethical case study.

Author:Johnson, Craig
 
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This study examines the controversial tenure of former Hewlett-Packard (HP) CEO Carly Fiorina using the ethical leadership construct. Fiorina rose quickly through the ranks at AT&T and Lucent Technologies to become the most powerful businesswoman in the United States when she took the helm at HP in 1999. She prevailed in a bitter proxy fight over the firm's merger with Compaq Computer. However, she was abruptly fired in 2005. Both the CEO and members of the HP board failed as moral persons and as moral managers, leading to Fiorina's ouster and the subsequent HP spying scandal. HP went from one of the world's most admired companies to the target of criminal investigations and public criticism. Implications for leadership ethics are drawn from the experience of HP, and limitations of the ethical leadership construct are identified.

Keywords: Carly Fiorina; celebrity CEOs; ethical culture; ethical leadership construct; Hewlett-Packard; pre-texting scandal

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Carleton (Carly) Fiorina was the most powerful businesswoman in the United States at the turn of the millennium (Nocera, 2006; Sellers, 1998). In 1999, she was hired as the CEO of technology giant Hewlett-Packard (HP), becoming the first woman to head a Dow 30 company. She starred in company commercials and joined with entertainment stars like Matt Damon, Ben Affleck, and Sheryl Crow to promote HP products at electronics shows (Stone, 2005). Her image appeared on the covers of business magazines and she was a regular at the World Economic Forum in Davos, Switzerland. She became known by her first name only, like Michael Jordan and Martha Stewart. To HP employees and outsiders alike, there was only one "Carly."

In 2005, the HP board of directors fired Fiorina. Yet, both Carly and HP continued in the national spotlight. Fiorina published a memoir, Tough Choices, and appeared on 60 Minutes and on college campuses to defend her performance at HE Fiorina's successor as board chair, Patricia Dunn, was accused of ordering investigations into board leaks that violated state and federal law (Robertson, 2007a).

What accounts for Carly's fall from the heights of corporate America? A number of explanations have been offered, including Fiorina's lack of operational skills, market conditions, recalcitrant employees, and gender bias. Although all of these may be contributing factors, in this article, I argue that her failure can also be explained from an ethical vantage point. Fiorina has never been charged with a crime, as were many of her CEO contemporaries like John Rigas, Hank Greenberg, Dennis Kowslowski, and Martha Stewart. Yet, the story of Carly Fiorina is a cautionary tale, revealing ethical shortcomings not only on Fiorina's part but also on the part of HP board members.

A Meteoric Rise and Fall

Few could have predicted that Carleton Fiorina would become one of the most visible and influential corporate leaders in America (Burrows, 2003). The daughter of a law professor, Fiorina attended Stanford University, majoring in medieval history and philosophy. She was a serious student who showed little of the dynamism that would later make her a charismatic leader. She abandoned her plans to become a lawyer after one semester at UCLA Law School and earned an MBA at the University of Maryland instead. Once she settled into a business career, she quickly became a superstar. Fiorina entered AT&T as a low-level sales manager and soon drew the attention of top management. She took on tough assignments and rapidly became "one of the great salespeople of her industry" (p. 95), rising to become president of North American sales. Fiorina played a key role in AT&T's spin-off of Lucent Technologies and was named to head Lucent's sales and marketing group. The firm's revenue and stock value rose dramatically during her time there. In 1998, she was first named as Fortune magazine's most powerful female American executive. She continued to top this list throughout her tenure at HP (Loomis & Ryan, 2005).

At the same time Lucent stock was soaring, HP was losing some of its luster. The company, founded by Bill Hewlett and David Packard in 1939, was one of the first to offer such benefits as profit sharing, flex time, catastrophic insurance, and tuition assistance to employees. Founders Bill and Dave believed that the company made money because they were good to their people. The company's strong culture was based on a set of values known as the "HP Way." These principles included treating everyone with respect, sound finances, trust in employees, technical excellence, teamwork, thrift, humility, and hard work. Following these principles paid off handsomely. According to journalist Peter Burrows (2003).

HP had been wildly successful. It had never suffered so much as one annual loss in 63 years. But what made HP a management icon was how it achieved those results. For decades, the company had balanced stellar financial performance with unquestioned integrity, from how it kept the books to how it treated its employees and customers. It had plowed millions into the communities in which it did business, not only out of charity but out of a progressive self-interest in keeping them strong. Put simply, it seemed HP had figured out the magic formula for how to run a company. Everyone won--investors, customers, managers, and employees. (p. 14) By the late 1990s, critics both inside and outside the company believed that HP had lost the magic formula described by Burrows. Employees expected regular bonuses whatever their level of effort. HP was no longer a technical leader but had evolved into a huge bureaucracy resistant to change (Anders, 2003). It periodically missed earnings projections and its stock price lagged behind high-tech rivals like Dell and Sun Microsystems. Concerned that the company was becoming unwieldy, board members spun off the test and measurement businesses into a new firm called Agilent Technologies. CEO Lew Platt agreed to step aside.

There was no clear internal successor to Platt, so the board hired an executive search firm to locate an outsider to lead the company (Anders, 2003). Soon, Carly Fiorina emerged as the leading candidate. Unlike Lew Platt, a quiet individual who largely shunned attention, Fiorina was media savvy. She epitomized the "celebrity CEO." Celebrity CEOS are bigger-than-life figures often called upon to rescue organizations. They enjoy the limelight, acting more like rock stars than traditional business executives (Khurana, 2002; Sloan, 2001; Varchaver, 2004). Fiorina had never run a corporation and came out of a different industry. Her expertise was in sales and marketing, not in operations.

To lure Carly to HE the board offered a compensation package that included $65 million in stock options and restricted stock, a $3 million signing bonus, and a $1 million annual salary with a $1.25 million to $3.75 million annual bonus. She also received more than $36,000 for mortgage assistance, a relocation allowance, and a contract that not only allowed her to use company planes for personal use but encouraged her to do so (Burrows, 2003). This package dwarfed anything offered to her predecessors. Lew Platt stayed on as an advisor to ease the transition and Richard Hagborn, founder of HP's printer business, agreed to act as board chair. Hagborn's strengths--his knowledge of HP and operational skills--were to help compensate for Fiorina's weaknesses.

The new CEO's arrival generated a great deal of excitement in the media and among employees at HE After her hiring was announced at a major press conference, Carly conducted a whirlwind tour of HP facilities to introduce herself. Business writers wrote of the new energy she brought to the moribund company and how she was going to take the firm in a badly needed new direction (Burrows & Elstrom, 1999; Hardy, 1999). To many employees, Carly signaled a welcome change, and a number of women looked to her as a role model.

Fiorina believed that the HP Way was a major cause of the company's mediocre performance. She treated workers who clung to the HP Way as the opposition. Their devotion to the past put the firm at risk. For the company to move forward, those who resisted change would have to be removed. "If one-quarter of the people in HP don't want to make the journey or can't take the pace," she told a reporter, "that's the way it has to be" (Malone, 2007, p. 378).

Fiorina instituted three changes, in particular, that had a major effect on HP's culture. First, she shifted priority from nurturing employees to financial performance. Financial results (sales and revenue growth, stock price) became the primary value under her leadership. In one of her first meetings with her top managers, Fiorina interrupted a presentation to say, "Let me make something very clear. You will make your numbers. There will be no excuses. And if you can't make your numbers, I will find someone who can" (Burrows, 2003, p. 141). She was more concerned with revenue growth and earnings than were her predecessors. Under previous leaders, reporting quarterly earnings was routine. Not so under Carly. She and a team of advisors pored over the numbers, trying to put them in the best light. Whereas the company's founders were conservative, believing it better to underpromise and overdeliver, Fiorina continued to promise double-digit sales and revenue increases even in the face of the economic downturn of 2000-2001 (Nee, 2001).

Carly's second major change initiative altered HP's reward metrics. The CEO replaced HP's profit-sharing plan with an incentive...

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