What Can Be Learned From Hewlett-Packard?
Mark V. Hurd resigned last month as chief executive of Hewlett-Packard, bringing into question some extremely complex financial, strategic and governance issues. The results he achieved for the shareholders of H.P. were outstanding.
During his five year tenure, revenues increased from $80 billion to $115 billion, securing H.P.'s leadership as the largest technology company while doubling its stock value. His reputation for operational excellence, deep cost-cutting and creating a culture of accountability was recognized globally.
Just last week, Hurd was appointed co-president of Oracle by CEO Larry Ellison, who called the board's decision to oust Hurd the worst personnel decision since Apple forced out Steve Jobs 25 years ago.
The allegations and charges swirling around sexual harassment apparently were dropped. The suggestions and alleged "violations to H.P.'s standards of business conduct" remain unclear. Hurd received a golden parachute in excess of $40 million in assorted severance payments upon leaving.
So what actually went wrong? Did the board exercise its long-term fiduciary responsibility? As we speak, shareholders are considering litigation to achieve transparency in exactly what went wrong and what were the mitigating factors in their decision to change leadership. What interest does this have to a credit union board member?
The principle responsibilities that a credit union board has is to select the CEO, plan for succession and participate and validate the organization's strategy on behalf of the members. In addition, ensuring a culture that is based upon ethics and decency are important.
A stark comparison to Hurd and our experience in the credit union movement revolve around community activities. All H.P. executives were required to resign from any civic board in which they sat and the organization eliminated many of its philanthropic activities. Decisions like this run counter to the culture of credit unions, which are founded upon values of service to people and the members they serve.
Hurd made a strategic business decision to reduce research and development from 9% to 2% despite the company's reputation for innovation. A key piece of data that a credit union should be interested in revolves around employee and member satisfaction. An internal survey indicated that two-thirds of H.P. employees would leave the corporation if they could find another job. Credit union boards should express an interest in understanding employee turnover and employee and member satisfaction.
A report by Filene Research Institute, "Tracking the Relationship Between Credit Union Governance and Performance," revealed some interesting points that support the need for educational learning and diligent study in order to fulfill your fiduciary responsibilities as directors:
Credit union boards agree with publicly held boards that they need to spend more time on strategy and risk management and less time on operational and routine matters.
They agree that attracting and retaining younger and more diverse board members is important, yet many seem to be adopting a wait-and-see attitude.
The most important skills for an effective credit union board is understanding member needs (81%), financial literacy (78%), independent minded (65%), governance expertise (51%), risk management expertise (36%) and financial services expertise (33%).
Surprisingly, 50% said that a lack of financial expertise on their board is not necessarily a cause for concern, whereas 88% of the CEOs (vs. 22% of board members) surveyed said that their boards do not have sufficient financial services expertise.
On the positive side, 66% of boards have a continuing education policy in place. Ninety-eight percent strongly encourage their directors to participate in continuing education programs.
Of those that have no formal policy, 80% said they should have one and would be receptive to continuing education initiatives.
As it relates to our discussion, some major headlines to come out of Filene's recent research:
Credit unions must make a blunt assessment of their place in their markets and what kinds of directors they will need to improve that place during the next five years of regulatory commotion, constricted credit margins and changes in consumer demand.
More time should be spent on strategy and risk management and less time on operational matters and routine items.
There is a major need for board member continuing education.
It is impossible to make good strategic, financial or ethical decisions without a clear focus on values, market trends, good financial metrics, clear communication and disciplined processes. Directors have a fiduciary responsibility to stay current with these changes in order to add value to the decision-making process of both strategic and succession planning at their credit unions. The movement expects a major consolidation of credit unions in the coming years and directors have an obligation to the members they represent to continue to learn and grow.
Understand your credit union's ability to effectively serve its member's interests long-term. With changing member demands and increasing regulatory oversight, always ensure that you have good research that reflects what members truly think about your credit union and how they might be best served.
The fiduciary responsibilities you have to ensure member value make it imperative to protect the safety and soundness of your credit union for today and in the future. Continuing education helps credit union directors keep pace with changing issues in the areas of governance, economics and performance so that they can make informed decisions and bring valuable ideas to the boardroom.
Stuart R. Levine is the chairman/CEO of Stuart Levine & Associates. He can be reached at 516-465-0800 or www.stuartlevine.com