CEO Gaffe of the Week: Hewlett-Packard


This year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions last year when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!

This week I want to show you why Hewlett-Packard's (NYS: HPQ) CEO, Meg Whitman, deserves the undesirable honor.

The dunce cap
In the Wild West there were two types of people: the quick and the dead.

In the world of computers and cloud-computing there are two types of companies: the innovative and Hewlett-Packard.

For years, Hewlett-Packard and PC-making peer Dell (NAS: DELL) have trailed the pack because of their reliance on low-margin computers when the trend has been toward next-generation smartphones and tablets. You'd think that Apple's (NAS: AAPL) incredible success, as noted by the 151% increase in tablet units sold in its latest quarter, just might give HP some inkling that its strategy was a little dated -- but that simply hasn't been the case.

IBM (NYS: IBM) , seeing the strength behind the move in cloud computing, is the only company to have successfully made the transition from PC producer to having a line of fully integrated next-generation products.

So where does that leave Hewlett-Packard? In the middle of the ocean without an engine or a life raft and struggling to figure out how to turn its business around. Whitman, relatively new to the company and the former CEO of online auction site eBay (NAS: EBAY) , decided that HP needed to head in a new direction -- and apparently so do its employees.

After reporting another 3% drop in sales and a 21% fall in profits minus one-time costs last week, Whitman grabbed her ax and outlined the company's plan to cut 27,000 jobs globally by 2014, in the hopes of saving $3 billion to $3.5 billion in expenses. The move seemed almost inevitable, given that HP isn't growing. Even with less reliance on PCs and its printing/imaging division, it still derives half of its sales from these two low-margin business segments with shrinking demand.

But really, Meg Whitman -- 27,000 jobs? Channeling a little Brian Moynihan, aren't we?

To the corner, Ms. Whitman ...
But wait -- there's more!

Even before Whitman turned HP into "Hewlett-Hackard," she was busy destroying U.S. jobs at eBay. According to the California Labor Federation, between 2002 and 2007, the number of eBay employees outside the United States increased by 666%. By their estimates, 40% of all eBay jobs were outsourced during this period.

Also, when Whitman ran for governor of California (a job you couldn't twist my arm to take), one measure in her plan to reduce the state's budget deficit was to cut 40,000 state workers -- a plan that led to her being relatively unpopular among Californian voters.

Another aspect we've learned about Whitman over the years is that she's not a great innovator. eBay's business basically took care of itself, with Whitman's purchase of PayPal being her defining moment. Aside from that, her tenure was spent letting an increase in Internet user convenience drive her company's business higher.

At HP, we're seeing more of the same. Hewlett-Packard has numerous avenues it could go down to create growth, but none of them have had any true foundation. HP's TouchPad tablet flopped so badly that it was discontinued after just two months, while its personal computing business continues to weaken despite its best efforts to stop the slide.

At this rate, HP will soon have cornered the market on buggy whips and will have a cheaper, predominantly outsourced, workforce. The question is, will anyone be buying its products ... ever again?

A big thanks to Bill Crounse for emailing me his suggestion of Meg Whitman, whom he described as a "chicken with her head cut off." Do you have a CEO you'd like to nominate for this dubious weekly honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may see your nominee in the spotlight.

HP isn't the only company reeling in part from Apple's incredible success. Many companies have ceded share to what is arguably the most innovative company in history. Apple has booked shareholders some massive profits and has observers thinking they've missed the boat. The fact is, Apple still has some huge growth opportunities in front of it, and to know when to strike as an investor, we've introduced this premium Apple research service for our readers. Sign up today, or you might be missing out on some big returns in the future.

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At the time thisarticle was published Fool contributorSean Williamshas no material interest in any companies mentioned in this article. He is merciless when it comes to poking fun at dubious CEO antics. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool owns shares of Apple, Bank of America, and IBM.Motley Fool newsletter serviceshave recommended buying shares of eBay and Apple and creating a bull call spread position in Apple. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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Originally published