Of corporate boards and CEOs

Venerable Hewlett Packard has yet another CEO. The position is kind of a consolation prize for former eBay CEO Meg Whitman for losing the California governorship race to the venerable Jerry Brown despite spending a gazillion bucks to Brown’s pennies.

I knew co-founder David Packard and admired him as an innovative entrepreneur and public-spirited CEO who also served as deputy secretary of Defense and as an advisor to several presidents. Whitman is now the fifth HP CEO in quick succession. Of course she gets high marks for her performance in turning the eBay start-up into an Internet powerhouse, but eBay and HP are very different animals and many outside observers and investors are not at all sure that Whitman’s tool kit is the right one for fixing HP. But hey, most of the board never interviewed her predecessor, the hapless Leo Apotheker, who despite being on the job less than a year walked away with about $12 million. At least most of them know Whitman just by dint of having run into her from time to time at Silicon Valley watering holes. So maybe her selection represents progress in the corporate search committee procedures. Of course, it didn’t hurt that she is a buddy of Ray Lane, the venture capitalist who she insisted should take the chairman’s slot.

None of this would matter if HP were a private company and maybe it doesn’t matter in any case. But HP is a public company. That means the public, in the form of individuals, pension funds, insurance companies, other corporations, and investment funds holds the bulk of its shares. CEOs often talk about their fiduciary duty to their shareholders. This recent HP history makes me wonder if Boards don’t have a fiduciary duty to the public or at least to their public shareholders to adequately vet the people they select for top management positions and if not perhaps the public in the form of the government should establish and impose some duties in that regard.

I was particularly led to that conclusion after reading in the Financial Times that Coca- Cola CEO Muhtar Kent says it is now easier to do business in China than in the United States. Indeed, he said that is true in many developing countries including even notoriously difficult Brazil. According to Kent, these countries have one-stop shops for investment which they aggressively solicit by offering lighter tax and regulatory burdens along with aggressive investment subsidies. On the one hand, Kent is right about the high priority and emphasis other countries put on attracting foreign investment compared to the generally lackadaisical attitude in the United States. On the other hand, Kent didn’t mention that countries like China also condition access to their markets on transfer of critical technology and production capacity and that large sectors of their economies are dominated by state owned enterprises that follow "buy national" policies and that they mange their currencies to be undervalued versus the dollar as a kind of combination export subsidy and tariff on imports.

Those policies certainly favor doing business in China and in other countries that practice them. They are also contrary to the spirit and letter of free-trade doctrine and agreements. By failing to identify these facts and acquiescing in and even benefiting from them, Kent and Coca Cola may be contributing to conditions that make the U.S. business environment more difficult. And that is not to mention the fact that without the U.S. security umbrella in the Pacific, it is not at all clear that Coca Cola would find investing in some of Asia’s rapidly developing countries nearly so safe and attractive.

In any case, I’ve decided that what the U.S. needs to do is to follow Kent’s advice and imitate China. Instead of remaining a public company under the control and guidance of corporate cronies who barely speak to one another, HP should be sold to a Chinese stat- owned enterprise with a board consisting largely of Chinese Communist Party members and with the proviso that it maximize production and development in the United States. At the same time, the United States should adopt Chinese-style investment incentives and currency management practices and also insist on technology transfer as a condition of market access while telling the Koreans, Japanese, Taiwanese, Filipinos, and Singaporeans to settle any disputes they might have directly with the Chinese instead of coming whining to Uncle Sam.

I mean shoot, since everyone thinks China is playing such a smart and game why shouldn’t Washington begin playing the same game.? Kent might not find that so appealing, but poor old David Packard would at least get some rest.