[Corp. Watch] Merge-and-purge cycle drives corporate profits

[Corporation Watch]

Have You 'Hurd'? Greed Still Living Large

By Stan Pizzigati

(Too Much blog, Jan. 26) -- Hewlett-Packard (HP), the world's biggest  
computer company, last week rewarded a "successful" CEO. In a required  
federal filing, the California-based company revealed that CEO Mark  
Hurd collected $42.5 million in pay last year.

	This lofty sum, HP officialdom proclaimed, reflected the company's  
"exceptional and sustained" performance ever since Hurd took the HP  
reins in 2005. On Hurd's watch, annual revenues at HP have bounded  
from $86 billion to $118 billion. In 2008, company profits jumped 15  
percent.

	HP board members certainly do have reason to be pleased. But other  
stakeholders in HP's "success" don't seem to feel like cheering.

	Take, for instance, HP workers. Shortly after joining Hewlett- 
Packard, Hurd -- flush with over $20 million in personal signing  
"inducements" -- ended the HP pension plan for younger employees, and  
announced plans to cut a tenth of the workforce.

	HP is currently completing a second round of massive job cuts. In  
all, Hurd will soon have eliminated almost 40,000 jobs at HP since his  
inaugural 2005 speech at the company's Silicon Valley headquarters.

	"Building a great company isn't all about a CEO," Hurd announced in  
that address. "It's a team sport."

	HP customers don't have much reason to cheer Hurd either. HP has been  
busy squeezing every bit of revenue possible out of the company's cash  
cow, printer ink. The last ink price increase, in October, upped costs  
to consumers by 9 percent, well over double the year's inflation rate.

	HP overall product quality and service, meanwhile, are regularly  
leaving consumers infuriated. PCWorld magazine, after surveying 44,000  
readers, earlier this month rated HP dead-last -- among 10 computer  
makers -- on reliability and service for laptops, dead-last for  
printers, and next to last for desktops.

	How can HP revenues and profits be rising in the midst of so much  
consumer angst?

	Easy. To be "successful" in Corporate America today, a CEO doesn't  
have to run a company that delivers quality at reasonable prices.  
Today's most "successful" CEOs can take a far less demanding approach  
to "growing" their companies -- they can simply gobble up other  
companies.

	Contemporary top executives acquire these other enterprises --  
usually by taking on huge quantities of corporate debt -- and then  
claim the revenues of these other enterprises as their own. Instant  
success.

	To pay off the subsequent debt and keep their bottom lines sweet,  
these CEOs then lop off "redundant" workers in their newly merged  
operations. This merge-and-purge cycle, predictably enough, creates  
chaos in the workplace -- and more frustration for consumers.

	As HP CEO, Hurd has wheeled and dealed his way to 31 mergers in just  
46 months on the job. His biggest acquisition came last August when he  
bought up tech services giant Electronic Data Systems (EDS) for over  
$13 billion.

	Have CEOs like Mark Hurd, with all their wheeling and dealing,  
discovered the secret to an eternal "fountain of riches"? Or can they  
be stopped -- before unemployment lines get still longer and consumer  
nerves get still more frayed?

	At first glance, corporate honchos like Hurd seem home free. Congress  
and the new Obama administration are focusing most all their attention  
on companies now taking in bail-out dollars. HP isn't asking for any  
bail-out.

	But that doesn't mean that lawmakers and the White House have no  
leverage. Almost every major corporation in the United States, HP  
included, is already benefiting handsomely from taxpayer dollars,  
either indirectly via special tax breaks or directly through  
government contracts and subsidies.

	HP's new EDS subsidiary, to give just one example, took in $2.3  
billion from federal contracts in 2007 alone. By placing strings on  
these contracts, subsidies, and tax breaks, the federal government  
could start discouraging the outrageous rewards for top executives  
that create such powerful incentives for outrageous executive behavior.

	In the last Congress, a number of lawmakers started moving in that  
direction. Their legislation, the Patriot Corporations Act, offered a  
preference in federal contract bidding to companies that pay their top  
executives no more than 100 times the dollars that go to their lowest- 
paid employees.

	(Among this legislation's co-sponsors: a senator by the name of  
Barack Obama.)

	Last year, for the record, Mark Hurd's $42.5 million take-home  
equaled somewhere around 2,000 times the pay of HP's lowest-paid  
worker. How much of that $42.5 million represents the "greed and  
irresponsibility" that President Obama denounced at his Inaugural?  
Hard to say.

	But the San Jose Mercury News last week calculated how much HP  
shelled out in 2008 for Hurd's "business meals." The food benefit came  
to about $181,000. "Assuming three meals a day, every day of the  
year," concluded the Mercury News, "that works out to about $165 per  
meal."