What’s the price of bad behavior? That question has been tossed around a fair amount this November in the wake of the resignation of CIA Director Gen. David Petraeus, especially as many in Washington and beyond have wondered whether the randy general really needed to relinquish his lofty position.
For those who think the answer is no, Wall Street last week provided ample evidence that unethical conduct at the top can reverberate through an organization for years — often inflicting a disproportionate amount of collateral damage.
Exhibit A: Last week was another bad one for Hewlett-Packard, the worst-performing Dow stock of 2012 by a mile. HP took another hit to its reputation — and its shareholders’ bottom line — when it revealed an embarrassing $8.8 billion charge to cover its $11.1 billion purchase of the software company Autonomy in 2011.
For years now, HP has been a hive of horrible behavior. The hanky-panky truly took the leap from mere incompetence to moral turpitude during the tenure of former CEO Mark Hurd from 2005-2010, with the revelation that HP had sanctioned spying on journalists and its own directors.
At the time, Anthony Bianco — author of “The Big Lie,” a book on the scandal — wrote that Hurd was a man of “questionable ethical character of the sort that would be a problem for HP again.” Not too long thereafter, Hurd was forced to resign as CEO after it was discovered that he had falsified expense reports while wining and dining a reality-show host turned HP consultant.
In the cases of both Hurd (now co-president of Oracle) and Petraeus, scandal was preceded by growing hubris and narcissism.
Yes, investors should be chastened by the fact that a Dow 30 company, advised by supposedly the best legal, financial and accounting minds in America, made an $8.8 billion mistake.
But avoiding investments in such debacles isn’t as difficult as it seems. Take a good look at a company’s culture, its board and its CEO before you invest. If there’s been even a whiff of scandal in recent years, it’s almost always the right move to walk away.