Shareholders of the big high-tech company Hewlett-Packard have done pretty nicely over the last year. Their stock gains have outpaced the Standard & Poor’s 500 Index by about 14 percentage points, and in 2014 they pocketed a handsome $2.7 billion through share repurchases and $1.2 billion in dividends.

Other stakeholders and the rest of H-P’s business, not so much. The company has cut about 44,000 jobs since 2012 and plans to bring the total toll to 55,000 by the end of this fiscal year. That would be more than 15% of the workforce the company employed in October 2011, around the time that Meg Whitman took over as its chief executive.

Doubts about whether Whitman has a sustainable strategy for H-P were resurgent Tuesday, when the company released its first-quarter results. The stock has dropped almost 10% Wednesday as we write.

Whitman and her management team blamed the company’s disappointing revenue figure on the strong dollar, or more precisely on the weak Euro. They forecast more currency-related pain ahead. It’s true, as they said, that currency issues have an outsized effect on H-P because it makes 65% of its sales overseas; but the strong dollar is beginning to look like an all-purpose scapegoat for underperforming CEOs, as have been 9/11 and the costs of Obamacare.


Here’s a counterfactual test for whether you should put much faith in their protestations that things would be fine if not for currency losses: When was the last time you heard a CEO give currency fluctuations credit for its profits? I’m waiting to hear one say, “We had an absolutely terrible year, but luckily the dollar plummeted so we made money.”

The Hewlett-Packard that Whitman leads today has shrunk considerably since she stepped into the CEO’s chair in September 2011. It recorded revenue of $111.5 billion in the year ended Oct. 31, 2014, compared to $120.4 billion two years earlier. After booking a big loss of $12.7 billion in 2012, its profits have tread water: $5.1 billion in 2013, and $5 billion last year.

Whitman has done OK, though. She received raises in each of the last two years of about $2 million, bringing her compensation for 2014 to $19.6 million.

Taking the long view, one can argue that Whitman’s H-P defines all that’s wrong with American corporate management today. The company’s big advances have been largely in the category of financial engineering and corporate restructuring.


Whitman’s latest brainstorm is to cleave the company in two this year by spinning off its consumer personal computer and printer divisions and leaving its enterprise hardware and business services divisions in place. The customary argument for such maneuvers is that disparate businesses do better with separate managements, but they’re often just about Wall Street cosmetics: Investors can get a better grip on the companies they’re buying, so it’s hoped they’ll pay more for each piece.

Otherwise, H-P seems to have poured most of its creative juices into financial management, not operational strategy or corporate vision. The share buybacks in its latest quarter came to $1.578 billion, but capital investment in its actual business reached only $947 million. The total bill for share repurchases and dividends in 2014 outpaced capital expenditures on property, plant and equipment by about $80 million.

H-P isn’t alone in putting shareholders first through buybacks and dividends. A new study by the Roosevelt Institute documents the trend across the corporate landscape. “Whereas firms once borrowed to invest and improve their long-term performance,” observes its author, J.W. Mason, “they now borrow to enrich their investors in the short-run.”

In relative terms, H-P stockholders have lost tons of money since Whitman assumed leadership. Over her entire tenure, H-P stock has gained a bit more than 50%, but that’s nearly 35 percentage points less than the gain in the S&P 500 index. (See accompanying chart.) In May 2013, Bloomberg rated Whitman the nation’s most underperforming CEO, based on her stock’s then 30-point lag behind the S&P 500. Since then, H-P has outpaced the S&P, but not by enough to close the gap.


And it’s proper to observe that H-P’s share price has been propped up immeasurably by the $10-billion share repurchase program its board put in place in July 2011, shortly before Whitman became CEO. (She was a board member at the time.) There’s still plenty of money left to keep that train rolling.

No one would assert that the task of turning around Hewlett-Packard is an easy one. The company has been struggling for years, going back to before the ill-starred tenure of former CEO Carly Fiorina (1999-2005). But it’s proper to ask whether Whitman has the imagination for the job. Her prescriptions for H-P have a curious resemblance to her platform during her failed 2010 campaign for California governor, when she talked about rooting out “fraud” and

“wasteful spending” in the California budget by firing 40,000 state employees. She also advocated eliminating the state capital gains tax, which in some years brought in $11 billion in revenue.

Hmm. Lay off employees and pass more money to capital investors. Does Whitman have any other weapons in her arsenal?

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