Silicon Valley was rocked Friday by news that Hewlett-Packard Co. Chairman and CEO Mark Hurd has resigned after a sexual-harassment probe found he violated company standards.
The investigation found that although there was no violation of HP's sexual harassment policy Hurd, 53, filed inaccurate expense reports to cover up his "close personal relationship" with a marketing consultant hired by his office, HP general counsel Michael Holston said.
The investigation also found there were "numerous instances where the contractor received compensation and/or expense reimbursement where there was not a legitimate business purpose," Holston said in a conference call with analysts. He said the behavior reflected a "profound lack of judgment."
As a result Hurd, who is married, has stepped down from all his positions at the company, effective immediately, according to a news release issued after the stock market closed Friday.
"As the investigation progressed, I realized there were instances in which I did not live up to the standards and principles of trust, respect and integrity that I have espoused at HP and which have guided me throughout my career," Hurd said in a statement.
"This is a painful decision for me to make after five years at HP, but I believe it would be difficult for me to continue as an effective leader at HP and I believe this is the only decision the board and I could make at this time," he said.
A source familiar with the situation told Reuters that Hurd never had sex with the woman and that the expense account issues stretched over two years and amounted to no more than $20,000.
Hurd and Robert Ryan, HP's lead independent board member, stressed that Hurd's departure has nothing to do with the company's financial health.
HP, based in Palo Alto, Calif., named Chief Financial Officer Cathie Lesjak as its interim CEO. HP says a board committee will search for a new CEO.
News of the Silicon Valley shake-up came as a shock. Analysts have credited the buttoned-down Hurd with bringing a culture of discipline to HP and reviving the company's financial performance.
"Mark Hurd was extremely instrumental in turning this company around," said Susquehanna Financial Group analyst Jeffrey Fidacaro. "There's going to be a serious gap in leadership at the top of this company."
Hurd has made nearly $100 million in total compensation over the past three years and is eligible for a severance payment of more than $12 million, according to the regulatory filings. Last year he made $2.4 million in salary and bonus and more than $25 million in stock, options and other incentive-based compensation.
"This was a painful decision for everyone involved, given the strong leadership Mark has provided since he joined HP five years ago, but this was a necessary decision," said HP director Mark Andreesen, a member of the board's new CEO search committee.
Lesjak has taken herself out of consideration as the permanent CEO but will serve as interim CEO until the selection process is complete. Candidates from both inside and outside the company will be considered, HP said. The selection of a new chairman will occur in conjunction with the CEO decision.
Lesjak, who has been at HP for 24 years, will continue to act as CFO.
The company also offered preliminary results for its latest quarter, including revenues of $30.7 billion, up 11 percent from the year-earlier period. HP stock dropped 8 percent in after-hours trading.
Hurd took over as CEO of the computer company in March 2005, succeeding the high-profile Carly Fiorina, one of the few women to ever run a Fortune 500 company.
He survived a previous company scandal in 2006, when then-board Chairwoman Patricia Dunn and others associated with the company tried to track down the source of media leaks by “pretexting” phone records, obtaining them under false premises.
Hurd ended up replacing Dunn and taking on the additional title of chairman.
Shares of HP have more than doubled since Hurd, the former CEO of NCR Corp, took the helm five years ago, cutting costs and expanding HP's footprint in the services market with acquisitions like the 2008 purchase of EDS Corp for $13.9 billion.