By Dian L. Chu, Economic Forecasts & Opinions
Hewlett-Packard Co. slapped Mark Hurd, the CEO it ousted last month, with a law suit soon after rival Oracle Corp. named Hurd as Co-president and Director. HP claims that Hurd cannot perform his job at Oracle without violating a confidentiality agreement.
Upon his exit of HP, Hurd signed a confidentiality pact protecting HP`s trade secrets and confidential information with a time frame of 24 months, as part of a condition of receiving a golden parachute pay package worth more than $33 million. So, his latest action seems indeed in violation of said agreements. As such, HP is right to bring suit against Hurd and he should not be allowed to join Oracle as a result.
Some argued that without a non-compete provision, which is generally unacceptable in California, HP should expect Hurd to work for another tech company since his experience resides mainly in the technology sector. Otherwise, where else would he work? This argument is flawed for the following reasons:
- CEO`s get paid handsomely for this very reason, they are set for life, at the very least. So, if they are restrained from not working for a direct competitor for two years after leaving the firm--sitting on $33+ million dollars, in Hurd's case--so be it.
- Mark Hurd also has many options. H may choose to work in the technology sector with a company that do not pose this strong a conflict of interest with HP. HP most likely would not object to companies such as some smaller tech firm, private equity, or venture capital, just to name just a few of the many options available within technology.
- Moreover, many exiled CEO`s work as business consultants, advisors, teach classes at MBA programs, work for many diverse business organizations, etc. during this natural transition period.
One thing HP does expect with Hurd’s signed agreement is that he will not be working for a direct competitor, at a sensitive position just one month later, especially at a company the size of Oracle where his presence, fresh knowledge of HP`s business strategy and corporate accounts could potentially be used against HP.
This is the exact purpose of the confidentiality agreement to protect HP`s trade secrets from direct major competitors. Furthermore, Mark Hurd was handsomely compensated for giving up some of his rights and future employment options under the agreements upon leaving HP.
Actually; Mark Hurd was being compensated for this eventual day during his entire tenure at HP. Sometimes CEO tenures are brief, sometimes the high profile nature of their job with an intense spotlight on any failures and successes limits future employment options, for this very reason there is a “last major job premium” paid to CEO`s at large corporations.
There’s reason that you hear this all the time--make sure you read anything very carefully before you sign-- especially something as important as an exit agreement. Mark Hurd knew full well when he signed the pact, that he couldn`t go take the top job at as company such as Oracle one month later without violating at the very least the spirit and intent of the confidentiality agreement, that much is obvious.
Mark Hurd chose to sign the agreement in the first place, where he had the choice of not signing it. My guess is that this was money dependent, and as a result, he should have to live with the consequences.
I, for one, wouldn`t have a problem with the California court upholding the confidentiality agreement, as every action has its consequence(s), and Mark Hurd should not be an exception. This case no doubt is stiring up debates within the legal community, and I guess we will just have to wait for the courts to decide the validity of the exit agreement and its ramifications.
Disclosure: No Positions
Dian L. Chu , Sep. 7, 2010