Meg Whitman and Carly Fiorina: Why Ex-Tech CEOs Make Dangerous Politicians

Former eBay (EBAY) CEO Meg Whitman and one-time HP (HPQ) head Carly Fiorina are all-but-certain to win Republican nominations for governor and the Senate in California today. Both are well-known in high tech, both have poured millions of their own dollars into their races ($70 million in Whitman's case, and that's just so far), and both have run largely on their business records running high tech corporations. But in both cases, that very business record is mixed at best and disastrous at worst.

Even undisputed corporate stars aren't automatically fit for office. Let's see some hands out there: Who thinks secretive control freak Steve Jobs would make a good governor of California? (And who would vote for BP CEO Tony Hayward as dog catcher, even if he weren't a Brit?)

Business executives often assume that running a large corporation qualifies them for high office without previously serving in lower elected positions. That's true only in one specific, if somewhat trivial, way, since one big qualification is that a candidate has been a heavy donor to his or her party and is capable of raising the money necessary to run for major office.

In most other respects, however, the correlation between a big business past and public sector success is anything but clear. Media magnate Mike Bloomberg has been a credible mayor of New York City. But Ross Perot, who started both Perot Systems and EDS, flamed out badly in a presidential bid. Former McKinsey exec Mitt Romney came from a political family (his father George Romney was a chairman of American Motors and governor of Michigan), but lost a Massachusetts Senate race against the late Edward Kennedy. He won a gubernatorial bid, closed a deficit and helped bring healthcare reform to the state, but then bailed out of office halfway through so he could run for president and failed to build the state's Republican party.

The list goes on. Jon Corzine was a former Goldman Sachs banker who served both as a state and U.S. Senator for New Jersey and eventually became governor, but battled a number of scandals. Michael Huffington, who spent more than a decade as vice chairman of his family's energy company, spent $28 million to run for a California Senate seat against Diane Feinstein, but lost. George W. Bush was a presidential disaster once he got past the governorship of Texas, although you could argue that his performance in office was foreshadowed by a business career that was anything but sterling. NBC Universal CEO Jeff Zucker recently said that he wants to run for office some day.

One big reason for the disconnect is that the skills of a good public leader are usually quite different from those of a CEO, who can get frustrated by the Byzantine ways of government and the impossibility of simply telling people what to do. A corporation and a large government differ widely in problems, resources, scope, and complications. As Corzine said to Newsweek about what he learned from his own experience:

The idea that you're accountable to a bottom line and to a payroll in managing a business -- it gives voters the confidence that you have the right skills [to govern]. But it's 20,000 people versus 9 million. I don't think candidates get the scale and scope of what governing is. You don't have the flexibility you imagined. There's no exact translation.

Meg Whitman

However, she didn't have the business equivalent of a green thumb. The company benefited from being one of the few stars that came out of the dot-com bubble, and much of its growth was due to circumstances beyond anyone's control. Whitman decided to acquire the Internet telephony startup Skype before she left -- about as bad as the choice of buying PayPal was good. (Last year eBay sold Skype to an investment group for a little more than what it paid.)

Far worse is that Whitman failed to anticipate shifts in how the market worked and then reacted too late. Online bidding began to fall out of favor as consumers shifted to fixed price shopping and looked at Amazon and other sites as first choices for shopping. That only aggravated the problems the company faced during the economic slowdown of 2008 and 2009.

Within a few months of Whitman's departure, eBay stock had collapsed to nearly $10, and had only recovered to the low teens within a year. Quarterly revenue quickly flattened and then began to drop. Yes, consumer spending tanked as the recession began to snowball, but not as quickly as eBay faltered. That speaks to Whitman's strategic mistakes and the company's resulting inability to weather the storm gracefully.

More important, Whitman got to ride a skyrocket at eBay. California, by contrast, is more of a basket case. The economy is distraught, the state legislature is fractious and combative, and a ballot initiative process ties government's hands and makes finding solutions virtually impossible. California badly needs a full financial and political turnaround. It may be that Whitman is capable of delivering it, but she's yet to prove that skill anywhere.

Carly Fiorina

True, some of her management choices seem prescient in hindsight. Fiorina wanted to spend $18 billion for the consulting practice of PricewaterhouseCoopers in 2000, saying that a strong consulting and services arm would let the company compete more directly with IBM. Shareholders, however, balked and eventually HP bought EDS eight years later for less than $14 billion. Given inflation and market developments, you might argue that Fiorina was far too ready to overpay. In fact, when the PWC deal went south, Fiorina pushed for a purchase of Compaq, a 2002 $25 billion acquisition largely viewed as a business disaster because of its poor execution.

Under Fiorina's control, HP went spiraling into the doldrums. On July 2, 1999, the company's stock price was just under $51 a share. That month, the company named Fiorina as CEO, succeeding Lewis Platt. By February 2005, when the board forced her out of the company, the stock was hovering between $20 and $21. Yes, the dot-com bubble had burst, but HP fared far worse than its rival Dell. At the opening of July, Dell shares were at about $37; by February 2005, despite some ups and downs, they were around $40.

Stock price isn't necessarily the best measure of corporate performance, so consider two revenue snapshots. In the quarter ending January 1999, HP had net revenue of $11.9 billion. Compaq's revenue in the quarter that ended December 1998 was $10.9 billion. Together, that's $22.8 billion. Six years later, at the end of Fiorina's tenure, HP's post-Compaq quarter revenue was $21.5 billion. At Dell, meanwhile, quartly net revenue rose from $5.5 billion in April 1999 to $13.4 billion by the same period in 2005.

As someone closely familiar with Fiorina's ascendancy in HP told me in 2005:

[Fiorina] is very cerebral, strategic, verbal, expressive, and so she lives in the land of ideas and mobilization really, really well. But Carly is not an operating nut. She doesn't want to follow all the details every day. She doesn't want to negotiate internal psychological contracts on an ongoing basis. So she underestimated the strength of the people she needed under her. She redesigned the company strategy well, she plowed through the architecture and construction work. When it came time to drive the car out of the garage, she was the wrong person.

Monitor image: RGBStock.com user Zela, site standard license. Image of Meg Whitman via Flickr user megwhitman2010, CC 2.0. Image of Carly Fiorina via Flickr user scriptingnews, CC 2.0.