HPs bad dream

What's behind the firings at HP Israel?

Immediately after Hewlett-Packard (Israel) managing director Gil Rosenfeld got an e-mail from Hewlett-Packard (NYSE:HPQ) that he was about to be fired, he called his attorney, Adv. Tamar Golan, who is his mother-in-law. Golan, who is thought to know every loophole in Israels labor laws, needed little effort to find one. Hewlett-Packard, she said, did not give Rosenfeld any real chance to defend himself. Furthermore, his immediate severance from the companys resources, such as his e-mailbox, was carried out even before the firing process was completed, violating the legal lay-off procedure.

Golan had no doubt how to proceed against the men who came to carry out the computer giants verdict. The hearing for Rosenfeld was a macabre formality, with a ravenous media waiting outside, and gimlet-eyed combative lawyers inside.

In retrospect, HP Europes emissaries didnt have a chance. Golan ran a double strategy: she accused Hewlett-Packard of unfair and unreasonable firings on one hand, and of waging a crusade against HP Israel executives on the other. Things went so far, that HP VP and managing director Central-Eastern Europe, Middle East & Africa Jan Zadak began to stutter when Golan hurled accusations at him, and threatened him with a private lawsuit for criminal libel, a rare event in the business world, doubly so when a respected company like Hewlett-Packard is involved.

Rosenfeld won the first round by knockout. On Monday evening, Tel Aviv Labor Court Judge Alia Fogel issued an injunction against firing Rosenfeld, and ordered Hewlett-Packard to and over Rosenfelds lawyers the full investigation report carried out in Israel within 24 hours. The mumbled excuses by HP Europes advisers that petition to the court and the delay in carrying out the firings would hurt the company failed to impress the judge.

What really happened at HP Israel, and why did Hewlett-Packard react so aggressively? In recent months, Hewlett-Packard president and CEO Mark Hurd has fought hard against grey market sales that have hurt the companys revenue.

Rosenfelds associates now claim that Hewlett-Packard decided to exploit minor infractions in order to teach a lesson to countries involved in creating a grey market. They claim that the companys management decided to come down hard on HP Israel as a kind of show and tell. Other sources and observers claim, however, that HP Israel had huge sales on the grey market. Even if Rosenfeld was unaware and uninvolved in these sales, it was irregular, to put it mildly.

Rosenfelds PR and legal blitzkrieg have rendered his actions a secondary issue. The main subject now under discussion is Rosenfelds reputation, and maybe, behind the scenes, the amount of compensation he will get. In any case, Rosenfeld, like any employee, deserves to be fired with dignity, and not be judged in the public square.

Another aspect of this story is the bad blood between HP Israels current managing director and his predecessor, Ehud (Udi) Graff. Rosenfeld hinted that when Graf headed HP Israel, the company was involved in large-scale grey market sales, and that Graf tried to frame him. Graff has chosen to stay silent for now, but there are allegations that the entire investigation only covered the last two years - Rosenfelds tenure - so Rosenfelds accusation of Graff is ridiculous.

The Rosenfeld affair, as it has been handled until now, is a milestone in relations between Israeli subsidiaries and their international parent companies. Hewlett-Packards actions were incorrect from the outset. Its attitude towards local labor laws, the Israeli media and customers, and HP Israels employees was horrendous. The messy affair arising from uncomplicated firings could have been avoided.

It is quite possible, however, that the real scandal at Hewlett-Packard isnt HP Israel, but is far from these shores. The investigation into the grey market was handled by agents from Hewlett-Packards US headquarters. Headquarters sent emissaries from Europe to carry out the verdict in Israel, but they have no authority to settle the matter.

Hewlett-Packard apparently has a much greater problem at HP Europe, and its possible that the HP Israel executives are only the first heads to roll at Hewlett-Packards Europe, Middle East and Africa (EMEA) activities. It should be borne in mind that the Israeli managers were only at the end of the food chain. There are more senior Hewlett-Packard executives in Europe who benefited and may have deliberately turned a blind eye. There have been rumors in the past few days that other Hewlett-Packard EMEA branches are involved in similar cases, such as Dubai and South Africa.

What will happen now? The Tel Aviv Labor Court has ordered Hewlett-Packard to hand over the investigation report to Rosenfelds representatives by last night, and then to give Rosenfeld three working days to prepare his defense. The next stop will be a hearing on Monday.

In the meantime, HP Europe has appointed its regional HP managing director international sales Europe Ken Willett as operational manager at HP Israel. Willlett is Zadaks deputy, and he will manage operations in Israel until Hewlett-Packard decides on its next moves.

Hewlett-Packard will have to respond fast in order to calm its Israeli customers. HP Israels large customers include Israel Electric Corporation (IEC) as well as government ministries, and competition for these customers is vicious. In the summer of 2004, when heads rolled at Cisco Systems (Israel), its competitors cheered. A management vacuum at HP Israel will be reflected in changeable decisions that could quickly result in sales flight to other large comapanies.

Although most Israeli customers don't have direct contact with HP Israel's senior management, they will do the math and understand that the prices currently offered by HP in Israel are likely to rise over time. The sales managers named by HP's European office won't be open to discounting prices for Israeli customers and -- given the grey market situation -- there's a good chance prices will go up.

On the face of it, it does not seem that Rosenfeld will return to work at HP Israel. Although he told journalists that he wants to wake up from a bad dream and go home, the parties will probably now wage a war of attrition that will end in an honorable resignation. As things appear now, Hewlett-Packard wants the affair to end, and quickly.

Published by Globes [online], Israel business news - www.globes.co.il - on March 29, 2006

Copyright of Globes Publisher Itonut (1983) Ltd. 2006

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