Valley faith wavers as Hewlett-Packard gets dirty

Net Results:  It may have taken a while to rattle shareholders and push share prices down, but the Hewlett-Packard "situation…

Net Results: It may have taken a while to rattle shareholders and push share prices down, but the Hewlett-Packard "situation" is top of the news in Silicon Valley.

While the story may not lead business coverage in other parts of the country, it is still getting plenty of attention, particularly the question of how much chief executive Mark Hurd knew, and when he knew it.

But in the Valley - where Hurd's turnaround of the ailing company had restored a shine to venerable HP - anything HP-related is going to be big news for more than straightforward business reasons. HP is iconic here - one of the original tech companies to locate in the orchards and fields of Santa Clara county.

HP invented the flat management structure that not only permeated the tech industry but, eventually, American business more broadly. Its founders created huge charitable foundations that helped build community locally and also tackled international issues. Its offices were prominent on the sloping hills adjacent to Stanford University. It was from early on, and remains, a major Valley employer.

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Its founders, William Hewlett and David Packard, were widely admired by their engineer employees as "the real thing". They were not the well-tanned MBA rock star chief executives that have populated the Valley in recent years but true geeks who knew their stuff, tinkering with electronics in their first garage office (the original garage has even been preserved as a sort of tech shrine).

While the company had long since grown huge and eventually had its own celebrity-as-chief executive in Hurd's predecessor Carly Fiorina, HP continued to radiate a level of corporate integrity and decency connected to its past image. HP had an extraordinary brand image unlike any other in the technology industry, perhaps unlike any company anywhere.

So the snowballing of a scandal, the alleged details of which grew increasingly bizarre as the days passed, struck at the heart of what the Valley values most about its history - and more importantly its ongoing myth.

Because of the good salaries, great perks, beautiful region and cool companies, the Valley has always seen itself as a squeaky clean industry and region.

Generally, local media have been happy to reinforce rather than challenge that image, despite some obvious evidence over the years that business can be as brutal and nasty here as anywhere, full of corporate defections and claims of secrets sold on, backstabbing and forced resignations, cut-throat venture capitalists and questionable political lobbying.

But, unusually for this region's bounceback mentality, faith has wavered because of the revelations that, in order to stop leaks to the press, some board members spied on each other, and on journalists, by obtaining phone records under false pretences.

Thus the San Francisco Chronicle ran a front page headline recently that expressed a new disillusionment: "Silicon Valley loses its sheen". This carried over to the inside pages with another: "S'long Silicon Valley. It's Scandal Valley now."

The HP fiasco came hot on the heels of an ongoing options scandal, in which more than 100 companies, many from the Valley, were under suspicion of manipulating stock option grant dates to enhance the value of shares given to executives and key employees. Many companies are under investigation or are conducting internal reviews and preparing to restate earnings.

Some might argue that the scandals are the flip side of the nonconformity and relaxed business environment here, accommodated by a laid-back California mindset and the state's endless sense of do-it-yourself opportunity.

The business and management inclinations of Hewlett and Packard were a natural fit with a deeply embedded California sensibility dating back to the Gold Rush era. Like other young men, they went west and found it would embrace new and different ways of doing things.

Far before Hewlett and Packard played with circuits in their garage, the 1849 Mother Lode had proved an unconventional and egalitarian parent to those who could not fit in anywhere else. In mid 19th century California, in a resource-rich west, there were employment and business opportunities unavailable elsewhere to minorities and women, immigrants and entrepreneurs, the adept and the manipulative, the enablers and the exploiters.

Any student of California history knows the same open environment that enabled that state's growth and development, expansion and economic success also allowed for scandal and tribulation, exploitation and a disinclination to interpret the law in any overly restrictive way.

Certainly, there are those who feel the freewheeling Valley has always retained that wild west atmosphere, which in turn enabled mad business growth and created vast fortunes, particularly leading up to the crash of the dotcoms. It's no coincidence that at just that time (2000), in the midst of dotcom backlash, the FBI created a securities fraud unit in San Francisco. Suddenly, indictments spiked in the Valley.

In other words, a bit of digging produced dirt. So much for that squeaky clean image.

No one has really paid much attention to such inconvenient truths, though. This is a state and region that not only likes its myths but is built upon them. That is in some ways a weakness, yes, but also a phenomenal strength. It gives rise to an infectious optimism and creativity that is hard to understand unless you have been immersed in it.

Silicon Valley optimism is twice-distilled and hyper-concentrated. It's American optimism and can-do, funnelled into an even stronger Californian sense of the same, boiled down yet again in a unique place where 10 per cent of all US patents are issued, 35 per cent of all US venture funding is poured and workers are 2.5 per cent more productive than the national average.

Yes, the Valley is rattled by the current headlines - the scandals are stupid, infuriating and sobering - yet for now, it remains in a good mood, with eight consecutive months of jobs growth this year, the best sustained growth since the 2000 downturn.

And yes, it has been forced to look at itself more critically, but like the internet, the Valley is very adept at rerouting itself around its problem spots to reach its desired destination.

Karlin Lillington

Karlin Lillington

Karlin Lillington, a contributor to The Irish Times, writes about technology