Good morning.
In late 2012, I got a call from an advisor to Autonomy cofounder Mike Lynch, who had sold his U.K. software company to HP for $11.7 billion a year earlier and now found himself fired and accused of fraud. Lynch was eager to prove his innocence, of course, and spoke with me at length about his business model and accounting methods. Lynch died on Monday when his yacht sank off Sicily, just weeks after emerging triumphant from his 12-year battle to be cleared of a crime.
I never did become an expert in the “Bayesian inference” method or the adaptive pattern recognition at the heart of his pioneering analytics software. But I knew that you shouldn’t book sales of low-margin hardware as high-margin software or future sales as current revenue, which were among the allegations against him and co-defendant Stephen Chamberlain, who also died this week after being hit by a car while jogging.
Much has been written about Lynch, but it’s also worth considering the circumstances in which Autonomy the acquisition and subsequent charges occurred. In 2011, HP was struggling in a stagnant U.S. economy while Cambridge-based Autonomy was a relative bright spot in a Britain that was mired in debt and economic malaise.
On the East Coast, Americans were still dealing with fallout from the 2008 financial crisis, a greed- and leverage-fueled blowup that eroded trust and wealth for years to come.
Over on the West Coast, Hewlett-Packard Co.—a brand so iconic that the garage in which it was founded is dubbed the “Birthplace of ‘Silicon Valley’”—had become a beacon for bad decision-making. It had bought handset-maker Palm for $1.8 billion in 2010, only to shut it down in 2011. It had just taken an $8 billion “accounting charge” (a.k.a. writedown) on its $13.9 billion acquisition of Electronic Data Systems. And there had been a revolving door of CEOs, from Mark Hurd, who resigned over an ethics scandal in 2010, to Leo Apotheker, who lasted less than a year, and then Meg Whitman.
Against this backdrop, HP’s pricey acquisition of Autonomy and subsequent $8.8 billion writedown a year later looked less like a shocking dupe than par for the course. And Britain’s homegrown hero could credibly claim to be a tempting scapegoat in another HP deal gone bad. (Lynch didn’t disagree that HP might have overpaid in its zeal to acquire innovative technologies, but he argued that buyers’ remorse was not a crime.)
Hewlett Packard split in 2015 into HP Inc. and Hewlett-Packard Enterprises, both of which have become nimbler, more focused, and more successful companies. Lynch, meanwhile, still faced the prospect of paying hefty damages in a civil case that had been decided in favor of HP. The software that had earned him the label of being the ‘British Bill Gates’ ended up going to Micro Focus and OpenText. There’s much to celebrate about his legacy, and perhaps something to learn from how a turbulent era may have shaped his trajectory.
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Diane Brady
diane.brady@fortune.com
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