What you will find in the comments part :- Sept 7 : HP said to have spied on reporters
- Sept 8 : California Attorney General says HP tactics violate State laws, but unclear who to prosecute
- Sept 8 : HP's says Dunn will resign if asked by board
- Sept 8 : New York Times, CNET consider options over HP
- Sept 9 : Dunn is done ?
- Sept 11 : Feds and Congress ask for info !
- Sept 12 : HP's Board split over Dunn
- Sept 12 : Patricia Dunn to remain HP Chairman through January 2007 Board meeting and then demoted ! Board appoints Mark Hurd as successor
- Sept 12 : Keyworth says HP approved leaks !!!
- Sept 12 : HP insiders likely to face charges
- Sept 14 : HP spy scandal extends to employees !
- Sept 14 : Reporters 'outraged' over HP tactics
- Sept 15 : HP Execs asked to testify in Washington
- Sept 18 : Shareholder files suit
- Sept 18 : House committee awaits HP documents related to scandal
- Sept 18 : What HP Should Have Done
- Sept 19 : H-P security expert warned on leak probe
- Sept 19 : House committee receives H-P documents
- Sept 20 : House seeks more testimony in H-P case
- Sept 20: H-P considered spying on newsrooms !
- Sept 20: HP Scandal Reaches New Weirdness Level
- Sept 20: Did Mark Hurd approve a "sting" operation on a journalist ?
- Sept 21: H-P's Hurd to hold press conference on scandal sept 22
- Sept 21: HP shares down 5 percent as scandal deepens
- Sept 21: Democrat wants HP CEO to testify on leak scandal
- Sept 21: HP sponsors a privacy award...
- Sept 21: Hurd will testify before House committee sept 28
- Sept 22: Calif AG says no evidence to link HP CEO to crime
- Sept 22 : US Senate nears vote on HP-linked phone data issue
- Sept 22 : Mark Hurd named HP Chairman : Patricia Dunn is leaving Board.
- Sept 23 : HP Chair Resigns Amid Probe Fallout
- Sept 23 : Why Hurd needs to take some questions
- Sept 25 : HP Clears the Air, but Not the Cloud
- Sept 26 : HP Under Increasing Pressure to Overhaul Board
- Sept 26 : HP's most truthworthy man
- Sept 26 : The Men Who Conducted the HP Probe
- Sept 27 : Mark Hurd on the HP scandal
- Sept 28 : House panel releases HP testimony
- Sept 28 : Hypocrisy at Hewlett-Packard(fictional)
- Sept 28 : HP General Counsel Resigns Amid Scandal
- Sept 28 : Lawmakers Grill HP Over Spying Scandal, Making Comparisons to Enron and Watergate
- Sept 29 : HP Whistleblower Tried to Avert Scandal
- Sept 29 : 3 Execs Testify About HP's Spying Probe
- Sept 29 : Hurd: I'm not resigning
- Sept 29 : HP counsel leaves with millions in options, benefits
- Sept 29 : HP Goes to Washington (a tragi-comedy...)
- Sept 29 : Controlling The Damage At HP (everything you wanted to know about Mark Hurd).
- Sept 30 : As H-P scandal reaches peak, Hurd and HPQ are still solid
- Sept 31 : Internal Memo Details Hewlett-Packard Leak Hunt
- Oct 1 : Why Hurd needs to take some questions
- Oct 1 : 4 things HP's Hurd needs to do now
- Oct 2 : HP's costly scandal
- Oct 3 : HP CEO appears secure, but risks remain analysts say.
- Oct 3 : Hurd may have known about phone records in 2005
- Oct 4 : Reporters Reassigned in HP Spy Scandal
- Oct 4 : Indictments in HP case. But not for Mark Hurd.
- Oct 4 : HP's Hurd is contrite, but indictable ?
- Oct 5 : Investigations continue at HP
- Oct 5 : The Silver Lining in HP's Scandal
- Oct 6 : More Charges Possible in HP Spying Probe
- Oct 6 : Is Dunn Really A Felon ?
- Oct 7 : Fiorina could attract interest in HP leak probe
- Oct 8 : HP not alone with "rogue" investigations
- Oct 9 : Dunn calls allegations in HP scandal a 'myth'
- Oct 9 : Dunn said Perkins launched a disinformation campaign against her
- Oct 10 : Fiorina blames divisive HP board
- Oct 11 : Three in HP Scandal Plead Not Guilty
- Oct 14 : Calif. AG presses ahead with HP leak investigation
- Oct 21 : HP tells reporter security firm searched her trash
- Nov 2 : HP CEO responds to Congressional letter : he thought phone records were public...
- Nov 10 : Ex-HP Ethics Chief Pleads Not Guilty
- Nov 15 : Dunn pleads not guilty
- Nov 19 : H-P appoints first new board member since scandal
- Feb 12 : The New Yorker looks into HPGate
- Feb 27 : Ex-HP director laments corporate board trend
- March 1 : Dunn's lawyer blasts Perkins
- March 14 : Judge Drops Charges Against HP's Dunn
- April 24 : HP Ethics Chief Tackles Spying Scandal Aftermath : "the chances are "almost nil" for a repeat of last year's debacle".
- May 24 : Hewlett-Packard probe by SEC is settled
Once upon a time...
HP revealed in a filing with the Securities and Exchange Commission that it had used "an outside consulting firm" to obtain evidence that showed board member George Keyworth had disclosed information from board meetings to the media. Keyworth admitted he had spoken to the media about confidential board information and was asked to resign.
According the company filing, Keyworth refused to quit, saying that only shareholders could remove him from the board. Venture capitalist and H-P director Tom Perkins then quit in protest over how the Keyworth situation was handled.
The brouhaha grew out an investigation into press leaks that was launched by H-P's nonemployee director, Patricia Dunn, and covered information from meetings that took place both before and after the H-P board fired Fiorina in February 2005 and replaced her with former NCR chief Mark Hurd.
The latest upheaval at the Silicon Valley icon reads like a script from a soap opera...
92 comments:
SAN FRANCISCO (AP) -- Investigators for Hewlett-Packard Co. sought private telephone records of board members while trying to figure out which director leaked confidential company information to the media, the computer maker disclosed in a regulatory filing Wednesday.
Lawyers hired by HP to review the tactics used in the investigation -- which included tracking board members' phone calls -- could not determine if the investigation "complied in all respects with applicable law," HP said in the filing.
Palo Alto, Calif.-based HP also said California's attorney general was examining the techniques of the investigation, which relied on an often illegal data mining method known as "pretexting."
HP said in the filing it would cooperate with the state probe, but spokesman Ryan Donovan said Wednesday morning the company would not comment or provide other details about the investigation.
The company made the disclosures in s filing with the Securities and Exchange Commission, saying its board would refuse to nominate one director, George A. Keyworth II, for re-election because it determined he was a source of the leaks.
Keyworth -- a physicist who served as science adviser to President Reagan from 1981 to 1986 -- will end his service on the HP board no later than March 2007. Keyworth could not be reached for comment early Wednesday.
Keyworth's departure comes after a January article on CNET's News.com, which included a quotation from an anonymous HP source who described a gathering of HP directors at a posh spa in Indian Wells, Calif.
"By the time the lectures were done at 10 p.m., we were pooped and went to bed," the source told News.com.
Although the source didn't leak high-level strategic details or say anything inflammatory, the statement angered HP Chairwoman Patricia Dunn, 52, who has been on the board for eight years.
The chairwoman of the 11th largest company on the Fortune 500 oversaw the ouster of former HP CEO Carly Fiorina in February 2005 and the hiring of Mark Hurd as her successor -- both high-profile moves that also were leaked to the media. Dunn, CEO of Barclays Global Investors from 1995 to 2002, has been on the HP board since 1998 and was elected chairwoman in February 2005.
Dunn oversaw the investigation of leaks and, at a board meeting May 18, identified Keyworth as the source in the News.com article as well as other leaks dating back to early 2005.
The board then asked Keyworth, 66, to resign, but the former neutron physicist at New Mexico's Los Alamos National Laboratory refused.
The investigation and attempted ouster riled another HP board member, Silicon Valley venture capitalist Thomas J. Perkins, 74. Perkins, Keyworth's friend, immediately resigned and stormed out of the May meeting.
Within days of Perkins' departure, HP filed a standard 502-a form with the SEC -- not a 502-b form, which would have indicated Perkins' leaving was related to an internal disagreement.
In the months after his resignation, Perkins -- co-founder of Menlo Park, Calif.-based venture firm Kleiner Perkins Caufield & Byers -- complained to other executives and to journalists about the investigation's potential ethical implications. He decried it as an invasion of privacy and asked his attorney to investigate.
Neither Perkins nor his attorney, Viet Dinh, could be reached for comment early Wednesday.
In June, Perkins requested information from HP regarding the probe. Perkins said both phone calls and e-mails may have been improperly recorded, the new filing said.
In August, Dinh asked the SEC to require HP to submit a regulatory filing with details of his resignation. HP acknowledged in the filing Wednesday that the SEC's Division of Corporation Finance sent HP a letter about Perkins' resignation.
HP also disclosed in the newest filing that no recording or eavesdropping of directors' phone conversations had occurred. But the company acknowledged that its private investigators used "pretexting" of phone records, a method used by investigators to gather information by disguising their identity.
Identity thieves engage in pretexting to steal social security numbers or other confidential data under false pretenses. Pretexters may sell such information or use it to apply for credit cards or mortgages in someone else's name.
It's unclear exactly how HP's private investigators used pretexting. In principal, pretexters could call a phone company and falsely represent themselves as a legitimate customer to obtain logs of numbers called and received at home and on cell phones.
Perkins asked that an investigation into the techniques requested that HP conduct an inquiry into the propriety of the investigation.
A high-ranking HP committee then hired an outside counsel to look into the matter. The counsel advised the company that the use of pretexting at the time "was not generally unlawful" but couldn't confirm that the techniques employed by the private investigators were completely legal.
Under the federal Gramm-Leach-Bliley Act, pretexting is illegal when used for identity theft -- but it's unclear whether a corporation can legally pretext phone records. The Federal Trade Commission, several state attorneys general and at least one phone company -- Verizon Inc., whose vice chairman and president, Larry Babbio, serves on HP's board -- have filed claims against pretexters.
Based upon its internal investigation, HP's nominating and governance committee recommended that controls relating to investigations be strengthened and that management can assure that all aspects of company probes comply with laws and HP's code of ethics.
BUSINESS --- Directors Cut: H-P Board Clash Over Leaks Triggers Angry Resignation --- Perkins Slams Briefcase, Says, 'I Quit and I'm Leaving,' As Probe Fingers a Friend --- A New Era of Governance By Alan Murray
2983 words
20060906
The Wall Street Journal
A year and a half after Carly Fiorina was pushed out as chairman and chief executive of Hewlett-Packard Co., the aftershocks of that firing continue to shake the computer company's board of directors.
The latest eruption came at a meeting on May 18, when the board reviewed the results of an extensive investigation into press leaks that was undertaken by new board Chairman Patricia Dunn shortly after Ms. Fiorina departed. The report, which relied in part on private telephone records, fingered George Keyworth, a longtime director and former science adviser to President Reagan, as the source of many of the leaks about board deliberations. A boardroom showdown ensued, during which the board voted to ask Mr. Keyworth to resign, and he refused, saying he was elected by the shareholders. Venture capitalist Tom Perkins, a friend of Mr. Keyworth, quit the board on the spot in anger.
In the weeks since that meeting, Mr. Perkins has told business associates of the event, and also provided information to the Securities and Exchange Commission, prompting that agency to launch a probe into the matter. He is particularly concerned that the investigation involved the search of board members' private telephone records, and has questioned the legality of that practice.
In response, the Hewlett-Packard board plans a filing with the SEC today. Among other things, that report will say that Mr. Keyworth will not be nominated for re-election to the board at its annual meeting next March.
While full details of H-P's internal probe remain unclear, it appears to involve a controversial practice known as "pretexting." Under the practice, public investigators apparently call the phone company, and use personal information to falsely represent themselves as another person, in order to obtain that person's records.
H-P board members say the investigation was done by an outside contractor to the company, retained by another outside contractor. Those contractors continue to insist they used only legal methods to obtain the phone records. But some H-P board members acknowledge feeling uncomfortable with the methods used.
Viet Dinh, an attorney for Mr. Perkins, said in a statement that Mr. Perkins "resigned because of a disagreement about H-P's governance practices. The company for the past months has refused to disclose the substance of the disagreement, and Mr. Perkins is pursuing all appropriate remedies."
"The situation is regrettable," Ms. Dunn said in a statement. "But the bottom line is that the board has asserted its commitment to upholding the standards of confidentiality that are critical to its functioning. A board can't serve effectively if there isn't complete trust that what gets discussed stays in the room."
The story reflects a new era in the way American corporations are run. A few years ago, most boards of directors were clubby affairs, run by the chief executive, filled with members chosen by the chief executive, and likely to intervene only in times of crisis. Today, as a result of a host of changes that cascaded out of the corporate scandals earlier this decade, boards have become more powerful and more independent than ever. The Hewlett-Packard story shows many of them are still struggling to operate smoothly in this new environment.
Mr. Keyworth couldn't be reached for comment. Ms. Fiorina plans to tell her version of events in a book being published next month. This account is based on interviews with several of the people directly involved.
The confrontation at H-P has its roots in November 2004, when independent members of the board met in executive session, without Ms. Fiorina present, and discussed their concerns over her leadership. At the time, H-P's stock was performing poorly compared with shares of rivals such as Dell Inc. and International Business Machines Corp. Mr. Keyworth, a director since 1986, suggested the board bring back Mr. Perkins, who had left a year earlier because he had reached the board's mandatory retirement age of 72.
Mr. Perkins is a storied figure in Silicon Valley, having helped start one of the first venture-capital firms there, Kleiner Perkins Caufield & Byers. He worked for H-P in the 1960s, and joined the company's board in 2002 after it merged with Compaq Computer, where he had been a director. Once married to romance novelist Danielle Steel, Mr. Perkins recently wrote a racy novel of his own titled "Sex and the Single Zillionaire."
When told of the board's plans to bring back Mr. Perkins, Ms. Fiorina resisted, according to board members. Frequently lauded as the nation's leading female business executive, Ms. Fiorina was known for her marketing skill, but inside H-P she had a reputation for flashes of arrogance. She didn't like the idea of waiving the retirement age, and felt that if Mr. Perkins were to return, the board should wait until its annual meeting the following March. But Mr. Keyworth was particularly insistent, and Mr. Perkins was invited to attend the board's annual strategy session in January 2005, although he wasn't yet a director.
Unknown to Ms. Fiorina, Mr. Perkins also participated in a series of phone calls and email exchanges in December 2004 and January 2005. During the calls, some board members began to articulate their concerns over her management, according to people who participated.
In an interview late last year, Mr. Perkins said he didn't know of the board's concerns about Ms. Fiorina when he was first approached about becoming a director again. In the December 2004 phone calls, however, he quickly learned of the board's unhappiness. "The organization was becoming ever more horizontal, reporting more and more to Carly," he said in the interview. "The board respected Carly. She was Wonder Woman. But still, there are only 24 hours in a day."
On Jan. 10, 2005, three board members -- Ms. Dunn, Mr. Keyworth, and longtime H-P executive Richard Hackborn -- met with Ms. Fiorina at H-P headquarters and laid out their concerns. They told her directors felt she didn't consult with them fully and were unhappy with the state of the company's business with corporate customers, according to people in the room.
In the discussion that followed, Mr. Keyworth, who headed the board's technology committee, argued Ms. Fiorina should elevate Shane Robison, the company's chief technology officer, to a top management job. She grew particularly irritated at that suggestion. Mr. Robison wasn't ready for such a position, she argued. Moreover, it was her job, not the board's, to choose management.
Nevertheless, Ms. Fiorina, who was chairman of the board as well as chief executive, agreed to tear up her agenda for the board's strategy retreat later that week, and focus instead on the directors' concerns. The retreat took place at the Park Hyatt in San Francisco. The board and Ms. Fiorina had a candid discussion of their disagreements, according to people present.
For the most part, Ms. Fiorina held her ground, continuing to resist specific changes recommended by some members of the board, and refusing, in particular, to bow to Mr. Keyworth's desire to elevate Mr. Robison. But she indicated some willingness to bring in new management talent in the future. Afterward, some board members felt "cautiously optimistic," as one put it, that their differences could be resolved. "It was like the Berlin Wall had come down," a director said afterward.
A week later, however, Hewlett-Packard learned that a Wall Street Journal reporter had extensive details of the Park Hyatt discussions and was preparing an article. Ms. Fiorina was furious. She called the board members together on the phone and dressed them down for giving details of the meeting. No one confessed to the leak. A spokesman for The Wall Street Journal said the newspaper doesn't comment on its sources. A page-one story about the board's discussions appeared in the Journal on Jan. 24, 2005.
The leak, and Ms. Fiorina's reaction to it, widened the gulf between her and her board. Board members also were outraged by the leak, but felt it was a smaller issue than their concerns about the performance of the company, according to two directors. The board held another telephone conference on Jan. 28, with Ms. Fiorina participating from the World Economic Forum in Davos, Switzerland. She continued to express her anger. "Carly sought to make the leaks the No. 1 issue," said one board member, "and the board was seeking to make performance the No. 1 issue."
Board members say the leak, and Ms. Fiorina's reaction to it, didn't cause her demise, but probably accelerated it. Up to that point, many of them were hoping they could work out their differences with her. Afterward, many concluded it had become impossible to work together.
Less than two weeks later, on Feb. 7, the board met in Chicago. After hearing again from Ms. Fiorina, who laid out her views of her job and the board's job, the independent board members met in private and voted to dismiss her. At the same meeting, they also made Mr. Perkins a director.
In the aftermath of Ms. Fiorina's firing, Ms. Dunn was chosen to be nonexecutive chairman of the board -- a position she still holds today. Ms. Fiorina's successor, Mark Hurd, previously chief executive of NCR Corp., was given the title of chief executive only.
Ms. Dunn, 53, is vice chairman of Barclays Global Investors in San Francisco, an asset-management unit of Barclays PLC. She had once been chief executive of the unit, but stepped down to fight cancer. She grew up in Las Vegas, where her father was entertainment director at various casinos and her mother had been a showgirl.
In conversations with H-P board members after taking the new job, Ms. Dunn found many of them were still concerned about the leak. Ms. Fiorina had asked prominent Silicon Valley lawyer Larry Sonsini to interview directors, seeking both a confession and a reaffirmation of the board's confidentiality policy. Again, no one confessed. Mr. Perkins acknowledged talking to the reporter but said she already had all the details at the time. Ms. Fiorina herself suspected Mr. Keyworth was the source. But Mr. Sonsini's evidence didn't confirm that.
After Ms. Fiorina left, Ms. Dunn asked the company to carry out a deeper investigation, which began in the spring of 2005 and was overseen internally by the company. The investigation lasted for months and involved the use of outside investigative firms. The investigators began to narrow the list of suspects, but were unable to develop conclusive evidence that any one member of the board was responsible for the leaks. Ms. Dunn said she regularly informed the board of the investigation, but provided few details, at the investigators' request.
In January of this year, the board again held its annual off-site meeting with H-P management, this time at the Esmeralda Resort and Spa, near Palm Springs, Calif. A few days later, CNET News, a technology-news Web site, ran a story with details from the private meeting, quoting a "source with the company." Some of the information provided by the source was mundane: "By the time the lectures were done at 10 p.m., we were pooped and went to bed," the story quotes the source saying. But some got to the core of the company's plans. The source said H-P might buy more software companies and might work more closely with chip maker Advanced Micro Devices Inc. as "a cattle prod of sorts" to H-P's longstanding chip supplier, Intel Corp.
Outside board members have long leaked information to the media, often because they're at odds with the CEO and want to promote their own views. "The only people who leak more to the press are prosecutors," quips John C. Coffee Jr., a Columbia University law professor. Directors have a fiduciary duty to keep confidential any inside information that would affect the share price, but other leaks wouldn't necessarily violate the rules, says Mr. Coffee.
After the CNET leak, the H-P investigation was revved up again, directors say. Because the information in the CNET story was so specific, investigators were able to narrow the likely sources. Subsequently, the private investigators obtained phone records that showed Mr. Keyworth had spoken with a CNET reporter.
What happened next has become a key part of the current board furor. Before the regularly scheduled board meeting on May 18, Ms. Dunn and Ann Baskins, the company's general counsel, decided to give the report on the investigation to Robert Ryan, head of the board's audit committee and former chief financial officer of Medtronic Inc., directors say. Ms. Dunn and Ms. Baskins concluded the leak was a violation of the company's Standards of Business Conduct, which are overseen by that committee. In doing so they bypassed the Nominating and Governance Committee, then headed by Mr. Perkins, which normally handled matters concerning board operations.
On the day of the board meeting, Mr. Ryan met with Mr. Keyworth for breakfast at H-P's headquarters and reviewed the findings of the investigation. According to a person involved, Mr. Keyworth was shocked at the information in the report, and admitted to having had lunch with the CNET reporter. The report did not point to him as the source for the earlier Wall Street Journal article involving Ms. Fiorina. But it did suggest Mr. Keyworth had been involved in other news stories concerning confidential board affairs.
Knowing Mr. Perkins and Mr. Keyworth were close, Mr. Ryan also pulled Mr. Perkins into a private room before the board meeting and briefed him on the report.
When the board met, Mr. Ryan went over the investigative report in detail. Mr. Keyworth was given a chance to explain himself. He apologized, but didn't say that his conversations with reporters had been improper. He was then asked to leave the room, and the board had a long discussion. A turning point came when Mr. Hurd, the chief executive, was asked by a director how he would handle the matter if it had been an employee who had talked to the reporter. Mr. Hurd replied, "I would have no choice but to fire him," according to a board member.
As it became clear the board was going to ask Mr. Keyworth to leave, Mr. Perkins got angry. Directors say he defended Mr. Keyworth as a valuable and longstanding director, and said a "good man" was being trashed by the process. He also attacked Ms. Dunn, saying, "Pattie, you betrayed me. You and I had an agreement we would handle this offline without disclosing the name of the leaker." (Ms. Dunn says she never had such an agreement. "I always knew it would require advice of counsel. Counsel was explicit the matter needed to go before the full board," she says.)
Finally, Mr. Perkins rose from his seat, slammed his briefcase shut, and said, "I quit and I'm leaving."
After a moment of silence, Mr. Ryan turned to Ann Baskins, the company's general counsel. "Ann, is that a bona fide resignation?" Ms. Baskins said if the board voted to accept the resignation, it would be valid. Mr. Ryan responded: "I so move." His motion was quickly seconded and adopted.
The board then began a discussion of its responsibility to disclose the event. The law requires that when a director resigns, the company has to disclose whether it was the result of a fundamental disagreement.
Mr. Perkins was on his way to Turkey, to oversee the maiden voyage of The Maltese Falcon -- his 290-foot clipper, one of the largest sailing yachts in the world. Contacted by Mr. Sonsini about his reasons for leaving the board, Mr. Perkins reportedly said: "Just don't make it for personal reasons. I don't want people to speculate about my health."
Board members say they concluded Mr. Perkins had no disagreement with the company, only with Ms. Dunn. Therefore they decided they had no obligation to file details with the SEC. Instead, the board issued a statement on May 19 that simply said Mr. Perkins had resigned, effective immediately. In the statement, Mr. Hurd thanked Mr. Perkins for his service, and said "he has been instrumental in championing improvements that are leading to a stronger H-P."
Mr. Perkins was concerned with the way his resignation was portrayed by the company, however, and subsequently contacted the SEC with his concerns, according to people familiar with the situation. Mr. Perkins has also been critical of the investigation, which he suggested involved illegal surveillance. Board members acknowledge some discomfort with the methods used by the private investigator who obtained the phone records, but H-P says it was assured by the investigators that the methods were legal.
Mr. Perkins previously had invited members of the board to come to Turkey for the launching of the Maltese Falcon. After the May 18 board meeting, however, he called Ms. Dunn's office and rescinded her invitation, according to one director.
Ms. Dunn's statement called the boardroom conflict "part of the board's progression from one that was more personality driven to one that is process driven and capable of upholding today's highest governance standards. Progression can be painful, we've seen that in changes within HP. But it's necessary and healthy."
H-P Said To Have Spied On Reporters
Hewlett-Packard is under fire on more details about its spying scandal. According to media reports, the company targeted the phone records of nine journaliststo root out the source of a media leak. HP Chairman Patricia Dunn reportedly said she did not know private investigators hired by HP used improper tactics.
(Forbes)
California Attorney General Says HP Tactics Violate State Laws, but Unclear Who to Prosecute
SAN FRANCISCO (AP) -- While state Attorney General Bill Lockyer has determined Hewlett-Packard Co.'s clandestine investigation of its own board members violated the law, he says it's still unclear whether anyone will be prosecuted.
Lockyer said Thursday that the Palo Alto-based company's gumshoe tactics to root out the source of a media leak violated two California laws related to identity theft and illegal access to computer records.
The company has landed in a mounting legal and ethical debate for hiring a private investigation firm whose agents impersonated HP officials and journalists to get phone companies to hand over detailed records of home phone calls.
But Lockyer said he has not decided whether the company or anyone acting on its behalf will face civil or criminal charges.
"The question was, was a crime committed? The answer is yes. Does that mean charges will result? Well, we haven't completed the investigation so we're not yet certain as to who committed the crime," Lockyer said in a phone interview.
"It's likely if evidence continues to come in the way it has that there will be a prosecution," he said. "But we're not ready to go file a complaint. We're still investigating."
Experts in privacy and telecommunications law say HP officials or the private investigators HP hired could face criminal charges. The company could also be liable for civil crimes and be subject to fines.
Lockyer said HP's antics violated directors' and journalists' right to privacy, which is guaranteed in California's Constitution. He emphasized that no one involved in the investigation is above the law.
"The crime seems to have been committed by the data broker, but that leads to the question of who knew what and when," Lockyer said. "How many others were part of the illegal activity -- we don't know the answer to that yet."
People involved in the HP investigation may have also violated a California Civil Code banning a corporation's communication of employee Social Security numbers to the public.
One of HP's private investigators obtained the last four digits of the Social Security number of HP director Tom Perkins. The investigator called AT&T and impersonated Perkins, asking AT&T to send a record of phone calls to and from his house in December 2005 and January 2006 to a free, Web-based e-mail account.
HP spokesman Ryan Donovan declined to comment Thursday on whether HP directors knew in advance that the investigators would pretext. The company has not disclosed which private investigation firm it employed.
"I can't imagine that an investigator imagined the numbers," Lockyer said.
The Securities and Exchange Commission is also reviewing statements HP disclosed after Perkins resigned May 18 in protest over the investigation, SEC spokesman John Heine said Thursday.
The scandal has focused attention on the age-old subterfuge: posing as someone else to access their personal information. Known as "pretexting," the practice often violates state and federal laws, but attorneys and private investigators say it's a commonly accepted practice that lives in a legal -- if not ethical -- gray area.
Privacy and telecommunications experts say no corporation or individual has ever been charged criminally or civilly with pretexting.
Although the federal Gramm-Leach-Bliley Act prohibits financial institutions from pretexting in most circumstances, investigators not affiliated with banks or other institutions often pretext.
Licensed private investigators in California and many other states are also allowed to employ such strategies to hunt down people who try to hide from the law, said Tamara Thompson, a private investigator in Oakland who has been practicing for 15 years.
"To come out and say no one should be able to get these records under any reason doesn't consider the circumstances under which people benefit from investigators," Thompson said.
Investigators also pretext to find kidnappers or those ordered to forfeit money or property to the court or a winning party in a lawsuit. But the most common use of pretexting is to get phone records of a cheating spouse to present in a divorce case, investigators said.
Joseph Sanscrainte, a telecommunications and privacy attorney at Bryan Cave LLP, said it's impossible to quantify the scope of pretexting. But he said it was "alarmingly easy" to impersonate someone and get detailed call logs e-mailed from a phone company.
"People have actually created a business model out of this," Sanscrainte said.
Pretexting is increasingly drawing the ire of privacy advocates and politicians.
Eleven states have criminalized pretexting since 2005, Sanscrainte said. California's Legislature has considered at least three bills concerning pretexting so far this year, but none has passed.
In May, the Federal Trade Commission filed federal complaints against five e-commerce companies that obtained and sold consumers' confidential telephone records.
In February, the San Francisco-based research firm Electronic Privacy Information Center wrote a letter to California's State Bar Ethics Committee, saying that pretexting is likely a violation of American Bar Association rules. Attorneys are among the most voracious customers of pretexting services; they use the data in court to implicate or exonerate parties in lawsuits.
"We believe that attorneys who hire investigators or other companies to engage in pretexting violate ethical norms," EPIC Director Chris Jay Hoofnagle wrote. "Attorneys have a duty to be zealous advocates of their clients, but must operate within the bounds of the law."
HP's liability hinges on numerous factors, attorneys say.
If Lockyer or others want to take the case to court, the company could claim they were not aware that the private investigator was planning to pretext.
"These are smart folks, prudent, and they probably hired a first-class firm -- not a guy who breaks into motel rooms," said Ed Harmon, a partner with the Pittsburgh-based law firm Thorp Reed & Armstrong.
Victor Schachter, chairman of Fenwick & West LLP's employment practices group, said HP and the private investigation firm may share liability.
"When you have an outside agency making false pretenses about who they are and why they're calling, it smells," said Schachter, whose firm often employs private investigators. "It's somewhat unknown whether it's illegal, but I'd feel comfortable saying this is very problematic."
H-P's says Dunn will resign if asked by board
SAN FRANCISCO (MarketWatch) - Hewlett-Packard Co. said Friday that Chairwoman Patricia Dunn, under fire for her role in an investigation that obtained the phone records of H-P board members and journalists without their knowledge, has no plans to resign but will do so if asked to by the board.
H-P spokesman Ryan Donovan confirmed that Dunn told a reporter for the Wall Street Journal that she would resign her board seat if she was asked. The company's board is to hold a special meeting by phone this weekend to discuss the matter, the Journal reported in its online edition Friday.
H-P's nonemployee chair, is at the center of a growing controversy after revelations that a probe -- launched to find out which board members had leaked information to the media -- used a controversial method called "pretexting" to obtain the records.
Donovan said he didn't have information about whether Dunn conducted the investigation on her own, or if Chief Executive Mark Hurd and the rest of the H-P board was involved in the decision to launch the investigation.
The California Attorney General's office is investigating the matter, which came to light this week when H-P filed a document with federal securities regulators saying the company wouldn't renominate director George Keyworth for another term.
Keyworth was asked to resign in May after the board probe reportedly showed he had spoken about H-P board meetings with reporters. Keyworth refused to quit, but venture capitalist Thomas Perkins, another H-P board member, resigned in protest over the methods used by the investigators.
Under Dunn's watch, H-P hired investigators who then sub-contracted some aspects of the probe to another investigation firm that used pretexting a method of posing as someone else to obtain an individual's personal records. The practice is illegal in California, where H-P is headquartered.
A similar investigation was launched by then-CEO and Chairman Carly Fiorina, but H-P said that information didn't yield any details about who was speaking to the press.
Additionally, H-P said the investigator also obtained phone records from nine reporters as part of the leak probe. The reporters work for Cnet Networks.
Donovan said the other reporters' news organizations had been contacted, and the company was leaving it to those news groups to make public any disclosures about their reporters' phone records being obtained by H-P's investigators.
Donovan said the company wouldn't say who the investigators were or what state they were based in and that he didn't know if payments were made to the investigators from H-P corporate funds.
Donovan said H-P has delivered the names of the investigators to the office of California Attorney General Bill Lockyer, and is cooperating with an AG investigation into H-P's involvement with the pretexting methods.
Two phone calls to Lockyer's office for comment Friday weren't immediately returned.
H-P shares rose more than 1% in Friday trading
NEW YORK, Sept 8 (Reuters) - The New York Times Co. said on Friday it would consider taking legal action against Hewlett-Packard Co if the computer maker violated its reporter's rights by gaining access to his private phone records.
California's attorney general on Wednesday said he is probing HP's investigation of boardroom leaks to reporters, saying it could result in criminal liability for identity theft and illegally gaining access to database information.
"We need to learn more about what was obtained, how it was obtained and by whom," said New York Times spokeswoman Abbe Serphos. "If, as it appears, the rights of any of our reporters were violated, we will pursue whatever legal recourse is available to us."
Outside investigators hired by HP to seek the source of boardroom leaks in 2005 had used "pretexting", or misrepresentation, to obtain the phone records of nine reporters, HP said.
Four of the reporters were identified as John Markoff of The New York Times, Dawn Kawamoto and Tom Krazit of CNET Networks Inc.'s News.com, and Pui-Wing Tam of Dow Jones & Co. Inc.'s The Wall Street Journal.
CNET has asked HP to give the company "a full accounting of all the actions taken," said spokeswoman Sarah Cain, when asked if the conpany planned to take any legal action.
Markoff told Reuters he is "waiting to see what happened and what others do" before he decides whether to take personal legal action against HP.
Krazit declined to comment and Kawamoto did not return a telephone call seeking comment. Tam and Dow Jones & Co. Inc. also declined comment.
SAN FRANCISCO, Sept 8 (Reuters) - Hewlett-Packard Co. (HPQ.N: Quote, Profile, Research) Chief Executive Mark Hurd told employees on Friday that the company's board has a long history of leaking information to the media, but it is a problem that "will be resolved."
Hurd did not directly address the furor that has arisen over tactics employed by investigators acting on behalf of the board, who posed as directors to obtain phone records as part of a probe into press leaks dating back at least to 2005.
The California attorney general's office said this week it was investigating tactics used in the board investigation. California Attorney General Bill Lockyer said he believed crimes were committed but that his office was still trying to determine who was liable and what laws were violated.
Hurd said in a memo to employees obtained by Reuters that the leaks of confidential information violate the company's standards applying to all employees and board members.
"Clearly, things have happened here that are unacceptable," Hurd said in the memo. "But we will not react to speculation."
HP Chairman Patricia Dunn is under pressure after details of the board's internal investigation were made public this week. HP said in a regulatory filing on Wednesday that investigators working on the board's behalf had obtained phone records of board members.
The company said on Thursday phone records of nine reporters were also targeted in the probe.
"I know that many of you have read the media coverage and speculation regarding the recent actions of the HP board," Hurd said. "My belief is that this has nothing to do with the strategy or operations of Hewlett-Packard."
- THE HP GATE -
Dear members of the HP board,
What about OUR "STANDARDS OF BUSINESS CONDUCT" ?
Do you think guys that we gonna care about your UTOPIAN ETHICS RULES anymore ?
What a shame for the HP brand that you are spoiling day after day!!!
I'm OUT of HP now and I'm quite happy to be far away from the new HP WAY.
The heart of your strategy is very wrong because not taking into consideration the employees interest which has a direct impact on HP revenue : QOS delivered to our customers. Soon or later, you will pay the price of your big management mistakes.
HP BOARD's motto : "TO PROTECT AND TO SERVE... OUR VERY OWN INTERESTS"
A french former HP employee
Maven: H-P Step-Down Talk Steps Up
By Marek Fuchs
Special to TheStreet.com
9/11/2006 10:04 AM EDT
If a board met on a Sunday and it was by telephone so there was no one there to see it, did the board actually meet?
Well, yes -- the directors just didn't decide anything.
And so the strange story of Hewlett-Packard (HPQ - commentary - Cramer's Take) spying drags its clumsy little way into a brand-new week.
As the saga went from bad to worse late last week, Patricia C. Dunn, the chairwoman, weighed in, saying she would not resign -- unless the board asked her to. I guess with the alternative of barricading herself in her office and living off a lifetime supply of cold pizza, she lacks flexibility in that regard.
On that note, the board will meet (telephonically, it is presumed) again this afternoon. What will happen?
This story has broken so strangely and Dunn has such strong skills of persuasion that if she emerges with a raise -- well, tug my toe, I've seen crazier.
In all seriousness, The New York Times reports this morning that a source familiar with the board meeting said that there was a good chance than Dunn is (and I apologize ahead of time for this) done.
WASHINGTON, Sept 11 (Reuters) - The U.S. House Energy and Commerce Committee on Monday demanded records and information from Hewlett-Packard Co. (HPQ.N: Quote, Profile, Research) about its investigation into leaks to the media, including a report done by an outside consulting firm.
The committee also asked for copies of contracts related to the probe, investigative plans, individuals targeted in the inquiry as well as those who involved in it, according to a letter sent to HP Chairwoman Patricia Dunn.
California and U.S. authorities have been investigating whether any laws were broken as a result of HP's probe into media leaks, which included hired investigators obtaining the telephone records of board members and journalists without their permission.
"The committee is troubled by this information, particularly given that it involves HP -- one of America's corporate icons -- using pretexting and data brokers to procure the personal telephone records of the members of its board of directors and other individuals without their knowledge or consent," the letter said.
WASHINGTON, Sept 11 (Reuters) - The U.S. House Energy and Commerce Committee on Monday demanded records and information from Hewlett-Packard Co. (HPQ.N: Quote, Profile, Research) about its investigation into leaks to the media, including a report done by an outside consulting firm.
The committee also asked for copies of contracts related to the probe, investigative plans, individuals targeted in the inquiry as well as those who involved in it, according to a letter sent to HP Chairwoman Patricia Dunn.
California and U.S. authorities have been investigating whether any laws were broken as a result of HP's probe into media leaks, which included hired investigators obtaining the telephone records of board members and journalists without their permission.
"The committee is troubled by this information, particularly given that it involves HP -- one of America's corporate icons -- using pretexting and data brokers to procure the personal telephone records of the members of its board of directors and other individuals without their knowledge or consent," the letter said.
SAN JOSE, Calif. (AP) -- Federal investigators stepped into the fray surrounding Hewlett-Packard Co.'s possibly illegal investigation of media leaks, as the company's board planned to meet again to discuss the fate of embattled Chairwoman Patricia Dunn.
HP revealed in a Securities and Exchange Commission filing Monday it had been "informally contacted" by the U.S. Attorney's Office for the Northern District of California concerning the company's methods for rooting out who was giving confidential company information to journalists.
The Palo Alto-based maker of computers and printers said it is cooperating fully with the federal inquiry, along with an investigation by the California State Attorney General's Office, which requested similar information. An HP spokesman had no further comment Monday.
Hewlett-Packard's board adjourned an emergency phone conference Sunday without announcing whether it would oust Dunn for her role in the investigation that may have used illegal means to spy on colleagues and journalists. The board was scheduled to reconvene late Monday afternoon.
Dunn, a former freelance journalist who has become one of the most powerful women in corporate America, ordered the outside investigation of fellow board members to determine who anonymously leaked information, especially as it related to the job status of former chief executive Carly Fiorina.
HP hired private investigators who used Social Security numbers and other personal information to impersonate HP directors, journalists and at least one other person. The impostors then tricked phone companies into turning over detailed logs of their home and cellular phone calls.
Although a common tactic among private investigators, the subterfuge -- known as "pretexting" -- tests the bounds of California law.
California's attorney general has said the investigation violated two California laws related to identity theft and illegal access to computer records. It's still unclear, however, whether the company or anyone acting on its behalf will face civil or criminal charges.
A spokesman for Attorney General Bill Lockyer had no comment Monday on the involvement of the U.S. Attorney.
The Federal Communications Commission has also taken interest in the HP investigation, asking AT&T Inc. last week how the company's private investigators managed to obtain the private phone records of board members and journalists.
Following the investigation, board member George Keyworth II was identified as the source of the leak, and HP responded by barring him from seeking re-election.
Another HP director, longtime Silicon Valley venture capitalist Tom Perkins, resigned from the board in May in protest of the investigators' tactics.
Perkins this weekend called on Dunn to resign.
Dunn told The Associated Press last week she would resign if asked, but said several fellow board members had urged her to remain on the job despite the criminal investigation. She also said the media leaks were an "egregious breach" of the company's standards and that the board of directors fully backed an investigation to root out the source.
The nine reporters whose phone records were compromised are Pui-Wing Tam and George Anders of The Wall Street Journal; Peter Burrows, Ben Elgin and Roger Crockett of BusinessWeek; John Markoff of The New York Times; and Dawn Kawamoto, Tom Krazit and Stephen Shankland of CNET Networks Inc.'s News.com.
Investigators hired by HP also targeted Thomas Shankland, a semiretired geophysicist in Los Alamos, N.M. who is Stephen Shankland's father.
Keyworth, the board member who will not be re-nominated, was the former science adviser to President Reagan and director of the Physics Division at Los Alamos National Laboratory, which he joined in 1968. Keyworth has acknowledged leaking information to reporters.
The younger Shankland is married to Associated Press reporter Rachel Konrad, who has also covered HP.
Hurd's future hand will depend on his role in probe
Analysis: Company stock price depends on him staying unscathed
SAN FRANCISCO (MarketWatch) - With the Hewlett-Packard Co. board of directors riven by infighting and its chairwoman facing possible criminal charges for authorizing a probe into fellow board members' phone records, the damage inflicted upon H-P may depend on the role played by Chief Executive Mark Hurd in the affair.
If it emerges that he knew that the investigation used illegal means to obtain the records and is dragged into the probe, the matter could quickly spread to H-P shares, which have benefited from the turnaround he's imposed on the company. But if Hurd emerges from the controversy largely unscathed, he will likely be able to assert more control over his fellow directors - even if he's not named chairman -- corporate governance experts said.
"If anything, he becomes all the more important," said Ed Harmon, a partner with Pittsburgh-based law firm Thorp, Reed & Armstrong. Harmon runs the firms strategic transactions practice, and provides counsel to several corporate boards. "In a corporation where continuity is important, Hurd is viewed as very important."
So far Hurd, who is on the H-P (HPQ : Hewlett-Packard Co.
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HPQ36.36, +0.27, +0.7%) board, has avoided any major backlash from the affair, in which an investigation into boardroom leaks led to revelations that private investigators used an illegal method called pretexting to obtain personal information about board members and news reporters. And corporate-governance and technology-industry officials say that although the boardroom flap is a black eye on Hurd's tenure, he is likely to emerge relatively unscathed by the events of the last week.
H-P said Monday that Hurd learned of the investigation in March, but that he was only told of the results of the investigation authorized by Chairwoman Patricia Dunn, not the tactics.
"Only in recent weeks did he come to understand that techniques of concern to him were deployed, and deployed toward journalists," according to a statement by the company. "Mr. Hurd rejects such methods and reiterated that these methods will not again be used at H-P."
Hurd told H-P employees in a memo on Friday that while "clearly things have happened here that are unacceptable," everyone should wait until all the facts are in and the probe has run its course. He said the problem of how to stem leaks is a real problem that needs to be addressed. Read the memo.
For nearly 18 months, Hurd has used what is seen as a steady hand to run the day-to-day operations of the technology giant.
His methods, sometimes referred to as the Hurd Way, have also restored Wall Street's confidence in H-P, sending the company's stock up almost 84% since he joined H-P in March 2005.
But the fallout from Dunn's handling of an investigation into boardroom information leaks have put Hurd in a position that he wasn't seeking, having to deal with issues far and away from his core concerns of running H-P, steering it through a restructuring that will trim 15,300 jobs, and growing the company's earnings and revenue streams.
After meeting on Sunday and not coming to a decision on Dunn, H-P's board was scheduled to meet again late Monday afternoon on the matter.
Harmon also said that should Dunn resign or be forced out at chairwoman, he doubts that H-P will go so far as to make Hurd its chairman, and create a situation similar to when Hurd's predecessor, Carly Fiorina, held both the H-P CEO and chairwoman titles. Harmon said this is because of a trend toward more-independent board leadership, and the need to have Hurd focus on H-P's business operations.
"It's become a pretty acceptable public company practice to keep the CEO and the chairman separate," Harmon said. "And even with what's going on now, I doubt H-P wants to give one person both positions. They'll probably find some highly talented executive outside the company and move on."
However, Rick Steinberg, founder and principal of Steinberg Governance Advisors of Westport, Conn., believes it might be time for Hurd to take on more responsibilty and assume the H-P chairmanship.
Steinberg, who also provides governance and advisory services to corporate boards, said that even though it appears Hurd wasn't involved in the investigations that are swirling around Dunn, "there was some apparent dysfunction on the board," that he said a CEO-Chairman could project a stronger air of security over the company.
"In general, I'm supportive of the notion that its normally best to have a single chariman and CEO," Steinberg said. "I think that can only strengthen a board and help solve its problems."
Robert Bacarella, manager of the Monetta Select Technology Fund (MSCEX : Monetta:Sel Tech;A
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MSCEX7.04, +0.06, +0.9%) , said that all an investor needs to reassure themselves over H-P and Hurd would be to look at how the company's stock has performed since the boardroom scandal became public last week.
H-P shares are down just 10 cents since word of the boardroom flap came out on Sept. 5. Bacarella said that while he doesn't own H-P in his fund, he said now would be a good time for investors to take advantage and buy the stock.
Bacarella also expects Hurd to remain only H-P's CEO by the time all the smoke clears on the Dunn situation.
"The board has to maintain independence," Bacaralla said. "Hurd's got the company on a very strong direction right now, and making him chairman could send the company in the opposite way."
HP's Board Split Over Dunn
With Hewlett-Packard Chairwoman Patricia Dunn's status in jeopardy for seeking phone records, possibly illegally, in search of leaks, the HP board is in an uproar
As the Hewlett-Packard (HPQ) board prepares for a second day of meetings to discuss the fate of Chairwoman Patricia Dunn, who oversaw a controversial—and possibly illegal—investigation into leaks from board members to the press, a picture of a management schism is emerging among the 10 directors of the legendary computer company.
With another board meeting scheduled for Monday evening, Sept. 11, Dunn may be asked to resign because of her central role in the probe. What is emerging from discussions with current and former directors and HP employees, all of whom declined to be identified by name, is a picture of a board polarized between two camps of directors with conflicting ideas about how best to guide the company. (See BusinessWeek.com, 9/8/06, "BW Writers Targeted by HP".)
On one side are Dunn and two staunch supporters: Verizon (VZ) Vice-Chairman Lawrence Babbio and former Medtronic (MDT) Chief Financial Officer Rob Ryan. Dunn and her supporters are focused on the need for rock-solid business processes and clear adherence to good governance policies—whether for financial reporting or complying with regulations such as Sarbanes Oxley. "I personally believe Patricia Dunn worked her butt off in the interest of HP," says one director. "As horrible as people may find the results, she was trying to do the right thing."
DELICATE DANCE. One insider says there are three HP directors, however, who feel that Dunn's investigation never should have been a high priority, and who lay the blame for the "pretexting" of directors' and business journalists' phone records (including those of the author and two other Business Week reporters) squarely with Dunn. This group includes George "Jay" Keyworth, who was identified through phone records as the source of the leaks and will not be on the slate for reelection in 2007, as well as director Lucy Salhany, and former HP executive and long-time director Richard A. "Dick" Hackborn.
In the middle are four directors whose perspectives are less clear: longtime HP CFO Robert P. Wayman, and newer members Sari Baldauf, an executive vice-president at Nokia (NOK), and McKesson (MCK) Chairman John Hammergren. Insiders say that both camps feel that HP CEO Mark V. Hurd is aligned with them. While Hurd was very critical of leaks, sources say he also found some of Dunn's focus on process tiresome and not the best use of the board's time.
While that may seem like the makings of a close vote, at least one source suggests it' unlikely that Dunn will survive this evening's session because many directors feel they're taking the heat for an investigation they didn't know much about. This source, who is familiar with the boards' proceedings, says keeping Dunn in place could make for an untenably hard slog in the months ahead. "If she isn't canned, the whole board is going to have to say that what happened wasn't so bad," says the source. Company spokesperson Michael Moeller confirms that HP has received an informal inquiry from the Justice Dept. related to the pretexting and says the company is cooperating fully.
The HP spokesman declined to discuss the workings of the board, and efforts to reach Dunn and other directors were unsuccessful. But in discussions over the last six days with three current directors and a former board member, it's clear there wasn't unanimous agreement with Dunn on the probe or more general management oversight issues.
If Dunn is ousted, it's unclear who would become the next chairman. Dick Hackborn, who was chairman for a year when Carleton S. "Carly" Fiorina first became CEO in 1999, is one possibility. He's considered the father of HP's printer business and has had a major behind-the-scenes role in every big management change over the past 20 years. On the other hand, he is closely associated with ex-board member Tom Perkins and Keyworth.
DIFFERING STYLES. As the company is currently looking to add at least two more directors who are high-ranking CEOs, one of them could step into the chairman's role. Sources say it is unlikely Hurd would be given the job, since HP has earned kudos with governance experts for splitting the CEO and chairman titles held by Fiorina until her ouster in early 2005.
The distinct camps on HP's board break down along philosophical lines regarding the nature of directorship. Keyworth, Hackborn, and Perkins, who resigned from the board in a rage after Keyworth was dumped from the 2007 slate, believe the role of a director is to focus on advising the CEO on how to run the company. "Hurd likes to spend board meetings talking about business issues—the competition, the possible acquisition candidates, new product development paths, and what people we can hire," says the person with knowledge of the board's proceedings.
Former board member Keyworth was valued by at least one peer for his intimate knowledge of the company. After a long meeting May 18 at which the board agreed not to have Keyworth stand for reelection, director Ryan briefly questioned Dunn as to whether there wasn't some way to "sweep this under the rug" rather than oust Keyworth from the board, according to an HP director. But in the end, Ryan stood by the decision to oust Keyworth.
CAREFUL CONVERSATION. The contrasting view of board members was in evidence long before the current crisis. Soon after Dunn became chairperson in February, 2005, she began suggesting that directors take training courses to learn the latest ins and outs of directorship in the post-Sarbanes Oxley period, according to a board member. Perkins "vociferously" resisted, saying the idea of veteran directors going off to "take some course" was "ridiculous." According to one director, Perkins "decided it was a bunch of paper-pushing."
The source familiar with HP's board proceedings also says it was no secret to other directors that Keyworth sometimes talked to the press. Indeed, some board members believed that there were occasions when a director could serve the company by talking to the press on background. According to the source, Keyworth frequently told Hackborn and Perkins when he was going to speak with the press.
According to some directors, Dunn felt that older members of the board—particularly Hackborn, Perkins, and Keyworth—were standing in the way of her efforts to modernize the workings of the board. She was frustrated with her inability to impose a more buttoned-down, process-oriented approach on high-tech old-timers who were set in their ways.
"ABSOLUTE OBSESSION." Directors Hackborn, Perkins, and Keyworth were close friends with legendary HP founders Bill Hewlett and Dave Packard, and sources say, didn't want to stray from the approaches that had, for the most part, worked well over the years.
Dunn's desire to end the leaks—certainly, not a sign of a board with world-class processes“may be her undoing. Three directors last week told BusinessWeek that Dunn escalated the search from an informal set of discussions in the spring of 2005, when she asked HP's own investigations team to begin a formal search. They hired an outside private investigations firm, that HP has not yet identified, which in turn hired gumshoes, at least one of which did the "pretexting."
The source familiar with board proceedings insists that some of the directors never took Dunn's probe seriously. Says the source, "Patty had an absolute obsession about this leaking issue. She talked about it all the time, and nobody else wanted to hear about it."
JUST A DISTRACTION? Dunn didn't reveal any of the details: which investigation firm had been hired, whether HP people would be involved, or what methods would be used. "This was 100% Patty's deal," and she ran it with HP's internal investigations team, according to the source. Other sources say Dunn was clear that she would not be able to provide specific tactics, as it would compromise the investigation.
Over the ensuing months, as HP's turnaround progressed under Hurd's management, even less attention was paid to the probe by some directors. "[The investigation] was an utter distraction. It was like 'if that's what Patty likes to do, let Patty go do it,'" says the source.
The probe of the leaks came to a head at the May 18 meeting. When Dunn revealed that home phone records had been used to identify Keyworth as the leak, the source says that more than one director asked if they had been legally obtained, since the directors had not given their O.K. While three directors told Business Week last week that Perkins had not been upset when told of this before the meeting, this source says Perkins was furious during the meeting. Perkins later contacted AT&T, which may be how he discovered his records had been "pretexted."
Asscoaited Press :
FBI Deputy Director John Pistole said in an interview with The Associated Press in San Francisco that the bureau was investigating two possible crimes: illegal computer intrusion and wiretapping. He did not give a timetable for when the inquiry would be completed.
The U.S. Attorney's office also issued a statement saying it was "investigating the processes employed in an investigation into possible sources of leaks."
The Congressional committee gave HP a week to name the private firm it hired to investigate the leaks and to turn over all "records and information related to the company's reported effort to obtain private phone records." The request was made as part of the panel's ongoing investigation into pretexting.
HP said in a regulatory filing that it was cooperating fully with the federal inquiry, along with the investigation by California's attorney general, who has said HP's investigation violated state law but not whether Dunn or anyone else would face criminal charges.
The nine reporters whose phone records were compromised are Pui-Wing Tam and George Anders of The Wall Street Journal; Peter Burrows, Ben Elgin and Roger Crockett of BusinessWeek; John Markoff of The New York Times; and Dawn Kawamoto, Tom Krazit and Stephen Shankland of CNET Networks Inc.'s News.com.
Investigators hired by HP also targeted Thomas Shankland, a semiretired geophysicist in Los Alamos, N.M., who is Stephen Shankland's father. The younger Shankland is married to Associated Press reporter Rachel Konrad, who has also covered HP.
Patricia Dunn to Remain HP Chairman Through January 2007 Board Meeting; Board Appoints Mark Hurd As Successor
Business Wire - September 12, 2006 9:31 AM ET
HP today announced that Patricia Dunn will remain as chairman through the company's Jan. 18, 2007, board meeting. Mark Hurd, the company's chief executive officer and president, will succeed her and retain his existing positions. Dunn will continue to serve as a director.
Richard Hackborn, who has served on the board since 1992, has been designated lead independent director, effective in January. In addition to having been chairman of the company in 2000, he spent 33 years as an HP employee, concluding his career in 1993 as head of the PC and personal information product business.
Dunn said, "The recent events that have taken place follow an important investigation that was required after the board sought to resolve the persistent disclosure of confidential information from within its ranks. These leaks had the potential to affect not only the stock price of HP but also that of other publicly traded companies. Unfortunately, the investigation, which was conducted with third parties, included certain inappropriate techniques. These went beyond what we understood them to be, and I apologize that they were employed.
"I am very proud of the progress HP has made over the past 18 months. During the remainder of my tenure as chairman, I look forward to completing the transition that is underway, including expanding the board, continuing to improve our corporate governance standards and bringing the current issues to resolution."
Hurd said, "I am taking action to ensure that inappropriate investigative techniques will not be employed again. They have no place in HP.
"HP holds itself to the highest standards of business conduct and we are accountable to these standards for everything that we do. The company will work to put these matters behind us so that we fully resume our focus on the business and continue to earn the trust and support of our customers, employees and stockholders."
Keyworth says HP approved leaks
SAN FRANCISCO (Reuters) - Hewlett-Packard Co. (NYSE:HPQ - News) director George Keyworth resigned from the board on Tuesday as the No. 2 PC maker tries to move beyond a brewing controversy over its investigation into media leaks.
In a statement issued with HP, Keyworth also raised new questions about his role in the scandal. He acknowledged that he was the source of leaks but said he had been authorized by the board to give information to reporters. HP, for its part, said it had often asked Keyworth to contact the press.
It was HP's investigation into who had leaked boardroom deliberations dating back to 2005 that sparked the recent controversy, with U.S. federal and California state prosecutors probing whether HP's inquiry had used illegal tactics.
HP last week said outside investigators had used false identities to obtain the phone records of directors and journalists and said the probe had identified Keyworth as the source of the media leaks.
"I was frequently asked by HP corporate communications officials to speak with reporters, both on the record and on background, in an effort to provide the perspective of a long-standing board member with continuity over much of the company's history," Keyworth said in the HP statement.
"The invasion of my privacy and that of others was ill-conceived and inconsistent with HP's values," he said.
James Post, a management professor at Boston University who specializes in corporate governance, said the new disclosures about Keyworth's role seemed at odds with the version presented by HP last week.
"You almost had the image of him as someone not in full control of his faculties talking with loose lips," Post said. "I think that's not the case. He was respected as a scientist, a politically skilled person, someone who when he schmoozed with the press, good things happened, a good interpretation was given to the story."
Keyworth's resignation, effective immediately, follows an announcement earlier on Tuesday that Patricia Dunn would step down as HP's chairman in January 2007, while remaining a director. Chief Executive Mark Hurd will become chairman.
"While I intend to remain a member of the HP family, and to advise Mark where I can help, it is best for the company that every aspect of this unfortunate matter be put in the past," Keyworth said.
HP said in the same statement that Keyworth had often been asked to liaise with the media "to explain HP's interests." But HP said it did not believe Keyworth's January 2006, contact with CNET Networks Inc.'s (NASDAQ:CNET - News) News.com "was vetted through appropriate channels."
HP has given sparse details about the content of the media leaks, saying they dated back to at least 2005. Some of the early leaks concerned former Chairman and CEO Carly Fiorina, who was ousted in February 2005, HP said last week.
The company's statement on Tuesday suggests it orchestrated at least some leaks.
After Keyworth acknowledged leaking information to the press, the board asked him to resign at a meeting in May, but he refused at the time, according to HP.
California Attorney General Says HP Insiders Likely to Face Criminal Charges
SAN JOSE, Calif. (AP) -- California's attorney general said Tuesday that Hewlett-Packard insiders are likely to face criminal charges, putting a damper on the news HP was reshuffling its board because of the scandal surrounding its efforts to root out media leaks.
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"We currently have sufficient evidence to indict people both within Hewlett-Packard Co. as well as contractors on the outside," Lockyer said in an interview aired late Tuesday on PBS' "NewsHour with Jim Lehrer."
The statement from Lockyer, who had already concluded that HP's probe broke some California laws, came on the day the company announced that Chairwoman Patricia Dunn would step down in January and be replaced by CEO Mark Hurd.
While defending the need for an investigation, Dunn said she regretted that private investigators hired by the company impersonated HP directors and journalists to access their personal phone logs
Hurd, who has the respect of Wall Street and is untainted by the investigation at the Palo Alto-based computer and printer maker, will take over, vowing that the probe's methods "have no place in HP." HP's stock rose to a 52-week high.
It was another chaotic day in a scandal that has rocked Silicon Valley's biggest and oldest technology company, led to investigations by state and federal authorities, and raised questions about one of the most powerful women in corporate America.
Dunn will remain on the board after giving up the top job on Jan. 18. Hurd will add chairman to his existing positions of chief executive and president.
Director George "Jay" Keyworth II, who acknowledged sharing company information with reporters, resigned from the board Tuesday after refusing to do so in May.
Some analysts said Dunn's demotion sent a message to investors that HP was ready to move on, while others said she should have been removed completely.
"She needed to go -- she had become a liability to the company whether she liked it or not," said Morningstar analyst Mark Lanyon. "But just removing her from the chairperson role and keeping her on the board is a half-measure at best and probably not appropriate.
"There are still legal matters that could come down on the company," he said, "and the issue is still festering with her there."
Roger Kay, who follows HP as president of the market research firm Endpoint Technologies Associates, had a different take.
"I think the fact that they made the statement that she's going to leave solves most of the problem," he said. "I don't think it's that material precisely when she leaves."
The pressure on Dunn to step down rose sharply when Congress and federal investigators joined the probe of the scandal involving HP's Board of Directors
On Monday, the FBI, the U.S. Attorney for Northern California and the House Energy and Commerce Committee all requested information on HP's investigation, which was already the subject of inquiries by the state attorney general, the Securities and Exchange Commission and the Federal Communications Commission.
HP's stock, meanwhile, remained immune to the spying scandal. It continued a steady climb that began not long after the company revealed the questionable tactics of its leak investigation in a regulatory filing last week.
Shares of Hewlett-Packard Co. rose 56 cents, or 1.54 percent, to close at $36.92 on the New York Stock Exchange. They fell 27 cents in after hours trading. Before Tuesday, they had traded in a 52-week range of $25.53 to $36.73.
Frank Gillett, vice president and principal analyst at Forrester Research, said the market seems unfazed by the problems on HP's board.
"I'm not hearing anything or seeing anything that makes me concerned about the success of the products," he said.
Hurd has won praise from Wall Street for a cost-cutting campaign that will have cut some 15,000 jobs by the end of this quarter.
"It makes perfect sense to give (Hurd) the chairmanship," Kay said. "He has the character, personality and chops to do it. I can't think of anyone else you would want to run the company at this point."
Hurd said in a statement he was "taking action to ensure that inappropriate investigative techniques will not be employed again. They have no place in HP," he said. The company declined to provide details about the future safeguards.
Dunn was angry about media leaks of confidential board discussions and commissioned an unnamed outside firm to identify their source. The investigators used Social Security numbers and other personal information to get phone companies to turn over detailed logs of home phone calls of reporters and company directors.
At a board meeting in May, Dunn identified Keyworth as the source of a January article on CNET Networks Inc.'s News.com. The board asked Keyworth, 66, to resign, but he refused. HP then barred him from seeking re-election.
Keyworth said Tuesday that he was often asked to be HP's liaison to the press, and that he believed he was acting in the company's best interest when he spoke to News.com.
"The invasion of my privacy and that of others was ill-conceived and inconsistent with HP's values," Keyworth said in a statement.
The attempt to oust him last spring riled another board member, longtime Silicon Valley venture capitalist Tom Perkins, 74, who resigned and stormed out of the May 18 meeting.
His attorney later revealed that Perkins' home phone calls had also been compromised. At least nine journalists, including reporters for The Wall Street Journal, BusinessWeek, The New York Times and News.com, also had their personal calls monitored.
Dunn defended the need to investigate the leaks, saying Tuesday that they had the potential to hurt HP's stock. But she apologized for the techniques of the probe, which included "pretexting" in which one poses as someone else to access their personal information. While commonly used by private investigators, it's barred by state law and is the subject of a Congressional inquiry.
"Unfortunately, the investigation, which was conducted with third parties, included certain inappropriate techniques," Dunn said in a statement. "These went beyond what we understood them to be, and I apologize that they were employed."
Perkins, Keyworth and Dunn were all in a conciliatory mood Tuesday, saying HP's focus should now be on moving forward with Hurd at the helm.
"I believe in HP. I believe in Mark Hurd," said Perkins, adding through a spokesman that he would not return to the HP board if asked. "This too shall pass."
As nonexecutive chairwoman, Dunn was a relative rarity in the corporate world, where CEOs often also serve as the leaders of their boards. Corporate governance watchdogs have long argued that separating the two positions is a necessary balance of power.
Though her independence helped her deal with thorny management conflicts, experts say the HP board was left with little choice but to replace Dunn with a stabilizing force like Hurd.
"This is one situation where it didn't work," said Patrick McGurn, executive vice president at Institutional Shareholder Services, an advisory firm. "This is a cautionary tale that directors should set well-defined ground rules and rules of engagement in the boardroom."
HP spy scandal extends to employees
FT.com
Private investigators working for Hewlett-Packard's board spied on two employees in addition to board members and journalists in an attempt to uncover a boardroom leak, it was revealed on Wednesday.
The news came as the California attorney-general's office said charges in the case could be filed within a week.
Patricia Dunn, HP's chairman, said in a message to employees on Tuesday that investigators hired to ferret out a boardroom mole had used questionable tactics on "certain directors, two employees and a number of individuals outside the company including journalists".
The message, which was obtained by the FT on Wednesday, marks a further blow to HP, which has been struggling to repair the damage the scandal has caused to its reputation among employees and stockholders.
Revelations that HP's spies posed as board members and journalists in order to obtain private telephone records have prompted investigations by state and federal authorities and US lawmakers.
The investigators were hired to uncover the source of leaks about the board's deliberations over the future of Carly Fiorina, who was ousted as chief executive last year.
On Tuesday, in an attempt to defuse the crisis, HP announced that Ms Dunn would step down as chairman in January. She will be replaced by Mark Hurd, chief executive, but will remain a director at the company.
In her message to employees, Ms Dunn said she apologised "personally, deeply and sincerely to everyone affected" by the scandal.
"This matter has caused HP and me major distress and embarrassment," she said.
California's top prosecutor has said he has enough evidence to charge people both inside and outside HP in connection with the case. Although a spokesman said charges could come within a week, he declined to set a specific timeframe.
"Once you believe you have evidence, that's by no means the end of the game in terms of pulling the trigger," the spokesman said.
HP declined to identify the employees whose telephone records were accessed as part of the board's investigation.
Executives believed to have been most directly privy to boardroom discussions include Ann Baskins, the company's general counsel and secretary.
As head of HP's legal department, Ms Baskins was also ultimately in charge of making sure that the leak investigation ordered by Ms Dunn was carried out.
In May, Tom Perkins, a longtime HP board member, resigned in protest after he learned about the investigators' tactics.
Ms Dunn has sought to distance herself from the investigators hired on her watch, saying she had not been in a position to ask questions about the investigators' tactics because she was a subject of the probe herself.
Ms Dunn said she had been assured that the techniques used in the mole hunt were "not only fully legal but fully compliant with HP's standards".
Concerns that board members and executives could become caught up in the legal fallout of the spying scandal sent HP shares down 1.5 per cent on Wednesday to $36.37.
H-P Investigator Has Contentious Past and California Attorney General Takes H-P Spotlight
A Massachusetts private investigator named Ronald DeLia has been connected to Hewlett-Packard's probe of directors and journalists. Mr. DeLia has been in the security industry sporadically since his days with First Security, a New England-based firm now owned by Swedish security giant Securitas AB which had revenues of $66 billion in 2005. DeLia continued working for a string of small companies, culminating with Security Outsourcing Solutions Inc., an active firm whose Web site has listed him as managing director. State records list his wife as president. Though it is unclear exactly what role DeLia and his firm played in the H-P investigations, California Attorney General Bill Lockyer has linked the firm to what he has calls a "complicated chain" of private investigators and contractors in multiple states that may have taken part in illegalities. Mr. DeLia was unavailable for comment as of press time. The H-P investigation has also concentrated attention on California's somewhat controversial Attorney General, Bill Lockyer.
In the past, Lockyer has been accused of being overzealous in his pursuit of possible criminal charges. In one instance, he caused a stir when he told The Wall Street Journal that, "I would love to personally escort [Enron Corp. Chairman Kenneth Lay] to an 8x10 cell that he could share with a tattooed dude who says 'Hi my name is Spike, honey.'" The Democratic Mr. Lockyer also locked horns with California's Republican governor, Arnold Schwarzenegger, when he suggested the then governor-elect submit to a third-party investigation into allegations he had groped a series of women. Mr. Schwarzenegger's staff angrily criticized the attorney general for making public a private conversation with the soon-to-be governor. Tuesday, Lockyer said he had enough evidence to indict people inside and outside H-P on charges related to obtaining personal phone records without authorization. A spokesman for the attorney general said the first criminal charges could be filed within a week.
Reporters 'outraged' over HP tactics
NEW YORK (CNNMoney.com) -- A trade group representing financial reporters expressed indignation Thursday over the methods used during Hewlett-Packard's investigation of a leak by a company insider.
The Society of American Business Editors and Writers said it "is outraged that any company would stoop to unethical - if not illegal - means to gain access to a reporter's telephone records."
The group represents about 3,500 financial journalists.
The group's statement comes amid mounting criticism over the way the technology stalwart handled an internal investigation into company leaks.
HP (Charts) said last week that investigators it hired used "pretexting," a practice whereby someone impersonates someone else to gain access to personal records, during a probe conducted to find the source of company leaks.
It has confirmed the phone records of nine reporters were targeted during the investigation. The journalists whose records were targeted are Pui-Wing Tam and George Anders from The Wall Street Journal; Dawn Kawamoto, Tom Krazit and Stephen Shankland at Cnet; John Markoff at The New York Times; and Peter Burrows, Ben Elgin and Roger Crockett of BusinessWeek.
The records of Thomas Shankland, the father of Cnet's Stephen Shankland, also were targeted during the probe, HP has said.
"Journalists possess the same rights as any other citizens when it comes to the protection of their personal information," the group's statement said. Notes and conversations between reporters and their sources also are protected from search or review in many states, including California, the statement added.
The possibly illegal methods Palo Alto, Calif.-based HP's investigators used are being investigated by a wide range of authorities, including California's attorney general, the Department of Justice, the FBI and Congress.
California Attorney General Bill Lockyer has said a crime was committed and that he has enough evidence to file charges against HP officials and outside contractors.
His office said Thursday the investigation is ongoing, and it isn't working with a definitive deadline. "We are not wedded to a specific timeline. We will continue doing our job as long as it takes to be fully prepared in the case," spokesman Tom Dresslar told CNNMoney.com, referring to reports that have said indictments in the case could come within a week.
HP, one of the nation's largest tech firms, also is coming up on a deadline to turn over records related to its leak investigation to Congress. A spokesman from the House Committee on Energy and Commerce said Thursday that no documents have been received yet, but HP has until Monday to comply with the committee's request.
A source close to the investigation confirmed Thursday that one of the investigative firms used during the probe was a Boston firm called Security Outsourcing Solutions. HP declined to comment on the name of the investigative firm.
The FBI and U.S. Attorney for Northern California are also investigating. Their probe is focused on illegal computer intrusion and wiretapping, the bureau's deputy director said.
Legal experts said the hired gumshoes who conducted the pretexting are the most likely targets for criminal charges. Others who could face charges include HP CEO Mark Hurd, embattled Chairwoman Patricia Dunn, who will step down in January because of the scandal, and HP's general counsel Ann Baskins, whose legal department oversaw the leaks investigation.
Dunn has admitted authorizing the investigation into who leaked boardroom secrets to reporters. But she said she was appalled when she learned that investigators used Social Security Numbers and other personal information to obtain the phone logs.
HP Execs Asked to Testify in Washington; Shareholder Files Suit Over Boardroom Scandal
SAN JOSE, Calif. (AP) -- Several key figures in Hewlett-Packard Co.'s possibly illegal investigation of media leaks were asked Friday to testify before a congressional panel.
A shareholder lawsuit also was filed Friday in a state court, alleging "substantial expense and damage" to the company from the investigators' use of a controversial ruse known as pretexting.
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The U.S. House Energy and Commerce Committee requested that HP Chairwoman Patricia Dunn and General Counsel Ann Baskins appear at a Sept. 28 hearing of its Oversight and Investigations Subcommittee, HP spokesman Mike Moeller said, declining to say whether either would testify.
"HP is fully cooperating with all ongoing investigations and inquiries, including the one being conducted by the House subcommittee," Moeller said.
Attorney Larry Sonsini, who served as an outside legal adviser to HP during its investigation, was also asked to appear, as was Ronald DeLia, who runs a Boston-area private investigation firm that was hired by HP to conduct the probe.
The request was made as part of the panel's ongoing investigation into pretexting -- the practice of impersonating people in order to access their personal information.
Dunn has acknowledged that she authorized the probe in which private investigators hired by HP used Social Security numbers and other personal information to pose as company directors, employees and journalists in order to access logs of their home and cellular phone calls.
As HP's staff attorney, Baskins allegedly oversaw the leaks investigation and declared it to be legal.
In Santa Clara County Superior Court, shareholder Juliet Worsham filed a lawsuit seeking to have Dunn, Baskins, HP CEO Mark Hurd and other company insiders found to have breached their fiduciary duties and abused their power. It asks for the defendants to reimburse Hewlett-Packard for any financial damage suffered by shareholders as a result of the pretexting scandal.
House committee awaits HP documents related to scandal
By Michelle Kessler, USA TODAY
Hewlett-Packard (HPQ) has until Monday to turn over a massive stack of documents related to its snooping scandal to Congress, which has also asked four key players to testify.
The House Committee on Energy and Commerce is investigating whether HP illegally obtained the home phone records of nine journalists and at least two board members. It wants the computer giant to voluntarily hand over nearly all related documents.
Friday, the panel also requested testimony from HP Chairman Patricia Dunn, general counsel Ann Baskins and outside counsel Larry Sonsini, who works for prominent Silicon Valley law firm Wilson Sonsini Goodrich & Rosati.
Additionally, it summoned Ronald DeLia, a private investigator. HP has admitted hiring detectives who pretended to be reporters and board members to access their phone records, a trick that may be illegal under fraud laws.
HP won't say who those detectives are. But committee spokesman Terry Lane says DeLia has relevant information to the case.
On its company website, Security Outsourcing Solutions identifies DeLia as its managing director. The site says the firm helps other companies address internal and external security concerns.
The phone number and address listed actually belong to Boston law firm Bonner Kiernan Trebach & Crociata. Attorneys there did not return phone calls. DeLia did not return e-mails.
HP spokesman Mike Moeller says his company is cooperating with the committee. But he wouldn't say whether employees would turn over documents or testify. As of Friday afternoon, the committee had not received anything, Lane says.
Sonsini's office had no comment.
The committee's requests have so far been voluntary. But it can issue subpoenas if necessary.
On Saturday, HP officials acknowledged they improperly accessed the phone records of Moeller and another employee during the leaks probe. Moeller said Dunn and HP CEO Mark Hurd apologized to him.
Other agencies are interested in HP. California Attorney General Bill Lockyer has said he has enough evidence to charge employees of HP and its subcontractors. The Department of Justice, Securities and Exchange Commission and FBI have also launched inquiries.
The requests will make it tougher for HP to move past the scandal, says business professor Eric Johnson at Dartmouth College. Last week, HP said that Dunn would step down as chairman in January.
Dunn hired the detectives earlier this year to figure out which board member was leaking information to the press. She says she told the detectives to do everything legally and didn't know about the subterfuge until after the fact.
"They were hoping things would blow over," Johnson says. "But there are more shoes dropping."
What HP Should Have Done
Monday September 18, 9:53 am ET
By Kirk O. Hanson
The debacle over Hewlett-Packard's handling of board leaks to the press was an eye-opener -- not just for junkies of boardroom drama, but to students of business ethics and crisis management. Even if HP Board Chairman Patricia Dunn deliberately set out to create a case study for debate in business school she couldn't have done any better.
Dunn will step down in January as HP board chair amid a furor over tactics used during an investigation into the source of boardroom leaks. Dunn will remain on the board. As part of the probe, contractors for HP's private investigator posed as journalists, directors, and HP employees to obtain telephone records -- all in the name of finding out which board member was feeding information to reporters. It's a tactic known as pretexting, and California Attorney General Bill Lockyer has said he has unearthed enough evidence of wrongdoing to issue indictments of people within and outside HP (see BusinessWeek.com, 9/12/06, "Charges on the Way at Hewlett-Packard?").
Ethical Dilemmas.
The whole episode, with its many twists, throws up an array of ethical dilemmas, many of which could be faced by other company directors. Here are just a handful:
Should the chair inform the board it is being investigated for leaks? Knowing that it was likely that only one board member was leaking to the press, Dunn either did or did not have an obligation to inform the board she was about to undertake an investigation and how it was to be conducted. I believe she did have such an obligation, out of respect for the innocent board members and their rights.
How do you pick an outside investigator and what kind of guidance do you give? Every company hopes its vendors, contract manufacturers, or business partners follow its standards and adhere to its values. Today, companies are increasingly being held accountable for what happens throughout the supply chain.
How explicit should HP be in giving direction to its outside investigators? I believe HP had an obligation to pick an investigator with a reputation for respecting the rights of those investigated, and the obligation to give explicit direction that the outside firm should follow HP values enshrined in the "HP Way."
Should ethics -- or legality -- be the standard for how an investigation is conducted? Investigative methods are evolving quickly. While companies have an increasing responsibility to investigate employee or even board misbehavior, they are also facing a legal landscape that is changing rapidly. It's clear the American public is deeply worried about the privacy of its financial, Web search, and, yes, telephone records.
Should HP be guided by what it and its lawyers believe is legal, or by the sometimes ambiguous standard of what is "ethical?" I believe HP has long been committed to acting"ethically," not just legally, and it would give up a major portion of its reputation by choosing mere legality as the standard.
Forcing The Board'S Hand.
What should you do when a report to the board is based on private telephone records? We know only about director Tom Perkins' reaction when the board was presented with the report fingering George Keyworth as the leaker. Perkins slammed down the cover of his briefcase and immediately resigned. What should other board members have done?
I believe every member of the board should have been concerned that the report was based on private phone records, and recognized this was an ethical problem. That could have enabled the HP board to have moved quickly to clean up its own mess before Perkins forced its hand several months later through a flurry of letters and e-mails.
Do you apologize for what happened? Who should apologize and to whom? At what point in the emergence of a scandal is an apology warranted? How much "blame" does the company admit? I believe HP was a bit slow apologizing to board members and employees for the invasion of private phone records. To say one was "appalled" at the methods falls short of an apology. The board chair and management spokesperson should have apologized early and often.
Should anyone be punished? One of the fundamental ethical turning points is whether anyone is held accountable and whether the punishment fits the crime. You hope that any penalty communicates an unambiguous message about the values of the company and its commitment to accountability. I fear HP gave at best a mixed signal. Apparently the board concluded Dunn did something wrong but it was unclear what, and it's unclear why stepping down in January and then remaining on the board was the appropriate punishment.
Obvious Answer.
Should HP explain to its employees and to the public exactly what steps have been taken to prevent a recurrence? I believe it must do this to quell the anxiety of employees who fear that their phone records could be examined next and to relieve the worry of HP customers that the data HP keeps on them might be used against them.
Should you also purloin the phone records of reporters? Sorry, the answer to this one is so obvious that you get no credit for saying: "No, they should not." This merely insured that negative media attention would follow.
Above all, I believe past episodes -- from the tragic poisonings of Tylenol buyers 25 years ago to the spate of corporate scandals that began with Enron in 2002 -- have established a clear standard for the management of ethical scandals and other corporate crises. The four principles are a) tell everything you know as you learn it; b) apologize early and often; c) punish those who are guilty; and d) state clearly what the company has done to make another such incident unlikely. Unfortunately, the HP board stumbled on several of these.
Hanson is a university professor and executive director of the Markkula Center for Applied Ethics. He taught business ethics for 23 years at the Stanford Graduate School of Business before becoming head of the Markkula Center.
H-P security expert warned on leak probe: WSJ
SAN FRANCISCO (MarketWatch) -- A Hewlett-Packard Co. computer-crimes specialist warned superiors earlier this year that the company's investigation of board leaks was being conducted in a manner that could be illegal, according to a media report Tuesday.
It is unclear who in H-P's (HPQ : Hewlett-Packard Co.
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HPQ management received the warning from Fred Adler, an official in H-P's global security office in Roseville, Calif., The Wall Street Journal reported in its online edition, citing unnamed people familiar with the situation. See Wall Street Journal story (subscription required).
Adler, a former Federal Bureau of Investigation special agent, worked in a unit headed by Jim Fairbaugh, H-P's head of global security, whom people close to the matter have said worked on the leak probe, The Journal reported.
Adler's email raises new questions about when H-P executives and lawyers became aware that their investigators might be breaking the law, a question on which state and federal authorities are focusing, The Journal reported. H-P and its contractors are being investigated by the FBI and California's attorney general for the use of pretexting in the probe to identify the source of internal board leaks.
Adler wrote that acquiring people's phone records through false pretenses, or pretexting, could be against the law, The Journal said.
H-P has since admitted that investigators working for the company used pretexting, in obtaining phone records of its directors, two H-P employees, nine journalists and an unspecified number of outsiders, The Journal said.
H-P has said the Palo Alto, Calif., company and its chairman, Patricia Dunn, who launched one leak probe in early 2005 and another in January 2006, were assured by lawyers for H-P's private investigators that the techniques they used in the probe were legal, according to the report.
H-P's outside lawyer, Larry Sonsini, wrote in an email in June that the investigation was run by H-P's legal department, with outside experts, and that H-P's general counsel, Ann Baskins, "looked into the legality of every step of the inquiry and was satisfied that it was conducted properly," according to The Journal.
Sonsini also was pretexted in the board-leak probe, The Journal said.
Adler referred questions to H-P's spokesman, Robert Sherbin, who declined to comment, The Journal said, adding that Fairbaugh didn't return phone calls seeking comment and an assistant to Sonsini said he wasn't reachable for comment
House committee receives H-P documents
SAN FRANCISCO (MarketWatch) -- A House committee has received some of the documents and information it requested from Hewlett-Packard Co as part of its investigation into the "pretexting" scandal involving the technology giant's chairwoman, Patricia Dunn.
Terry Lane, a spokesman for the House Committee on Energy and Commerce, said committee lawyers "have gathered information from Hewlett-Packard" that the committee requested by Monday. Lane said, though, that it wasn't known how much or what types of information H-P had delivered to the committee.
Sept. 28 hearing
"What is likely to happen is that the lawyers will go over the information this week and present their findings before the hearing," Lane said, referring to a Subcommittee on Oversight and Investigations hearing set for Sept. 28.
In addition to the House subcommittee investigation, California Attorney General Bill Lockyer has launched a probe into H-P's actions and has hinted that charges could be forthcoming against current and former H-P officials. A spokesman for Lockyer's office said the attorney general had no further comment about the status of the investigation.
The House subcommittee has asked Dunn, H-P general counsel Ann Baskins, outside counsel Larry Sonsini and private investigator Ronald DeLia to voluntarily appear at the hearing. The four have been given until Tuesday to let the subcommittee know if they will attend.
Among the information the committee has requested are the name and identity of a private investigation firm that H-P hired to dig up information about leaks coming from company board meetings. A company that was subcontracted by the investigating firm used a method called pretexting, in which a person misidentifies himself in order to obtain personal and private information about an individual, such as telephone records.
The firm used pretexting to get personal data on H-P board members and journalists as part of its investigation. H-P hasn't publicly disclosed whom it hired for its investigation.
H-P learned that board member George Keyworth was the source of the leaks. Keyworth resigned from the H-P board Sept. 12. That same day, Dunn said she'd give up the H-P board chairmanship in January and be replaced by H-P.
While H-P hasn't said whom it hired for its leak probe, DeLia and his company, Security Outsourcing Solutions Inc., have been mentioned as possibly involved in the case. The Boston Globe reported Monday that John Kiernan, DeLia's attorney, said his client was cooperating with all investigations into the H-P probe. Kiernan, a partner in the Boston law firm Bonner Kiernan Trebach & Crociata LLP, didn't immediately return calls for comment on his client.
Kiernan's law firm shares a Boston office with DeLia's private investigation firm. DeLia's firm also lists a home office in Needham, Mass.
Latest victim
In another twist to the H-P saga, the company said spokesman Mike Moeller was a victim of pretexting methods used by the outside investigators. Moeller said that once it became known that he was a pretexting victim, company officials told him it knew any suspicions about him being the leak source "were totally baseless," and both Hurd and Dunn apologized.
While the reputation of H-P's board has suffered a black eye as a result of the ongoing pretexting probe, the company's stock has remained in favor among investors. H-P shares rose 22 cents to close at $36.40 and are up slightly since opening at $35.90 on Sept. 6, when the company made the pretexting matter public.
House seeks more testimony in H-P case
SAN FRANCISCO (MarketWatch) -- The U.S. House and Energy Commerce Committee on Tuesday expanded the list of people it wants to question in the Hewlett-Packard Co. pretexting scandal, and requested testimony from H-P's security chief as well as a second private investigator, who is believed to have ties to the case.
The committee's oversight and investigations subcommittee asked that Anthony Gentilucci, H-P's global-security manager, and Joe Depante, a private investigator and owner of Action Research Group of Melbourne, Fla., appear at a hearing on the H-P matter that is set for Sept. 28.
The subcommittee has given the two until 5 p.m. Eastern on Sept. 20 to say if they will answer the request to voluntarily testify.
The new requests come after the committee asked that outgoing H-P Chairwoman Patricia Dunn, the company's general counsel Ann Baskins, outside attorney Larry Sonsini and private investigator Ronald DeLia appear at the hearing. The four were asked to say by Tuesday if they'll testify at the hearing.
HPQ spokesman, said that it wasn't yet known if Dunn and Baskins had replied to the committee's request. Calls to the committee and to lawyers representing DeLia were not immediately returned for comment.
The latest committee requests are aimed at H-P's Boston-area operations, where Gentilucci is based. Gentilucci is reported to have contracted out work to investigate H-P board leaks to DeLia, who has offices in Boston and Needham, Mass. DeLia is said to have then farmed out some of the work to Depante and Action.
The controversy swirls around methods called pretexting that the investigators used to collect private and personal information on H-P board members and others. The investigation was launched by Chairwoman Dunn as part of an attempt to find out how confidential boardroom information was turning up in published news reports.
Dunn's investigation led to board member George Keyworth as the source of the leaks. On Sept. 12, Keyworth resigned from the H-P board, and Dunn said that she would step aside and be replaced by Chief Executive Mark Hurd in January.
SAN FRANCISCO (MarketWatch) - Top Hewlett-Packard Co. officials were helping direct the boardroom-leak investigation as early as 2005, according to one media report Wednesday, while another said H-P studied the feasibility of planting spies in the San Francisco news bureaus of The Wall Street Journal and CNET.
The disclosures came as California and federal investigators continued to study the possibility of criminal charges against Hewlett-Packard
HPQ board members, employees and outside contractors involved in allegedly illegally obtaining telephone records of H-P board members, employees and reporters.
In its online edition, The Journal said H-P Chairman Patricia Dunn and General Counsel Ann Baskins helped direct the company's investigation as early as summer 2005, according to The Journal's review of internal HG-P emails. See Wall Street Journal story (subscription required).
Dunn has said in interviews that she couldn't supervise the investigation because, as one of the H-P directors being investigated for leaking information to the media, she was a potential target of the probe, The Journal said. Dunn has said she turned to H-P's security department to handle it, according to the report.
But emails suggest Dunn and Ms. Baskins were closely involved in helping direct the course of the investigation, the Journal said, and that the two were kept well informed of the investigation's tactics and progress by the H-P security officials who ran the probe, as well as by some of the private investigators H-P hired.
The New York Times reported in its online edition that in February H-P considered planting investigators posing as clerical employees or janitorial crews in the San Francisco newsrooms of CNET and The Journal. The Journal and MarketWatch are units of Dow Jones & Co. Inc.
The Times attributed its information to an unnamed person briefed on H-P's review of the operation.
It is not clear whether the plan described in the documents, which were read to a Times reporter, was ever acted upon, the newspaper reported
The report was sent on Feb. 1 by Anthony R. Gentilucci, H-P's Boston-based manager of global investigations, to four others, including Kevin T. Hunsaker, a senior counsel in Hewlett-Packard's legal department and the company's chief ethics officer, the Times reported.
"Feasibility studies are in progress for undercover operations (clerical) in CNET and WSJ offices in SF bureaus," the memo said, referring to two publications in which reports of the company's board discussions had appeared, the Times reported. Under a section labeled "Investigation Activity Update," with the subtitle "Covert Operations," it also called for examining the use of cleaning employees at those locations, the Times said
Hewlett-Packard Boardroom Spying Scandal Reaches New Level of Weirdness
Hewlett-Packard Co. may be the world's largest technology company, but the superlative that better suits it these days is Provider of the World's Strangest Corporate Drama.
For two weeks, almost every day has brought revelations of questionable tactics that HP investigators used this year and last to root out who had been describing boardroom deliberations to the media. Corporate intelligence is an old and frequently practiced art, but HP's efforts feel more Watergate than Wall Street.
Not only did investigators impersonate board members, employees and journalists to obtain their phone records, but according to multiple reports, they also surveilled an HP director and a reporter for CNet Networks Inc. They sent monitoring spyware in an e-mail to that reporter by concocting a phony story tip.
They even snooped on the phone records of former CEO and Chairwoman Carly Fiorina, who had launched the quest to identify media sources in the first place.
And in a twist that might seem preposterous if it happened in a movie, The New York Times reported that HP consultants considered hiring spies to pose as clerical or custodial workers at CNet and The Wall Street Journal.
"It betrays a type of corporate culture that is so self-obsessed, (that) really considers itself not only above the law, but above I think ethical decency, that you have to ask yourself, where did the shame come in?" said Charles King, an analyst with Pund-IT Research.
Jeffrey Sonnenfeld, senior associate dean at the Yale School of Management, said the HP affair stands out even against similar episodes from the past, such as the 1991 incident in which Procter & Gamble Co. persuaded authorities to mine 803,000 phone bills to track leaks to a Wall Street Journal reporter.
"This sort of investigators-gone-wild behavior is in a novel realm," Sonnenfeld said.
Investors have shrugged off the scandal, with HP stock up slightly since the story broke. But there will be repercussions. The almost-certain illegality of posing as someone to obtain phone records has sparked state and federal probes into the computer and printer maker.
HP Chairwoman Patricia Dunn and the company's general counsel are testifying to a congressional committee next week about why they approved the investigations. Attorney Larry Sonsini, a Silicon Valley power broker who advised HP's board, is also being called onto the carpet.
Dunn has agreed to cede the chairmanship to HP's chief executive in January, but she plans to remain on the board. Fortunately for her -- but perhaps disappointing for those entranced by this drama -- her two biggest enemies are gone: Director Thomas Perkins quit in protest of the investigation tactics, while director George Keyworth resigned after being outed as a leaker.
Ironically, this was supposed to be a time in which HP had moved on from a period of extreme board dysfunction.
In 2001, Fiorina convinced skeptics on the board that HP should acquire rival Compaq Computer Corp., a deal that ended up costing $19 billion. She persuaded all of them except for one: Walter Hewlett, son of one of the engineers who founded HP in a garage in Palo Alto, Calif., in 1938.
Even while Hewlett remained on the board, he launched a dramatic and ultimately nasty fight to scuttle the deal. When shareholders narrowly approved the deal, Hewlett sued the company and alleged that Fiorina had improperly cajoled an investment bank to switch its vote.
Back then, talking to the press was actually a duty for some HP directors, who revealed details of board meetings in an effort to refute points made against the deal by Hewlett. Dunn, Keyworth and even Sonsini all spoke on the record to challenge Hewlett's descriptions of board deliberations.
Acrimony at HP didn't end even after the Compaq deal was sealed and Hewlett left the board in 2002. By 2005, the board's unhappiness with HP's uneven financial results under Fiorina emerged in news stories that began one of the leak hunts.
"There were conflicts on the board trying to make a go of the (Compaq) marriage, strong differences of opinions, strong personalities," said Bruce Oliver, director of the Center for Business Ethics at the Rochester Institute of Technology. "You've had a divided board for quite some time now. That somewhat set up the opportunity for this to happen at that company."
After the board fired Fiorina and turned to Mark Hurd, a lower-key, cost-cutting maven who had spent 25 years at NCR Corp, HP finally seemed to enter a quiet, successful phase.
Hurd's no-nonsense operational style thrilled investors; HP stock has nearly doubled during his tenure. Now that IBM Corp. has sold its personal-computer division, HP is surpassing Big Blue as the world's largest tech company by revenue. HP's other main rival, Dell Inc., has stumbled badly, further boosting HP's image in comparison.
Until all this.
HP spokesman Ryan Donovan would not comment about how the company expects to keep this scandal from leaving a long-term tarnish.
King, the analyst, said it could take a while to tell if HP's brand is diminished.
"If I'm a consumer, do I want to buy products from a company that has committed what looks to be felonious behavior? I don't know the answer to that," King said.
If nothing else, Hewlett-Packard will have aired in dramatic fashion the kind of corporate dirty work -- often aimed at rivals rather than insiders -- that "probably goes on more than we know of," said Eric Abrahamson, a professor of management at Columbia University.
"This is a particularly egregious example of it."
SAN FRANCISCO, Sept 20 (Reuters) - Hewlett-Packard Co.'s Chief Executive Mark Hurd had approved a "sting" operation on a reporter to investigate boardroom media leaks, The Washington Post reported, and embattled Chairman Patricia Dunn said she looked forward to "setting the record straight" soon.
The Post said in its Thursday edition that an e-mail by a company lawyer to Dunn was the first document linking Hurd to the internal investigation which is now the subject of criminal probes. Private investigators impersonated people to gain the phone records of directors, HP (HPQ.N: Quote, Profile, Research) employees and reporters, the company has acknowledged.
"I spoke to Mark (Hurd) a few minutes ago and he fine with both the concept and the content," of the sting, senior counsel Kevin Hunsaker told Dunn in a Feb. 23 e-mail, according to the Post.
Dunn, who spearheaded the internal leak probe at the computer maker, was inducted Wednesday night into the Bay Area Council's Hall of Fame and made her first public comments since reports appeared this week that deepened the scandal. The issue erupted when HP disclosed its potentially illegal investigation on Sept. 6.
Dunn announced this month that she would not serve as chairman beyond January, but would remain on the board.
"Please be aware I am fully alive to the irony of being inducted into the Bay Area Council Business Hall of Fame," Dunn told members at the Bay Area trade group on Wednesday night. "I look forward to the time in the near future when I can set the record straight."
HP said earlier that Hurd would hold a press conference in the Bay Area on Friday "regarding the board leak investigation." HP spokesman Ryan Dononvan declined further comment, and the Post said HP also declined to comment on its report. It was not clear whether Dunn would be at the news conference.
With Dunn's installation into the Hall of Fame, she joins honorees including Larry Sonsini, Silicon Valley's most prominent attorney, who has agreed to testify regarding his role in the leak investigation at a U.S. House subcommittee hearing. She also joins HP founders David Hewlett and William Packard.
The Post report said Hunsaker, who led the investigation ordered by Dunn, and an HP colleague in Boston concocted a fictitious personal, "Jacob," who would pose as a disgruntled HP executive to cultivate a reporter at technology news Web site Cnet.
The plan was to lure the reporter to open an e-mail attachment with software that would let HP see where the e-mail was forwarded, hoping it would pinpoint board member George Keyworth as the source. Keyworth has since resigned from the HP board.
California State Attorney General Bill Lockyer said earlier on Wednesday he does not know when his office would issue any indictments.
"We're still in the middle of following the chains of communications," Lockyer said in a telephone interview. "We don't yet know for sure which people (will be indicted) or how soon we'll complete the investigative work."
HP is under scrutiny by both state and U.S. prosecutors over whether the company used illegal tactics to obtain phone records of directors, at least two HP employees and journalists, as part of its inquiry to find the source of boardroom leaks to the media dating back to 2005.
The Wall Street Journal, citing internal e-mails, reported on Wednesday that Dunn personally helped direct the leak investigation. The New York Times also reported on Wednesday that HP had studied the feasibility of placing spies in the newsrooms of two publications as part of the investigation.
H-P's Hurd to hold press conference on scandal
SAN FRANCISCO (MarketWatch) -- Hewlett-Packard Co. said Thursday it would hold a press conference with Chief Executive Mark Hurd on Friday to discuss the growing controversy over allegedly illegal actions that were taken in the technology giant's probe into boardroom leaks.
HP said in a statement that the press conference would be held at the company's corporate headquarters in Palo Alto, Calif. and also be Web cast over the company Web site. Hurd and a representative from the outside law firm of Morgan, Lewis & Bockius will attend the event.
"What began as an effort to prevent the leaks of confidential information from H-P's boardroom ended up heading in directions that were never anticipated," Hurd said in a statement, adding that the company intends to "give as much clarity as we can to these matters," at the press conference.
Hurd is seeking to deflect damage from the ongoing scandal, which is now under investigation by California Attorney General Bill Lockyer and the House Committee on Energy and Commerce. The Wall Street Journal and the New York Times reported Thursday that documents and e-mails related to the case suggest Hurd may have been more involved in the investigation than previously believed.
HP stock seen as vulnerable
Wall Street's message: The more CEO Hurd is at risk, the more exposed the PC maker's shares.
NEW YORK (CNNMoney.com) -- The spotlight in the Hewlett-Packard scandal is moving closer to CEO Mark Hurd - a possibly ominous sign that the controversial leak probe could spill over and start affecting the computer maker's financial performance.
The company's stock had barely budged since the scandal erupted early this month, largely because Hurd has managed to distance himself from the investigation, analysts and investors have said.
HP discloses that "pretexting" was used during an investigation into company leaks. California Attorney General Bill Lockyer says he's investigating the tactics used.
Sept. 8
HP confirms the phone records of nine journalists were targeted during the internal probe.
Sept. 10
HP's board of directors convenes an emergency meeting but no action is taken.
Sept. 11
HP says the U.S. Attorney for Northern California has requested information related to its probe. House Committee on Energy and Commerce asks HP to hand over documents related to the investigation.
Sept. 12
HP says Patricia Dunn will step down as chairman of the board in January and will be succeeded by CEO Mark Hurd. Board member George Keyworth resigns.
But now Hurd is moving closer to center stage. A news report published Thursday linked Hurd to the company probe - and the news sent HP (down $1.92 to $34.86, Charts) shares down nearly 5 percent in heavy New York Stock Exchange trading.
Wall Street is sending a clear message: The more Hurd is at risk, the more vulnerable the company's shares.
Hurd, who took the helm at HP in April 2005, has played a key role in turning around the company. Once a laggard on Wall Street, HP's stock performance has eclipsed rivals Dell (Charts) and IBM (Charts) over the past year.
But if he played a bigger role than previously thought in the leak probe, his future role at the company could be jeopardized.
"If he approved or even knew about [the tactics used], he will have to leave," said Nell Minow, co-founder of the Corporate Library, a corporate governance firm.
The scandal doesn't impact HP's fundamentals - the quality of its products and research - but the turmoil in the boardroom is probably already a serious distraction to upper management. And any lack of focus on running the company could prove damaging.
"If Hurd is involved, his credibility and effectiveness could be tempered, and that would be worrisome," said Gene Sit, chief investment officer of the Sit Science & Technology Growth Fund, which owns shares of HP.
If Hurd, who has proven to be a good strategist, had to leave the company, investors would face the uncertainty of new management and leadership, Sit said.
Hurd is holding a news conference Friday to explain HP's view of the investigation. But that may only be the start of his widening exposure to the scandal.
Congressman Bart Stupak, the ranking Democrat on a House subcommittee examining the tactics HP used, has said Hurd could be called to testify before Congress.
"I would expect that members and staff of the subcommittee will take a hard look at whether it is appropriate for Mr. Hurd to appear before the Subcommittee next week," he said in a statement.
The House Energy and Commerce Committee has asked eight individuals involved in the HP probe - including outgoing chairwoman Patricia Dunn and chief ethics officer Kevin Hunsaker - to testify at a hearing scheduled for next Thursday.
Palo Alto, Calif.-based HP, one of the nation's largest tech companies, has been the talk of corporate America ever since it disclosed that it spied on directors and journalists in an effort to find the source of leaks.
The leak probe has already resulted in a major boardroom shakeup and ignited investigations from California and federal authorities.
HP Sponsors a Privacy Award
BOSTON (AP) -- Insert your own punch line: Hewlett-Packard Co., the technology company facing federal and state investigations for spying on board members and journalists, is co-sponsor of an award for "privacy innovation."
Nominees are currently being accepted for the fourth annual HP/IAPP Privacy Innovation award, which Hewlett-Packard gives in conjunction with the Maine-based International Association of Privacy Professionals.
According to the award's Web site, the prize was created to honor "strong and unique contributions to the privacy industry."
"At present, there is not sufficient recognition for organizations that have embraced privacy as a competitive advantage, and as a business/governmental imperative," the site states.
Previous winners of the award have included eBay Inc., Microsoft Corp., Sprint Nextel Corp. and two Canadian provincial offices. No one from HP is a judge.
Two IAPP directors did not immediately return a call seeking comment Thursday, nor did an HP spokesman.
HP is facing multiple investigations into the company's surveillance of directors, employees and journalists as it sought the source of boardroom leaks to the media. HP investigators posed as other people to obtain their phone records and sent at least one reporter monitoring "spyware" in an e-mail.
An HP director quit in protest of the methods and another resigned after being outed as a leaker. Questions about HP's methods led the board chair, Patricia Dunn, to agree to cede the post in January, though she plans to remain a director.
One place to read about all this is none other the Privacy Innovation award's Web site. It contains a long list of privacy-related stories in the news, including the HP affair.
http://www.privacyinnovation.org/about.html
SAN FRANCISCO (MarketWatch) -- Hewlett-Packard Co. Chief Executive Mark Hurd will testify before the U.S. House Energy and Commerce Committee's Subcommittee on Oversight and Investigations to discuss the company's spying scandal, a company spokesman said Thursday.
Hurd's move came a day after newspaper reports attempted to link him more closely to the scandal that has developed in the wake of efforts, authorized by the board of directors, to find the source of leaks of boardroom information.
Hurd volunteered to appear at the Sept. 28 hearing , and the committee accepted his offer, according to H-P spokesman Ryan Donovan.
"Mark wants to be as transparent as possible," Donovan said. "He wants to apologize publicly and talk about how we are ensuring that these events will not happen again."
The subcommittee, headed by Rep. Edward Whitfield, R.-Ky., already has received confirmations that H-P Chairwoman Patricia Dunn, general counsel Ann Baskins and outside counsel Larry Sonsini would testify about the scandal that has embroiled the technology giant for two weeks.
Whitfield told MarketWatch that he intends on holding a full investigation into the H-P matter. "We really want to find out conclusively who was involved," he said following a subcommittee hearing. "It's very disturbing." See full story.
California Attorney General Bill Lockyer, whose agency is also investigating the company, said during an interview on Bloomberg television early Thursday that H-P had been stonewalling his probe.
However, after Lockyer's comments became public, H-P's counsel contacted the attorney general's office and expressed willingness to cooperate, said Tom Dresslar, a spokesman for Lockyer said.
"The lack of cooperation that we had recently experienced from Hewlett-Packard apparently has been resolved," he noted.
Hurd is slated to hold a press conference at H-P's Palo Alto, Calif. headquarters on Friday to discuss documents and other information related to the scandal. On Thursday, published reports cited emails that suggested Hurd was more involved in the investigation of H-P boardroom leaks than has previously been believed. See full story.
The New York Times and The Wall Street Journal reported that company emails suggest Hurd was informed early this year of the company's internal efforts to root out a boardroom leaker, and that he offered suggestions of his own
NEW YORK, Sept 22 (Reuters) - The California attorney general said on Friday there was no evidence yet linking HP Chief Executive Mark Hurd to any criminal wrongdoing, as scrutiny
grew over his role in the PC maker's probe of a boardroom leak.
"We don't yet have any evidence that would lead to the CEO as one of those that committed the crimes," Lockyer told the CNBC cable television network in an interview. "But we're not complete yet. We haven't finished the investigation."
Attorney General Bill Lockyer's office is investigating whether HP used illegal tactics to identify the source of the media leaks dating back to 2005, such as use false identities to obtain the phone records of employees and reporters.
Hurd, who led a comeback at HP since taking the helm in April 2005, is due to discuss the company's investigation at a news conference later Friday. He will also appear next week at a U.S. House subcommittee hearing over the investigation.
Hurd became a new focus in the scandal following published reports this week that he was more involved in the probe than originally thought.
The Washington Post reported Thursday that Hurd approved an elaborate "sting" operation on a reporter to determine the source of the leaks.
HP shares fell 29 cents to $34.58 on the New York Stock Exchange on Friday. The stock dropped 5.2 percent after the Post report Thursday.
Lockyer said his office was in the middle of its inquiry but would not give a timetable for its conclusion "I don't think it's months away, it's more like weeks or days," he said.
Lockyer said his inquiry would trace "up the corporate chain" at HP to determine which executives had participated in the leak probe. HP has said outside investigators hired by the company faked identities to obtain the phone records of board directors, employees and journalists.
Hurd may face greater pressure to resign, even if his involvement is not proven, as HP aims to rebuild credibility, analysts said.
"Hurd will take no questions at the event and H-P isn't allowing any video cameras or flash photography. It will Webcast only the audio portion of the event"
PALO ALTO, Calif.--(BUSINESS WIRE)--Sept. 22, 2006--HP today announced that Mark Hurd, HP chief executive officer and president, has been appointed to the additional role of chairman, succeeding Patricia Dunn, who is leaving the company's board, effective immediately.
In addition, Richard Hackborn has been named independent lead director of the company, also effective immediately.
These appointments accelerate plans announced last week when Dunn said she would step down as chairman in January 2007 with the intention of continuing to serve as a director.
In other news, the company announced that:
It is seeking to take appropriate action in connection with the investigation into leaks from its boardroom.
It has appointed Bart M. Schwartz, a former U.S. prosecutor, as counsel, to perform an independent review of investigative methods and the company's Standards of Business Conduct processes, and to make future recommendations for implementing best practices. He will report in this assignment to Hurd and to Bob Wayman, HP chief financial officer.
It is providing today at a press briefing a detailed description of events surrounding the investigations into leaks of confidential information, as well as the probe into how those investigations were conducted.
Hurd said, "We have spent the past few weeks getting further clarity as to what happened in the investigation into the disclosure of unauthorized material from the board. While this process is not yet complete, it is clear that inappropriate steps were taken in conducting this work.
"I wish to apologize both personally and on behalf of HP to each of those who were affected. We believe these unacceptable measures were isolated instances that do not reflect the broader behavior and values of HP, its employees or its board. But they cannot occur here again. Our actions today are intended to ensure that they never do."
Patricia Dunn Resigns from HP Board
Friday September 22, 4:25 pm ET
PALO ALTO, Calif.--(BUSINESS WIRE)--Sept. 22, 2006--HP today announced that Patricia Dunn, chairman of the board and director, has resigned, effective immediately.
Statement from the HP board of directors:
"Pattie Dunn has been a valuable director of HP for many years. We acknowledge all of the good work that Pattie has accomplished on behalf of HP. She helped stabilize the business during the CEO transition. She led the search committee for our new chief executive officer, which led to our hiring of Mark Hurd and the outstanding performance of the business over the last 18 months. She served our board with distinction as chairman for the last year and a half. The board felt it was important to find the sources of the leaks of HP confidential information, and she informed the board that she had taken steps to do so. We have never questioned her intentions, her integrity or her ethics. To move forward, we believe it is in the company's best interest that she now step aside given the distraction her presence on our board continues to create. We regret that we will lose her contributions to the board and appreciate that she has agreed to our request."
Statement from Mark Hurd:
"Pattie's agreement to step down from the board to ensure that her presence does not serve as a distraction is a testament to her deep commitment to HP's success and her ability to put the interests of HP before her personal interests. She has contributed greatly to our company during a period of unprecedented growth and development. We intend to continue our investigation until we determine the root causes of the failure. We will introduce process changes to correct the situation.
"I want to thank Pattie for her eight years of service on HP's board and the actions she has taken to strengthen its composition and governance capabilities. There is no doubt in my mind that she had the best interests of HP in mind throughout her time on our board."
Statement from Patricia Dunn:
"I have resigned today at the request of the board. The unauthorized disclosure of confidential information was a serious violation of our code of conduct. I followed the proper processes by seeking the assistance of HP security personnel. I did not select the people who conducted the investigation, which was undertaken after consultation with board members. I accepted the responsibility to identify the sources of those leaks, but I did not propose the specific methods of the investigation. I was a full subject of the investigation myself and my phone records were examined along with others. Unfortunately, the people HP relied upon to conduct this type of investigation let me and the company down. I continue to have the best interests of HP at heart and thus I have accepted the board's request to resign. I look forward to appearing before Congress next week to answer their questions and help the company put this unfortunate event behind it."
HP Chair Resigns Amid Probe Fallout
PALO ALTO, Calif. (AP) -- Hewlett-Packard Co. shoved Chairwoman Patricia Dunn off its board Friday, severing its ties to a leader whose efforts to plug a media leak morphed into a spying scandal that has spawned criminal and congressional investigations.
The Palo Alto, Calif.-based company will turn the chairmanship over to its chief executive, Mark Hurd, who was supposed to take over that job in January as part of a realignment announced two weeks ago.
But things have changed since then amid a wave of leaked documents revealing how deeply HP's investigators intruded into the personal lives of seven directors, nine journalists, two employees and family members of those targeted individuals.
Dunn authorized the investigation and received regular updates, although she said she didn't realize HP's investigators were going to such extremes.
Two other HP employees who played pivotal roles in the scandal are also being let go, according to a person familiar with the matter. They are Kevin Hunsaker, HP's chief ethics officer, and Anthony Gentilucci, who manages HP's global investigations unit in Boston, according to the person, who asked not to be identified because the terms of their departure were still being negotiated.
"Now that we know the depth of what has transpired, I take full accountability to drive the actions to set it right," Hurd said at a Friday news conference to announce Dunn's departure as well as review what the company has learned about its spying program.
Dunn had previously planned to remain an HP director after relinquishing the chairmanship in January, but now she is leaving the board entirely.
"I continue to have the best interests of HP at heart and thus I have accepted the board's request to resign," Dunn said in a statement.
Dunn, 53, continued to defend her decision to initiate the probe to identify the boardroom leak and reiterated her intention to appear Thursday before a congressional panel looking into HP's spying spree.
Determined to protect confidential board discussions, Dunn hired investigators who impersonated board members, employees and journalists to obtain their phone records. The detectives also spied on an HP director and concocted an e-mail sting to dupe a reporter for CNet Networks Inc.'s News.com, an online technology site.
Hurd on Friday acknowledged authorizing the bogus e-mail, but said he didn't recall approving the use of software to trace the reporter's computer. He also said he attended a meeting in March where he was briefed on the investigation, but said he did not read a written report that included the identity of the leaker and details of the detectives' tactics.
"While many of the right processes were in place,they unfortunately broke down and no one in the management chain including me, caught them," Hurd said.
Cindy Shaw, an independent technology analyst who formerly worked for HP, said Hurd's explanation about his involvement in the probe will likely calm investors worried that he might get sucked into the maelstrom. Hurd, hired as CEO nearly 18 months ago, is highly regarded on Wall Street because the company's fortunes have soared since his arrival.
"With the appearance that Mr. Hurd did not have direct knowledge of anything unseemly until after the fact, we think this will stem the death by 1,000 cuts that has been occurring," Shaw said.
HP shares gained 24 cents to close at $35.11 on the New York Stock Exchange, then added another 44 cents in extended trading after Hurd's explanation. The stock had slid by more than 5 percent amid reports that Hurd may have been more involved in the spying program than previously thought.
But the company has more to worry about than its stock price.
California Attorney General Bill Lockyer and several federal agencies are investigating whether HP and its executives broke any laws in their crusade.
Hurd so far isn't among the group of HP insiders that Lockyer expects to charge, spokesman Tom Dresslar said Friday. But the attorney general is still examining Hurd's role in the scandal. "We are not ruling anybody out in terms of criminal culpability, Dresslar said.
Hurd also said Friday he plans to appear at the hearing being held by the House Energy and Commerce Committee. Dunn and General Counsel Ann Baskins, who also played a central role in the spying program, previously accepted the panel's invitation to appear.
Tom Perkins, who resigned from the board in protest of the spying tactics, praised the board's decision in a statement released through a spokesman.
"Mark Hurd has shown that he is the right man to take HP to new heights," Perkins said. "I would like to thank Pattie Dunn for stepping aside, allowing Mark Hurd to lead and HP to move on."
Hurd also announced two other changes: Director Richard Hackborn was named the company's independent lead director, and a former federal prosecutor, Bart Schwartz, was hired to review of the company's investigative methods and business practices.
Hurd was flanked on stage by attorney Mike Holston, who was hired Sept. 8 to unravel Dunn's ill-fated leaks investigation.
He said the chain of command started with Hunsaker and included Gentilucci, Vincent Nye of HP's Global Security team, and Fred Adler of the company's IT security arm. They contracted Ronald DeLia of Security Outsourcing Solutions, near Boston.
The team gave regular updates to Dunn and Baskins, assuring them the tactics being used were legal.
There was one instance in January in which Gentilucci gave the Social Security Number of an HP employee to Security Outsourcing Solutions, Holston said.
The same month, Security Outsourcing Solutions forwarded Social Security numbers for three journalists, three current or former board members, and one HP employee to another contractor, Action Research Group.
Holston said his firm also found one other instance, in March, in which Security Outsourcing Solutions used a journalist's Social Security Number to obtain telephone records.
Physical surveillance was also used to track directors and journalists, including an investigator who shadowed a board member and his family and watched the home of a journalist, Holston said.
Fortune
Fast forward: Why Hurd needs to take some questions
The HP spying scandal got a little bit more complex on Friday.
On the one hand, at a press conference at the company's headquarters, CEO Mark Hurd admitted to knowledge of at least one seriously questionable investigative technique used to uncover who among its directors was leaking information to the press. On the other, the resignation of board Chairman Patricia Dunn suggests that the new company line may be to blame the possibly illegal lapses in ethics and judgment on the board, not company management.
Two senior HP officials closely involved with the investigation were fired today, according to well-informed sources. One was Anthony Gentilucci, who headed investigations for HP, and the other was the internal lawyer who oversaw the effort from inside, Kevin Hunsaker, who also was the company's chief ethics officer, of all things. The word from a source close to the investigation is that these two, in the opinion of Hurd, were essentially renegades operating at the behest of the board and went considerably beyond proper bounds in pursuing the project.
One of the great mysteries of this entire story has been how Hurd, Dunn, HP Chief Counsel Ann Baskins, and others in the company could possibly have believed that it was legal or ethical to obtain phone records of individuals by "pretexting" - pretending to be those people in calls to the phone company so the phone company could reveal their data.
Such pretexting was done, the company confirmed Friday, to 7 directors, 9 journalists, and two employees, as well as, in some instances, members of their families.
An internal company e-mail Fortune has obtained explains at least part of that mystery - the legality part - though it does not exonerate HP's leaders from their responsibility to use common sense and an ordinary sense of ethics.
The e-mail, from Hunsaker to his boss, Chief Counsel Baskins, dated May 1, 2006, strongly argues on several grounds that the practice of pretexting is "not unlawful," and says clearly that "the Investigation Team is confident that all phone records information obtained during the course of the investigation was obtained in a lawful manner."
Hunsaker writes that the laws of the states where the pretexting occurred did not prohibit it, and that the practice has been "a common investigative tool that has been used by professional investigators and law firms for more than 20 years - this fact was confirmed by discussing the issue with a number of experts in the field."
However Hunsaker also notes that Florida, where the subcontractor that oversaw the pretexting was located, had already passed a law that would make the practice illegal on July 1.
That is hardly the strongest endorsement of the moral or ethical rightness of taking such an action, but it does to some degree help one understand why Baskins was not more alarmed.
Hunsaker's having sent such an e-mail could help explain why he no longer is employed at HP.
E-mail games
In the press conference, Hurd said that he had approved of a company plan in March to send a fraudulent e-mail to Dawn Kawamoto, a reporter at CNET.
The e-mail to Kawamoto was intended to appear to be a leak from a (fictitious) disgruntled senior manager. The investigator's ostensible aim in sending it was to use it to implant, via an attachment, a software tracer in hopes that she would forward the message to a director who had been leaking information.
Hurd said that while he did know of the effort to send the e-mail, "I do not recall seeing nor do I recall approving the use of tracer technology." That leaves several questions unanswered. What did he think was the purpose of sending such a fake message, if it was not to do tracing? And why did he agree to doing something clearly wrong, by any common-sense standard?
Hurd took no questions, because the company's lawyers don't think he should "pre-empt" the questions of a congressional committee before which he will testify next week, according to an HP public relations person who spoke beforehand.
The HP mess has moved into a new phase, in which Hurd and Dunn are increasingly likely to be at odds. I wouldn't be surprised to see them soon trading charges about what each did or didn't know. This despite the pretty-sounding press release HP issued today announcing Dunn's departure, in which Hurd is quoted as saying "There is no doubt in my mind that [Dunn] had the best interests of HP in mind throughout her time on our board."
Meanwhile, Dunn says in the release "I followed the proper processes by seeking the assistance of HP security personnel. I did not select the people who conducted the investigation, which was undertaken after consultation with board members." The battles lines may be being drawn.
While getting rid of some of the employees whose judgment was most egregious is clearly a step in the right direction, Hurd needs to do much more to reassure HPs customers, employees, and investors that such huge lapses in ethical standards and judgment will be less likely in the future. The fact that the company's chief ethics officer was orchestrating the unethical behavior suggests that policies, internal education and attitudes inside the company are seriously in need of remolding.
HP has historically positioned itself as the most ethical and conscientious of all large tech companies. That the company that uses the highest-minded rhetoric is the one now dragged into the muck is tragic. As Hurd said Friday, "it has always been our deep values and beliefs that have set us apart from our competitors."
While Hurd announced that the company has hired an eminent outside attorney to conduct an extensive review of the company's "investigative methods and...Standards of Business Conduct processes," that does not go nearly far enough. The world is still waiting for Mark Hurd to practice the transparency that he said Friday has been "my goal from the beginning."
H-P Clears the Air, but Not the Cloud
TheStreet.com
What's Dunn is done.
Patricia Dunn, the Vic Mackey of Hewlett-Packard's legendarily dysfunctional board, has resigned not just as its chair but now she's cut ties with the whole cabal entirely.
And that's supposed to make us feel a lot better. But do you really feel better? I know I don't. In fact, the more this slow-motion train wreck plays out, the more I fear for HP's future.
First of all, Dunn should have resigned a week earlier, when it was clear she unleashed private investigators to commit possibly illegal snooping on board members and journalists. At best, the investigators went way beyond her control. At worst, they did exactly what she wanted.
But Dunn didn't resign then. She held on until a report in The New York Times suggested the investigators were contemplating posing as janitors in newsrooms -- a self-effacing act of servitude if there ever was one.
So, the message from HP is clear: Flirt with lawlessness by pretexting -- or fraudulently posing as another to gain phone records -- and your wrist is slapped. But think about sending someone to fish through reporters' trash cans, and you're history. I'll let the case studies in MBA courses parse that one out, because it makes no sense to me.
In an attempt to right things, H-P CEO Mark Hurd finally came forth Friday to a) do his best Sergeant Schultz and say he knew nothing -- nothing! -- and b) apologize for something he admittedly knew nothing about. It was that rarest of sights on Wall Street: the CEO as naïve whipping boy.
"I extend my sincere apologies to those journalists who were investigated and everyone who was impacted." (Mr. Hurd, if you really want journalists to take your words to heart, never ever use "impact" as a verb.)
And that was the very moment I started to fear for Hewlett-Packard. I had initially cheered on Hurd's ability to turn the company around in the wake of the fiasco known as Carly Fiorina.
So I never thought I'd actually say this, but the events of the past few weeks -- culminating in Hurd's impersonation of Sgt. Sebastian -- have made me a little nostalgic for the Fiorina era. At least when she messed up, it was visible. It gave investors a chance to bail out at the warning signs.
But under the Dunn era, and quite possibly under the Hurd era, investors may not have the benefit of Fiorina's red flags. If the leak-probe scandal is any indicator, illicit and possibly illegal acts are to be kept under wraps.
That suspicion was in no way ameliorated by Hurd's press conference Friday -- a staged event where he boldly admitted he consented to sending a journalist false information, then turned around and asked a room full of journalists to trust him.
On top of that was the way phrases like "I believe," "I understand" or "we believe" were tossed around at the press conference like candy on Halloween. Public Relations 101 teaches that if you want to make someone trust what you're saying while covering your behind, then use a qualifying phrase like "I believe that..." If you're caught, you just say you were saying what you believed.
So, here's a question for H-P's new chair: What else is the board hiding?
When someone you count on betrays your trust, it's natural to ask what else they've held back. This is something that every H-P shareholder should be demanding of the board -- and of its new chairman in particular.
Here's a question that's more to the point: Does Hurd even know what else is hidden?
Hurd said Friday he was "very disturbed" by what he's learned about how the leak investigation was conducted. He said he attended some early meetings on the investigation but missed a key report in which the pretexting strategies were discussed.
It's tempting to take his declarations of blissful ignorance at face value, except for three things:
First, as a board member, why did he miss a report that he knew, if he had been paying attention in those meetings, would be important?
Second, why did he wait until after reports surfaced suggesting he may have known about the pretexting? Why not come clean earlier?
Third, and most significant for H-P investors, why didn't Hurd, not only the top manager but a board member to boot, have the slightest idea that such a mess was in the making? Isn't it part of his job to keep these kinds of things in check?
It's a terrible position for any leader: some malfeasance is uncovered, and you were either complicit in it, or oblivious to it. You're either corrupt or inept. That's the position in which Mark Hurd has found himself. And on Friday, Hurd threw himself wholeheartedly onto ineptitude.
I don't own any shares of H-P. I never have, and seeing the company today, I certainly don't plan on it. The impressive turnaround that H-P has started may well continue. But investors tempted to stay with the stock need to ask themselves whether someone who has confessed to being so out of touch on something so important can be trusted as both CEO and chairman.
At the press conference Friday, Hurd started off by saying, "This is a complicated situation, and the more I look into it, the more complicated it becomes."
Actually for H-P investors, it's beautifully simple: Until you know what is really going on inside H-P, just walk away.
HP Under Increasing Pressure to Overhaul Board
Four public pension funds have filed a proposal with Hewlett-Packard that would allow them (and any other shareholder group owning 3% of HP’s stock) to nominate candidates for the board of directors. This increases pressure on CEO & Chairman Mark Hurd, who earlier this month promised that he would focus on improving the board. According to Boardroom Insider publisher Ralph D. Ward, “You have a board here right now that is crippled in every way imaginable,”. In another development, H-P Senior Counsel Kevin Hunsaker and H-P Global Security Manager Anthony Gentilucci were issued subpoenas by a House committee examining the HP leak-investigation scandal
Most Trustworthy Man
E-mails obtained by BusinessWeek show that George Keyworth was considered a key part of Hewlett-Packard's media relations team
An apology by Hewlett-Packard CEO Mark Hurd for what he called "disturbing" efforts to uncover board leaks came with a few important caveats. As problematic as it was, the investigation was nevertheless "absolutely proper and appropriate," Hurd noted. And ultimately, it fingered "the source of the leaks."
That source of at least one leak has already been identified as Director George "Jay" Keyworth, who resigned on Sept. 12 after acknowledging that he spoke to a CNET reporter in January after a company retreat. But Keyworth maintains that he was not the source of earlier leaks. HP (HPQ) has admitted that the company doesn't know who to blame for a series of stories fed to the press in 2005, despite declarations by Hurd and others that the company has gotten to the bottom of the leaks.
Now, a series of e-mails turned over to House of Representatives investigators and obtained by BusinessWeek illustrate that Keyworth was considered a valuable asset to Hewlett-Packard's media relations team, which frequently and aggressively touted him to reporters. Indeed, the longtime HP director was one of the company's biggest boosters. And he was an old government hand with years of experience dealing with reporters, most recently as chairman of the Progress & Freedom Foundation, a free-market think tank based in Washington.
CLEARING HIS NAME. Keyworth is an easy target. He has admitted talking to a reporter without getting corporate approval, and he has resigned under pressure. But he also appears to be working furiously to clear his name. As part of his agreement to resign, Keyworth signed a confidentiality agreement with Hewlett-Packard and declined, through his lawyer, to comment for this story.
But his agreement with HP also required the company to back off of its claim that Keyworth had leaked damaging company secrets to the press, a step it took on Sept. 12. "At HP's request, Dr. Keyworth often had contacts with the press to explain HP's interests," HP said in a written statement.
"The board does not believe that Dr. Keyworth's contact with CNET in January, 2006, was vetted through appropriate channels, but also recognizes that his discussion with the CNET reporter was undertaken in an attempt to further HP's interests."
MASTER OF SPIN. Indeed, e-mails written by members of HP's media relations team show Keyworth to be a heavyweight when it came to putting a positive spin on HP's image. The company's public relations staff considered him a corporate booster, and frequently encouraged him to talk to reporters, even without supervision.
Dates of the e-mails, and their authors, were blacked out before they were obtained by Business Week. Sources close to the investigation say the e-mails were written by members of the company's media relations team.
In one e-mail to a Fortune reporter, an HP vice-president of media relations pitches an interview with Keyworth, calling him a "protégé" of HP founder Dave Packard and noting that he was HP's longest-serving board member. In another e-mail to a reporter, an HP public relations staffer sets up interviews with Keyworth and Director Richard Hackborn.
A DEPENDABLE SOURCE. Hackborn, according to the staffer, needed some handling. "To put Hackborn at ease, I'm going to sit in," the author writes. Keyworth, on the other hand, needed no supervision. "I'm going to hand you [my] tape recorder for that one and leave you [to] chat alone…You'll find Keyworth incredibly insightful on all things HP," the press handler tells the reporter.
Indeed, the media relations department had great faith in Keyworth's ability to get the company message out, and apparently kept him on a long leash. In an e-mail to Keyworth, an HP public relations staffer gives the director talking points for an interview with Fortune, telling him to talk up then-CEO Carly Fiorina. "Transition to Carly and her skill set," the staffer says. "Specifically, her brilliant strategic mind and her confidence—illustrated by her deep engagement of the Board."
The HP staffer even compliments Keyworth on an earlier sound bite he had made about the company "needing and getting a General Patton." Keyworth is encouraged to share anecdotes about Fiorina with the Fortune reporter. "This is an opportunity for us to reset Carly's image to show the Carly we all know and love," the e-mail concludes.
GUILT BY ASSOCIATION. One source close to Hewlett-Packard says many company insiders remain furious at Keyworth, blaming him for "pulling the trigger" on the pivotal January CNET article. The article led to another internal investigation that ultimately brought HP's questionable tactics to light, led to Patricia Dunn's ouster as chairman, and could eventually lead to criminal charges. Keyworth's credibility with some HP loyalists was destroyed, the source says, by his association with the CNET article.
But Keyworth seems determined to prove his innocence. Sources close to the House investigation say Keyworth is cooperating and has even turned over recordings of voice mails left on his answering machine by a Wall Street Journal reporter whose calls he wasn't returning.
In one case, Keyworth had reservations about returning an unsolicited call from a reporter. After receiving the call, Keyworth reached out—from a vacation in Italy—to HP's public relations office. "I usually just ignore such calls," Keyworth wrote in an e-mail, "but do you know what's on his mind?"
The Men Who Conducted the HP Probe
Cooperation between Hewlett-Packard's ex-security chief and the owner of a firm involved in the pretexting scandal goes back more than a decade
When Anthony Gentilucci, former manager of global security at Hewlett-Packard (HPQ), appears before a congressional subcommittee on Sept. 28, he'll face a tough grilling by lawmakers. Gentilucci is likely to be asked to elaborate on his role in the probe of leaks to the media by the company's board of directors.
In particular, legislators will probably want him to unravel a tangled web of relationships that led to at least three layers of investigators working a probe that involved possibly illegal methods and itself has become the subject of several government investigations.
Gentilucci, along with HP Senior Counsel Kevin Hunsaker, is on the way out at HP. Both have been subpoenaed to appear at a hearing by the U.S. House Energy and Commerce Committee. The committee is trying to shed light on a technique known as pretexting, whereby an investigator impersonates someone else to obtain that person's telephone records.
Lawyers hired by HP to investigate the probe say Gentilucci provided the Social Security number that may have been used to get calling records for an HP employee, one of 18 individuals who were the subject of pretexting. That's just one of several ways Gentilucci figures in the probe set in motion by former HP Chairwoman Patricia Dunn, who stepped down on Sept. 22.
LONGTIME COLLEAGUES. Gentilucci, 50, rose to manager of corporate security at HP amid a series of acquisitions. He was hired at Digital Equipment Corp. (DEC) in 1991 and stayed on after DEC was acquired by Compaq Computer in 1998 and again after HP bought Compaq in 2002. Before joining Digital, Gentilucci was employed by First Security, a Boston-area security firm that's now a unit of Securitas, the Swedish security consulting firm. Before working at First Security, he studied at Northeastern University, completing a bachelor's degree in criminal justice in 1979.
While employed at First Security, former colleagues say, Gentilucci overlapped with Ronald DeLia, who later would become the owner of a private investigation firm, Security Outsourcing Solutions (SOS) of Needham, Mass., which also became involved in HP's search for the source of board leaks.
DeLia's firm had a "longstanding contractual relationship" with HP and was contacted by Dunn to carry out investigative work that started in early 2005, according to Morgan, Lewis & Bockius, the law firm hired by HP Chief Executive Mark Hurd to take a deeper look into the probe. That first phase of the investigation, dubbed Kona I, was concluded in July, 2005.
"TRUSTED ONE ANOTHER." DeLia and Gentilucci are also central figures in Kona II, a second, more aggressive investigation that began in early 2006 and was directed by Hunsaker. It was during Kona II, which lasted until May 24, that investigators hired by HP engaged in pretexting. Among the targets were nine journalists, including three reporters at BusinessWeek.
At some stage, investigators also weighed carrying out "undercover operations" at the San Francisco offices of The Wall Street Journal and CNET, according to Morgan Lewis. A study into the feasibility of such methods was circulated in February by Gentilucci, The New York Times reported on Sept. 20. Calls to DeLia and his lawyer, John Kiernan, were not returned. Gentilucci could not be reached. HP declined to comment on DeLia and Gentilucci for this story.
Gentilucci may have been a key link between HP and SOS. Richard Guilmette, a security consultant in Franklin, Mass., worked with Gentilucci at DEC from 1992 to 1998 and left when Compaq completed its acquisition of DEC. He knew DeLia through Gentilucci. "I know that they worked together at First Security during the 1980s and early '90s," Guilmette said. "They knew each other well, knew each other's capabilities, and trusted one another to know that things would be done right. In this business you hire people that you know and trust. That's what I do."
Other evidence that Gentilucci and DeLia, now 56, knew each other comes from a Boston Herald wedding announcement published on Feb. 8, 1998, in which Gentilucci and DeLia were both reported to have been groomsmen. Also at the wedding was DeLia's lawyer, Kiernan, who served as best man.
"REAL PROFESSIONAL." Gentilucci's former boss at DEC, Raymond Humphrey, of Naples, Fla., remembers Gentilucci as a tough and thorough investigator, whose work included the usual corporate security matters like financial malfeasance and sexual harassment. But Humphrey said Gentilucci had also worked on a team investigating the illegal shipments of VAX computers, an expensive and sophisticated type, to Communist countries.
"This was during the height of the Cold War and there were stiff restrictions against sending VAX computers…to certain countries in the Communist bloc," Humphrey said. "When I hired Tony, we were investigating extremely sophisticated diversion methods that involved several different countries and 14 or 15 different cut-out companies."
Wesley Terrell of Townsend, Mass., is a third former corporate security employee who worked at DEC during the early 1990s. He worked at DEC from 1982 until 1998; he now works for Pinkerton Consulting, a unit of Securitas. "I know Tony very well," Terrell said. "He's a good guy and was my manager. He's a real professional." He declined to say anything else.
Prior to having worked for First Security, Guilmette says DeLia claimed to have served in the U.S. Army, including as many as 12 years with the Army's elite Criminal Investigative Division (CID). Another source familiar with information that DeLia gave about himself to potential clients remembers that DeLia claimed to have served with the Army CID for 12 years. The Defense Dept. couldn't immediately confirm DeLia's service record. Neither could the Army CID's central command in Fort Belvoir, Va.
DeLia is known to have worked as a private investigator in the early 1980s, when he was employed by First Security. He has been a member of the American Society for Industrial Security (ASIS) since 1999. Gentilucci was a member of that organization from 1992 until 2001.
INVESTIGATION SUBCONTRACTING. And according to reports, DeLia launched his own firm in 1982 called Commercial & Industrial Services, which he eventually sold. In 1995, he opened a restaurant called the Grill & Cue, which didn't succeed and went bankrupt in 1997. The restaurant's failure led to a dispute with partners over taxes owed that, as of 2002, amounted to more than $58,000.
Guilmette said that after leaving DEC he ran corporate security for a small computer firm in Natick, Mass. In that capacity he hired DeLia for some contract security work. "I contracted guard services and investigation services through First Security. Ron was the manager for those investigations, so he would have managed the processes for me," he said. DeLia, Guilmette said, typically acted as a middleman or fixer, who would take on jobs for corporate clients like HP, but whose main role was identifying and hiring subcontractors with specific skills to handle different aspects of an investigation.
In the case of the Kona II investigation, Morgan Lewis has said that Gentilucci gave DeLia's firm, SOS, the Social Security number for the HP employee, and that DeLia then handed that number to yet another outside firm, Action Research Group.
Exclusive: Mark Hurd on the HP Scandal
The CEO grants BW.com his first long interview since admitting he should have taken a more active role in preventing the spying debacle
Until news began breaking early this month that Hewlett Packard (HPQ) had spied on its board members and others to find the source of boardroom leaks, Mark Hurd's tenure at HP has been as close to a corporate fairy tale as one is likely to find. In February, 2005, the relatively unknown former chief executive officer of NCR (NCR) replaced the controversial Carleton S. "Carly" Fiorina—inheriting problems ranging from a credibility gap on Wall Street to lousy morale in its Palo Alto headquarters.
These days, the theme of Hurd’s tenure is a lot less fairy-tale with reports that HP (HPQ) used possibly illegal means to expose leakers. The matter has resulted in the departure of Chairman Patricia Dunn, who unleashed the probe, and Director George Keyworth, identified as the source of a leak. Another director, Tom Perkins, resigned in dismay over how HP handled the investigation.
Hurd seemed to have all the answers. Within a few months the stock had doubled as investors and HP employees cottoned to his no nonsense management style. Now, in his first extended interview since admitting he should have taken a more active role in preventing the scandal—and just three days before he is to testify before Congress—Hurd tells BusinessWeek computer editor Peter Burrows what damage the scandal has caused, and what he ought to do about it.
Everyone knows you're an operations guy who gets into the nuts and bolts of running your company. How could you have missed the scandal that's now unfolding?
I'm a detail-oriented guy, by trade. But when you have a place of this scale, you have to pick your spots where you're going to go dive. Ethics and compliance wasn't the first process I was going to go look at. I was going to go look at processes related to the performance of the company.
Many people are wondering about your role. You have said you missed most of a meeting to discuss the investigation in mid-2005, that you didn't read a key report earlier this year, and didn't know an e-mail being sent to a reporter from a made-up HP executive had tracing software in it. Those sound like excuses to some. What should people make of this?
That I should have figured it out sooner. I'm not trying to shirk it. I wish I would have figured it out sooner.
What's top of mind for you at this point?
The company. I believe in the company, and I think what's unfortunate is that this had nothing to do with the performance or the strategy of the company. The number of people in the company that participated [in the scandal] is an almost incalculably small percentage of the company.
We have to fix this. All I can do at this point is figure out exactly what happened and figure out whether we had a process breakdown or an execution breakdown or both, and make sure that we build a future capability that while we protect the company, works within our ethical values and standards of business conduct. Frankly, that's all I can do.
Sitting back and saying 'what if' isn't really helpful at this point. What I have to do is focus on how to fix this, and turn this the best way possible from an issue into an opportunity. We have a chance to get better.
Do you have any reason to believe your job is in danger?
No.
Why didn't you read the summary report of the investigation that was completed in March?
The whole subject of the discussion [before he received the report] was 'what's the answer' [that the leaker was George Keyworth]. My first thought was that this was really, really bad news. You had a really good board member who had made tons of contributions to HP over the years.
I'm not trying to justify the fact that he leaked a news story to CNET or whoever, but I knew this was going to be tough stuff. The guy had done a lot for the company, and had a lot of support—not just on the board, but in the company.
But when you get that kind of data, my instinct is to escalate it. Patty [Dunn] did say 'What do you think we should do this with this?' I said you have to escalate this up through the chain [to the board's audit committee and to the outside counsel]. She did that, which I think was the right process to go through. So my first reaction wasn't to say 'tell me how we did this.'
If I had read this report, I probably would have got it. It's funny, because [there are] footnotes strewn all through [the report] stating that everything was legal. But that's not exactly the question here. It's a question about appropriateness, and we [at HP] have a different standard. We're not trying to straddle the legal line at every turn. One of the strongest attributes of our brand is trust, so we have to make sure we're doing things in a way we can proud [of].
You have said that the reason Keyworth was ousted from the board was that he violated HP standards of business conduct. Did you violate those standards as well?
I don't think so. I've read through the document multiple times, but I can't go any further than that. I think there's a different question than just did I violate the SBC. I'm the CEO, so right or wrong you're accountable for what goes on in the company. You get a scorecard in the end.
As I've said to many people, you can never roll the perfect game. You can always play the would-have-should-have game—should I have focused my energy with more detail here and less there, or whatever the case may be. History will tell whether you made the right set of judgments about where to apply your energy. That's a question I'm never completely comfortable with. There are so many choices about where to spend your energy, and how to pick your spots.
How much of a distraction is this for you? Are you concerned about the company's ability to perform this quarter?
Let's just say I'm intermittently very focused on our quarter.
Other than the leak mess, how would you characterize the performance of the board? Is it as dysfunctional as some analysts suggest?
What you have here is a board that has had more infighting with themselves than with me. I think the board has solidified around me and around the strategy for the company. What you had were some historical issues that just continued to percolate.
Can those problems be fixed?
Some of them are matters of history at this point [because of the departures of Keyworth, Perkins, and Dunn]. But at the end of the day, we have to do the same work with the board that we've done with the company, that is, to rebuild its very foundation. I think we can do that with the board members we have today.
Going through tough times like these can be a tremendous bonding opportunity. They can also be highly divisive times. My job as chairman of the company is to make sure it's a bonding opportunity. My objective can be nothing short of building the best board in the world. We clearly have some work to do.
Did the board, and you personally, become overly focused on press leaks, to a destructive degree? Have you changed your views on how companies can have the most appropriate interaction with the business press?
First off, I wouldn't call myself too focused on [leaks], because I wasn't really focused on it. I wasn't here in '04 and '05. I don't have those scars that everybody else on the board has. But leaks are not good. People who leak confidential information out of a company are not acceptable.
At the same time, bad investigations of bad things are not acceptable, either. I don't think you can combine the two. There's no doubt that things are going to come up in the future at this company that have to be investigated. It doesn't mean you can't deal with them appropriately, and deal with them within our standards of business conduct.
What can other companies learn from HP's experience?
I can only imagine there are opportunities for others in Corporate America to learn from us. I would say to go get the process inspected by professionals, to make sure you have the appropriate checks and balances in your process, and that you have the process staffed with the perfect people [for the compliance job].
Is there anything else you have dealt with that compares to this?
This is so public. I've had other crises that had lots of complexity to them, but nothing that's played out in the public domain like this has.
Will you watch Carly Fiorina on 60 Minutes next Sunday?
Is she on 60 Minutes? I didn't know. If I'm around, and if it's on in the room I'm in. I wouldn't have any problem with it.
How can it be that HP has not fired a single person over this?
As I said on Friday (at his press briefing), we don't have all the data. I got full control of [the investigation] at a certain point of time. Now it's my ball. We have to get all the details, at least to the degree of appropriateness that I feel is needed.
We don't want to make yet another mistake. There's a temptation [to quickly fire people and take action]. But these things tend to domino. Someone's got to stand up and say 'let's slow down, let's make sure we have all the data to an appropriate level of detail.' That's what I'm doing.
What do you hope to accomplish with the investigation you're now leading?
It's the whole ethics and compliance process. Let's review the standards of business conduct, to make sure we feel good about it and it's up to date and it's aligned with our values. Let's make sure our investigations in support of the SBC are appropriate and are ones we can feel great about.
I just think we need to put fresh eyes on it, and look at it as a zero-based budget kind of thing. Let's look at this from the ground up, and not try to tweak what we have. Let's try to be a leader here. It sounds absolutely nuts, based on the circumstances we're in. But sometimes when you're in a situation like this, it creates an openness to change. And I can't think of anyone more open to change than us.
HP was doing so well and everything was going so right since you arrived at HP. Will this be a temporary bump in the road or a permanent blot?
We all have scorecards. This happened on my watch. Like it or not, you get credit for the good stuff and the bad stuff. But at the end of the day, my scorecard is less relevant than HP's. At the end of the day, what matters is whether HP is the kind of company that everyone respects and trusts, so it can take advantage of its opportunities in the marketplace. I've got to make sure that happens. The people of HP didn't do this.
There has been talk that you were going to quit—just say "I don't need this."
I've heard that rumor and I'm very disappointed to hear it. There was a rumor that I walked out of the board meeting on Thursday and that I wasn't coming back. I don't know where that comes from. I'm not walking—on my own, anyway. I'm going to work my hardest to fix this thing and put it behind us. But I still have work to do.
HP, Press Bug Each Other
Silicon Valley journalists just got tougher -- and for some, so has their job.
Revelations that investigators hired by Hewlett-Packard spied on reporters and stole their identities to get personal records all but guarantee the Silicon Valley icon will face a more skeptical press.
They also put at least nine reporters at four publications in the awkward position of figuring out how to cover a company that has wronged them personally.
Many questions arise. For example, should news outlets reassign reporters to ensure personal grudges don't taint coverage? Will reporters be a lot tougher?
"Each person is going to have to answer the questions for themselves," said Christine Tatum, a business editor at the Denver Post and president of the Society of Professional Journalists. "Could you continue to be objective and fair and accurate and balanced about a company that felt entitled to rifle through your private information? It's dicey."
Tatum says she doubts she could remain objective in such circumstances. But some publications might not want to remove an experienced reporter with the ability -- proven dramatically in this case -- to dig up information.
"As an editor, I would have to have a hard conversation with the reporter," she said.
The relationship between reporters and companies they cover is inevitably an uneasy one. But HP's (NYSE:HPQ - News) actions, a first for a company its size, tread new ground.
'New Layer Of Skepticism'
"It's clear that HP has some fences to mend with the affected journalists, and it may be a while before they regain the trust of the media in general," said Jamie Diaferia, partner at Infinite Public Relations.
"Even if HP is the only company to have ever done something like this, other journalists have to at least wonder about their relationships with large public companies. It adds a new layer of skepticism to the process that may never disappear."
In a scandal bound to go down as a classic case study in journalism and PR textbooks, the tech giant dug up personal phone records on reporters and their families, had some followed, tried to send spyware to one and possibly dug through the trash of another.
At one point, HP's investigators considered getting jobs as cleaners and secretaries at two news outlets to make the spying easier.
"I pity the men and women coordinating HP's PR," said Michael Shmarak, a principal at Sidney Maxwell Public Relations. "Without question, this whole predicament is going to cause angst between the media and the company."
Still, he added, most journalists don't let personal feelings affect their work.
The HP probe targeted Dawn Kawamoto, Tom Krazit and Stephen Shankland of CNet's News.com; Pui-Wing Tam and George Anders of the Wall Street Journal; John Markoff of the New York Times; and Peter Burrows, Ben Elgin and Roger Crockett of BusinessWeek.
Kawamoto and Krazit wrote a few stories as the scandal broke Sept. 5. But once it became clear that during the probe HP had obtained their records, colleagues took over.
News.com's replacement reporters included Shankland, but his HP stories stopped after the online publication reported that the tech firm also targeted him.
Reporters Taken Off Story
Tam and Anders of the Wall Street Journal have not written about HP since the scandal broke.
While the New York Times' Markoff has not written a bylined story about HP since the scandal broke, he was credited for helping in the reporting process for a Sept. 22 piece about it.
The newspaper also quoted him in a Monday story about companies' efforts to plug leaks. Markoff, the victim of an e-mail hacker 10 years ago, said in that story that the tactics used by HP might be more common than most people assume.
BusinessWeek's Burrows wrote a Sept. 22 piece about HP's efforts to ferret out and fire workers caught speaking to the media. A tag line at the bottom of the story mentions Burrows' role as victim in the scandal.
(The BusinessWeek and CNet reporters didn't respond to e-mail questions, while the other two publications weren't contacted.)
Elizabeth Corcoran, a Forbes magazine reporter married to Anders, wrote about HP for a Sept. 22 first-person account about the ordeal.
For some, being revealed as one of HP's targets amounts to a badge of honor, a modern-day equivalent of being named to Richard Nixon's "enemies list."
Brian Johnson, a public relations consultant in Silicon Valley, said some journalists might not be too upset over the incident.
"Imagine what's going through the reporter's mind," Johnson said. "'Gosh! My work is so important, HP and its executives are willing to risk their reputation to find my sources and methods.'
"That's very flattering indeed."
CNNMoney.com
House panel releases HP testimony
Hewlett-Packard Chairman and CEO Mark Hurd and recently ousted chairman Patricia Dunn are set to express regret to a House committee Thursday over the methods used in the company's leak investigation, but they also will seek to distance themselves from tactics used, according to their prepared testimony.
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The House Energy and Commerce Committee released prepared testimony from Dunn and Hurd Wednesday evening ahead of a hearing on the company's controversial spying program.
Lawmakers will seek more details of their involvement in the boardroom probe Thursday during a question and answer session before the panel.
In her prepared testimony, Dunn said she became aware that phone records were obtained during the probe in the spring of 2005 but that she believed these records were accessed legally.
HP has been grappling with a privacy scandal since it disclosed early this month that its investigators used "pretexting" - a potentially illegal practice that involves using false pretenses to obtain personal information - in order to access phone records of board directors, employees and journalists.
Dunn also said she was under the impression that HP chief financial officer Bob Wayman had authorized the leak probe and that at no point did she consider herself the investigation's "supervisor."
HP said Wayman wasn't involved in the probe. "To the best of our knowledge, Bob Wayman had no involvement whatsoever in the leak investigation. Any assumption about Bob Wayman's involvements made by Ms. Dunn was nothing more than that, an assumption," spokesman Ryan Donovan said.
Dunn has taken the brunt of the criticism surrounding the leak investigation - last week she resigned as chairman and director at the request of the board. But she defended the need to find the source of the leaks in her testimony, describing it as "unfinished business" in the wake of ousted chief executive Carly Fiorina's departure in February 2005.
Hurd, in his prepared remarks, said the use of potentially illegal tactics occurred because of a breakdown in internal controls and that the investigation team became so focused on finding the leaker they lost sight of the company's values.
Hurd, who has come under fire for not doing enough in the wake of the spying scandal, said he wishes he had asked more questions but that he is focusing on how the company addresses its mistakes.
His remarks echoed those he made at a press briefing on Friday, when he acknowledged he was aware of some questionable tactics.
In addition to hearing from Dunn and Hurd, the House Energy and Commerce Committee will hear from HP general counsel Ann Baskins on Thursday. A string of others involved in the case also have been requested to appear at the hearing.
Earlier Wednesday the House panel said it had subpoenaed five private investigators to testify at the hearing. Ronald DeLia, one of the private investigators who worked on the probe, also has been subpoenaed.
Hypocrisy at Hewlett-Packard
By S.J. Caplan
September 28, 2006
Editor's note: The following account is fictional. The author doesn't know anyone by the name of Joe Hack, nor does she know anyone else who works in the Compliance Department at HP.
My old friend Joe Hack, a member of the Compliance Department at Hewlett-Packard (NYSE: HPQ), stopped over to visit while in town for the House Committee hearings investigating the pretexting brouhaha. I thought this might be a good time to ask him a few questions.
He did not agree.
"You press are all alike," he said. "You hear of a leak and blow it out of proportion."
I thought about that a moment and replied, "Isn't that what happened at HP? A leak?"
"You mean we should have just looked the other way when a board member was leaking private information?" he shot back. "What should we have done -- just gone back to shooting spitballs at each other during board meetings?"
"Well, I guess you have a point. A board has to have trust to work effectively."
"That's right!" he exclaimed. "And that's just what we at HP believe. Haven't you read our Standards of Business Conduct?"
I had. It read, in part:
HP conducts its business with uncompromising integrity. Every member of the HP community -- directors, executives, managers, employees, and business partners -- has a duty to comply with all applicable law and adhere to the highest standards of business ethics.
"So why didn't Chairman Dunn just meet with each board member and read them all the riot act about confidentiality?" I demanded.
"Tried that," Joe said. "Didn't work."
"What about hiring an outside firm to conduct an investigation -- one that complied with the law and was subject to outside oversight?"
"Don't you think we know what we're doing?" he demanded. "Our company prides itself on a long history of ethics and integrity."
"Well, you did have a few boardroom mishaps before," I reminded him. "Remember the -- "
"Oh, stop!" Joe interrupted. "Just because we hired Carly Fiorina as the first outside CEO, and she didn't have the relevant experience we needed, that doesn't mean we goofed. After all, we gave her a pretty hefty severance package when she left. Doesn't that prove she was worth it?"
"Not really," I replied. "Actually, the company's stock price declined during that period. Anyway, I was really referring to the boardroom battles with Walter Hewlett when he voted in favor of the merger with Compaq and then led the dissent against it."
"Oh, stop bothering me with stories from the past! The fact is that our stock price hasn't really suffered from this little matter, and Mark Hurd will restore the company's reputation."
"But he already admitted that he consented to sending false information to a journalist," I reminded Joe.
"Oh, you're too sensitive."
"Well, what about the fact that he claims he didn't even know about a report that discussed pretexting plans?"
"He missed that meeting."
"Shouldn't he have been there?" I prodded further. "Why didn't he know more about the matter?"
"As Mark said, 'It's a complicated situation.'"
"I guess so," I said. "And it's even more complicated now that he's chairman as well as president and CEO. That sure blurs the lines of an independent board, and some folks may find that disturbing."
"WHO? Give me names!"
"Well," I said, "HP has a great record on corporate responsibility and is a favorite of many SRI investors."
"That's right! Lots of people appreciate us! This year we placed second in Business Ethics Magazine's Best Corporate Citizen rankings, we're among the top companies for minorities, and we've won many sustainability accolades."
"Aren't you concerned that SRI indices and funds may drop you? Corporate governance is a large component of SRI, and HP sure doesn't look too squeaky clean in this area."
"Nah," Joe said. "Not worried. I haven't seen too many stories on that angle out there. Anyway, if I do, I'll just let them know that we were even named among the most trusted companies with respect to privacy issues. And we were just chosen as one of the best places for a mom to work. That'll stop the blather. Everyone likes moms!"
He was right. At that point, I didn't have much more to say, except that I was getting hungry.
"Don't worry! I already called for pizza delivery," Joe said.
"How did you know whom to call?" I asked.
"Easy. I had a look at your phone records."
AP
HP General Counsel Ann Baskins Resigns From Company Amid Spying Scandal
PALO ALTO, Calif. (AP) -- The general counsel of Hewlett-Packard Co. announced her resignation Thursday, shortly before the company's CEO and former chairwoman were expected to tell Congress they had not been advised that HP's spying probe involved illegal tactics.
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Ann Baskins had been with HP for 24 years, including the past six as the company's top in-house lawyer. She had been scheduled to testify to a House committee as well, but her attorneys said she would invoke her Fifth Amendment right against self-incrimination and not answer lawmakers' questions.
"Ms. Baskins always believed that the investigative methods that she knew about were lawful, and she took affirmative steps to confirm their legality," her attorneys told the House Energy and Commerce committee in a letter Thursday. "Ms. Baskins repeatedly sought and obtained assurances from a senior HP counsel that the techniques about which she knew were entirely lawful."
Baskins' resignation follows the same decision last week by Chairwoman Patricia Dunn, who along with CEO Mark Hurd was going before the House committee to explain how the company came to obtain information about board members suspected of leaking information to journalists. Two other directors have also resigned.
Baskins managed "worldwide legal matters including patents and licenses, litigation and regulatory compliance," according to her biography on HP's Web site. As corporate secretary, a title she was given in 1999, she was also responsible for shareholders' meetings, "board of directors' formalities," corporate governance and shareholder records, according to her biography.
After joining HP in 1982 as a lawyer, she was named a senior attorney in 1985 and corporate counsel in 1986. She held several other positions before being named general counsel in January 2000. She graduated from Stanford University and earned her law degree at the University of California, Los Angeles.
"Stepping down was a very hard decision for her, but by doing so she has put the interests of HP above her own and that is to be commended," Hurd said in a statement about Baskins' resignation.
"I want to thank Ann for 24 years of outstanding service and devotion to HP. She began her career here shortly after law school and worked her way up to serve as the company's top lawyer, earning along the way a reputation for hard work and integrity."
As part of Baskins' severance, she must forfeit all her restricted HP stock but will take away retirement payments totaling $1.78 million. The agreement also gives Baskins until Nov. 22 to cash in 465,858 HP stock options -- worth $3.66 million as of Wednesday
Lawmakers Grill HP Over Spying Scandal, Making Comparisons to Enron and Watergate
WASHINGTON (AP) -- The saga of Hewlett-Packard Co.'s spying scandal -- which has toppled the company's chairwoman, two other directors and at least two high-ranking executives -- deepened in intrigue Thursday as lawmakers exploring the imbroglio summoned comparisons to Watergate and Enron.
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Members of the House Energy and Commerce Committee demanded to know how investigators for the respected Silicon Valley anchor could use tawdry tactics such as "pretexting," or impersonating other people to obtain their phone records.
In one key document cited by the panel, an HP investigator had warned higher-ups, including the company's now-fired chief ethics officer, that the tactics being used to find the source of boardroom leaks were possibly illegal and at the very least could damage the company's reputation.
But at least in the initial round of Thursday's hearing, few answers emerged. Ten people involved in the cloak-and-dagger investigation -- including the former ethics officer and General Counsel Ann Baskins, who resigned Thursday -- asserted their Fifth Amendment right against self-incrimination, refusing to answer questions.
Former Chairwoman Patricia Dunn, who stepped aside last week as the scandal showed no signs of abating, told the panel that she had been assured that phone records had been obtained lawfully from public sources.
Dunn said the word "pretexting" never cropped up in the conversations.
"I deeply regret that so many people, including me, were let down by this reliance" on such advice, Dunn told the panel.
The panel was also due to hear from CEO Mark Hurd, who apologized for the investigatory tactics when he replaced Dunn as chair last week but has denied having direct knowledge of the probe's methods.
In testimony prepared for Thursday's hearing, Hurd said Dunn had told him of the existence of the investigation, "but I was not involved in the investigation itself."
"How did such an abuse of privacy occur in a company renowned for its commitment to privacy? It's an age-old story. The ends came to justify the means," his prepared testimony said.
Lawmakers opened the hearing by expressing outrage that HP's investigators masqueraded as HP directors, employees and as reporters to obtain their telephone records, surveilled them and their relatives, sifted through their garbage and used an e-mail sting to dupe one reporter.
"We have before us witnesses from Hewlett-Packard to discuss a plumbers operation that would make Richard Nixon blush were he still alive," Democratic Rep. John Dingell of Michigan said.
Other lawmakers said the scandal was reminiscent of the Enron Corp. debacle, in which top management claimed not to know of serious wrongdoing that ultimately brought the company down. The panel members said the comparison was especially disappointing for a company with the stature of HP, a 67-year-old computer and printer maker with a reputation for integrity.
"It's a sad day for this proud company," said Rep. Diana DeGette of Colorado, the panel's senior Democrat. "Something has really gone wrong at this institution."
Rep. Ed Whitfield, R-Ky., chairman of the committee's investigative panel, demanded to know why, with many high-ranking HP executives and attorneys involved in the probe, "No one had the good sense to say `Stop.'"
As lurid details of the affair emerged in recent weeks, the corporate casualties have mounted at HP, which ranked 11th on Fortune magazine's most recent tally of the nation's biggest companies. HP announced general counsel Baskins' resignation just ahead of the hearing.
Besides the inquiry by the House committee, federal and California prosecutors are investigating whether company insiders or outside investigators broke the law. California Attorney General Bill Lockyer has said he has enough evidence to indict HP insiders and contractors. And the Securities and Exchange Commission is pursuing a civil inquiry.
Larry Sonsini, HP's outside lawyer and one of Silicon Valley's most influential figures, also appeared at the hearing, urging Congress to clarify laws around pretexting. He had assured company executives of the legality of the spying probe.
The committee sought testimony from Ronald DeLia -- the operator of the detective firm hired by HP -- and two other key figures in the leak probe: Kevin T. Hunsaker, until recently the company's chief ethics officer, and Anthony R. Gentilucci, who managed HP's global investigations unit in Boston. They, along with outside investigators believed to have served as the foot soldiers in the company's efforts, took the Fifth.
Current, Former HP Execs Testify About Corporate Spying Probe at Congressional Hearing
WASHINGTON (AP) -- A trio of top Hewlett-Packard Co. executives, two of them newly resigned, are occupying center stage in the drama around the technology company's spying probe that targeted HP directors and journalists with surveillance and subterfuge.
Company chairman and CEO Mark Hurd, ousted chairwoman Patricia Dunn and Anne Baskins, whose resignation as general counsel was announced just hours before, appeared at a congressional hearing Thursday as lawmakers delved into the scandal that has roiled the Silicon Valley icon.
None wanted to assume blame for the investigation, designed to trace a boardroom leak, that used a network of private detectives who impersonated the targeted individuals to obtain their phone records, snooped through their trash and physically spied on them. And the two who testified before the House Energy and Commerce Committee indicated gaps in their recollections of events over the past two years.
Dunn was grilled by lawmakers for hours -- nearly all day.
Hurd, the figure whom investors are most concerned about, did a far briefer turn at the witness table following Dunn and with lawmakers admitting their fatigue. He is credited with turning around HP's performance in his 18 months as CEO.
Baskins did not testify. She asserted the Fifth Amendment right against self-incrimination, refusing to answer questions, along with nine others with roles in the affair.
Much more information could have been known if so many people hadn't declined to testify.
Baskins did say, in a statement issued by her lawyers, that she always believed "that the investigative methods that she knew about were lawful, and she took affirmative steps to confirm their legality."
Documents released by the committee indicated that Baskins may have been aware of the investigators' deceptions to obtain the phone records, a practice known as pretexting.
Dunn likewise said she had been assured that only lawful methods were used. She said she asked Hurd for approval of the probe. And it was Baskins, she said, who "made some errors in judgment," who suggested the investigation should be conducted by HP's senior ethics officer.
"At no time in this investigation was I responsible for designing its methods," Dunn told the committee members. "I do not accept personal responsibility for what happened."
Referring to the ethics officer, Kevin T. Hunsaker, who reported to Baskins, Dunn said: "From my perspective, I was relying on Ann Baskins. I believe she was relying on Mr. Hunsaker."
Hurd told the panel: "This was a leak at the board level. Pattie (Dunn) took it very seriously."
As company chief executive, he said he should have detected that improper spying methods were being used, but that he failed to do so. "I should have been able to catch it. I didn't," he allowed.
While he apologized for the gross invasion of privacy that resulted, Hurd denied having direct knowledge of the methods used in the probe.
Lawmakers came up with a seemingly damaging e-mail: An HP investigator warned higher-ups in February that the company's leak probe was possibly illegal and likely threatened the computer and printer maker's reputation.
The committee members expressed outrage that HP, the nation's 11th biggest company by revenue, would find itself in such an ethical morass. Some said the situation was reminiscent of the Enron Corp. debacle, in which top management claimed not to know of serious wrongdoing that ultimately brought the company down. Democratic Rep. John Dingell of Michigan summoned the ghosts of Watergate.
"We have before us witnesses from Hewlett-Packard to discuss a plumbers operation that would make Richard Nixon blush were he still alive," Dingell said.
Rep. Ed Whitfield, R-Ky., chairman of the committee's investigative panel, demanded to know why, with many high-ranking HP executives and attorneys involved in the probe, "No one had the good sense to say `Stop.'"
Besides the inquiry by the House committee, federal and California prosecutors are investigating whether company insiders or outside investigators broke the law. California Attorney General Bill Lockyer has said he has enough evidence to indict HP insiders and contractors.
Dunn noted that she was pretexted as well; the probe targeted every member of the board, HP investigator Fred Adler testified. Pretexting also was used in previous investigations by the company.
Late Thursday, Verizon Wireless sued an undetermined number of pretexters in New Jersey federal court for obtaining the phone records of Verizon customers as part of the HP probe.
The complaint says that Verizon does not yet know the identities of the pretexters being sued, but that they used "fraud, trickery and deceit to access confidential customer information" by making pretext calls Verizon customer service centers and posing as customers online.
The complaint says the pretexters obtained information on at least one HP director and possibly that person's spouse. The director was not named. The suit seeks unspecified damages.
HP Whistleblower Tried to Avert Scandal
SAN FRANCISCO (AP) -- A whistleblower tried to stop Hewlett-Packard Co.'s heist of personal phone records seven months before it erupted into a national scandal, according to a document released Thursday.
Vincent Nye, part of a five-man team that oversaw HP's efforts to plug a boardroom leak, warned the investigation had gone awry in a Feb. 7 e-mail referring to shady tactics that duped phone companies into handing over the calling records of seven company directors, nine journalists and two employees.
"I have serious reservations about what we are doing," Nye wrote to his boss, Tony Gentilucci, and HP's chief ethics officer, Kevin Hunsaker. "...It leaves me with the opinion that it is very unethical at the least and probably illegal."
A congressional panel released the e-mail as part of a nearly eight-hour hearing into HP's handling of a probe that has also triggered several investigations into whether any laws were broken. HP is the world's largest technology company.
"This could be a 'smoking-gun' memo," said James Post, a Boston University professor specializing in corporate governance and business ethics. "There are red flags being raised all over it."
The next big question that needs to be answered is whether Nye's concerns were ever passed along to HP's leadership, Post said. HP's now-deposed chairwoman, Patricia Dunn, and Chief Executive Officer Mark Hurd have maintained they didn't learn about the extreme measures that the company's detectives were deploying until recently.
Nye, a senior investigator for HP's Boston-based security unit, could help criminal investigators connect the dots as they try to figure out how much HP's leadership knew about the skullduggery, said Todd Bailey, a business law professor specializing in ethics at Miami University in Ohio.
"As sure as night follows day, the investigators are going to be lining up to talk to this guy," Bailey predicted.
California Attorney General Bill Lockyer already has said he has enough evidence to bring criminal charges against individuals inside and outside the company. His spokesman, Tom Dresslar, declined to discuss Nye's e-mail Thursday. "We are going to go wherever the evidence leads us."
In his e-mail, Nye urged his bosses to abandon deceptive techniques, known as "pretexting," that included using Social Security numbers under false pretenses. He also wanted HP to discard the information to preserve the company's reputation.
"I think we need to refocus our strategy and proceed on the high ground course," Nye wrote.
After Nye's warning, HP's management "probably should have taken the bull by the horns," said Kevin Springer, a former FBI agent who now runs Corporate Resolutions, a consulting firm. "But it looks like they wanted the information so badly that they forgot the downside and the damage it could do to the company's reputation."
Both Gentilucci and Hunsaker left HP earlier this week after documents surfaced showing that they approved the pretexting methods
Citing their Fifth Amendment right against self-incrimination, both Gentilucci and Hunsaker refused to answer questions Thursday about their handling of HP's probe in a brief appearance before the congressional panel.
The scandal also has prompted HP to sever ties with Dunn, who initiated the leak investigation, and its general counsel, Ann Baskins, who walked away Thursday with a severance package awarding her $3.7 million in stock options and other benefits.
Baskins also asserted her Fifth Amendment rights Thursday in her appearance before the congressional panel while Dunn maintained she had been repeatedly reassured by HP's lawyers about the legality of its detectives' subterfuge.
"There was no hint that anyone at Hewlett-Packard had concerns (about the tactics). Quite the contrary," Dunn told Congress.
Nye wasn't the only HP employee who suspected pretexting might land the company in trouble. Fred Adler, a former FBI agent who is also part of HP's security team, also sounded alarms about the tactics. Adler reiterated his misgivings Thursday in his congressional appearance.
But Nye's e-mail is the bluntest -- and most prescient -- warning to surface from inside HP yet. It certainly caught the attention of Rep. Ed Whitfield, the Republican who chaired Thursday's hearing. Whitfield ended the session by reading Nye's e-mail and suggesting to Hurd that the investigator should be awarded with a day off.
Hurd: I'm not resigning
WASHINGTON (FORTUNE) -- HP CEO Mark Hurd has now been through the iconic cauldron of raising his right hand at a Congressional hearing, swearing to tell the truth and nothing but, and having his strained visage beamed electronically across the land.
The morning after -- during an early-morning interview with Fortune at the Four Seasons Hotel in Washington, D.C., his first since the hearings concluded - Hewlett Packard's (Charts) chairman and CEO showed that's he's bent but unbowed -- and is not even considering stepping down from HP.
Should Hurd resign?
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He is apologetic for approving the strategy of lying to the news media, but unwilling to question what that says about his own moral compass. He regrets not having paid more careful attention to the details of the leak investigation, but says even now that it's simply impossible to catch everything.
Who knew what, when
He says the buck stops with him, yet he isn't considering resigning and can't offer an example of any consequences he has suffered as a result of the ordeal -- other than a blemish on his professional record he knows will never vanish.
Hurd also reveals that no advisors' counsel ranks higher than his own instincts. He's been besieged, however, with well wishers he won't name, including more than a few who'd like to fill the open spots on HP's board.
On a personal level, Hurd hasn't been able to play tennis, his favorite way to blow off steam. Minor knee surgery is the culprit, and he says his doctor is on his case for not making it to rehab often enough. Giving Hurd a hard time for the things he hasn't done of late? Hurd's doctor ought to consider getting in line.
What follows are excerpts from Hurd's conversation Friday morning with Fortune Senior Writer Adam Lashinsky, who profiled Hurd in the magazine in April and who endured all seven and half hours of congressional testimony on Thursday.
How are you holding up? This must be stressful.
Fine. It's part of my job.
And yet this has to be a huge distraction.
In terms of the company, there are very few people distracted by this, to be very frank. Obviously there's a small group of people who are spending large amounts of time on this. But this was a very small group in the company that was working on this.
Okay, let's discuss the issue at hand. Regarding the now-famous scheme to send a false news story to CNET News in order to smoke out the board leaker - how good is your moral compass if you were willing to approve lying to the news media?
In our case, we had a fairly difficult situation, in terms of the fact that we had information that was strategic to Hewlett-Packard that continued to leak out of the company. We needed to stop it. Clearly the team's view was that they had to have some morsel of information to be able to attract the leaker. So that's the strategy.
What they wanted was my agreement that they could, what's the right word to describe it, dangle some important information in front of the leaker. And I agreed to that. Now, hindsight's 20/20. We get a little more experienced and a little smarter as we go through things. And I wouldn't do it again. But to be clear, I understood the team's strategy, and I agreed to that.
The fact remains that you describe it as a 'difficult situation.' But isn't a difficult situation exactly when someone's ethics are most important?
We could talk about this for a long time. It is what it is. We had a difficult situation. The team was working very hard to try to get the ... I've said enough.
Other than apologizing and promising to do better, which you've done repeatedly now, how can you convince investors, employees and the public that next time, you'll make the right decision in an ethical situation.
I don't know that you can every convince anybody with words. It takes actions.
Is there an action you are contemplating that will show that?
Well, we'll see.
So is there something you're thinking about that you don't want to discuss.
Well, if you're thinking of a magic bullet, life doesn't work that way. Business doesn't work that way. Everybody always shows up and asks for magic strategic dust or operational dust to solve everything. And the answer is you don't. It's hard work, making sure that you continue to ... go to work.
You have a straight-talking, honest reputation, and HP has a reputation for virtuous business practices. All of that's being called into question right now. Should we just be cynical and assume people will lie when they can?
I don't agree with that. I'm going to speak for HP. I don't want to speak for the greater business community. I think HP at its core is an extremely ethical company. I cannot tell you if I ever heard anything at the company outside of the incident we are discussing that would concern me about the company's values. This situation is just disappointing. And I believe it to be an anomaly in light of the company's history and what's at the core of the company.
So the company is ethical at its core but unethical at one of its edges over the last two years.
As I told Congress, you've got a process here. Processes break in two ways. They break because they don't have the right checks and balances and because they don't have the right execution. This one broke down on both fronts. This wasn't the first process in the company that I went to look at, and I wish I could do that over again. But at the same time I do not believe that process is indicative of the greater Hewlett-Packard. Like anything else we need to go fix it.
Let's talk about the e-mail that explained the pretexting that you said you didn't read. Had you read it this all could have turned out differently. Either you'd be culpable or you would have caught the questionable behavior earlier and we wouldn't be sitting here.
Well, we might not be sitting here. But it was March meeting. It was my first shareholders' meeting. I was about to deliver a speech. I probably wasn't as focused as sometimes I might be. But it's a double-edged sword. You've got a document that's there on the table. I hadn't read the e-mail beforehand. The team is there to focus, to tell you as you walk in the room, 'here's the answer. The answer is X.'
Meaning the identity of the leaker?
Sure. Now the question is do you pick up the document and turn to page whatever, or do you say, 'are you sure?' He says 'I'm sure.' So then you say, 'what are we going to do?'
Now let me give you two thoughts. You could react by not confronting the problem. You talk about ethics. We've gone down the backward looking view. There's also the dimension that says, are you going to bury this or confront it. Pretty big question, right?
And I want to make something clear. I only know of the facts around the one leak. I don't know, there's been a lot of speculation around tens of leaks, and they associate with this one person [Jay Keyworth, a longtime HP board member]. This fact was about one leak from this one person who is a really good guy in the sense of contributions he made to Hewlett Packard over many years.
So now you're confronted with data that says, great contributor, and the team is looking at Patty [Then board chairman Patricia Dunn] and saying 'what are you going to do.' And I can tell you if you're looking down at this room as you're making a decision, my first reaction wasn't to say, 'hey Patty, why don't you look backward at how the data was collected.' The stress was, how are you going to confront the fact that was being presented to you. You're going to do what?
Now to your point, knowing what we know now I wish we'd looked at a different set of facts. But even at that point, what had been done had been done. You'd have been reacting at that point in time. I don't want to shirk any of this. The buck stops with me. But you can't have a CEO of a company our size being the backstop. The thought that I'm going to catch everything -- revenue, costs, personnel decisions, investigations... you know the scale of this company.
So you're saying that you did your best under the circumstances?
That makes it sound like I'm saying it's not my fault. It is. I had a buddy ask me, 'Will this be mark on your career?' Obviously it will be. Sure. It happened on my watch. History in the big picture will hopefully put it into context and look at how we deal with this. I think, again, I have to be able to rely on the fact that processes are sound.
In the end it comes down to picking the right people so you shouldn't have to be inspecting every single thing in that process every single time at every level of the organization. If you do, you will bog things down. This is a case where we didn't have a sound process, to be blunt. I had a couple of opportunities where I might have caught it, but I didn't catch it.
You've said the buck stops with you, but so far it hasn't. It has stopped so far with former Chairman Patty Dunn and former General Counsel Ann Boskins, each of whom has resigned. You've effectively been promoted.
Well, I don't report to myself. I've been focused from the beginning on doing the best I can I trying to fix this.
Have you considered quitting?
No.
What's your advice to the 150,000 people who work for you in light of all this.
I tell people all the time, 'hold your head high.' I'm sorry for the people of HP that they've had to go through this. But I believe the company will regains its pride.
Can you tell me who've you been turning to for advice?
Uh-uh.
How 'bout generally?
When you're a leader at any level of any scale, leaders are defined at times of crisis. Everyone wants to lead when things are going well. In times of crisis you just have to bear down and lean on your own instincts and your own beliefs and make decisions.
Some of those are the product of multiple inputs you get, both experience and what advice you get. But in the end you have to make your own decisions. Nobody can sit where you sit. Lots of people can imagine and help. You just have to be able to catalyze those inputs and try your best to fit them into your situation.
Who has reached out to you?
Big-time people. I'm not going to embarrass them. Great folks. Last night I had an avalanche of communication.
Do you see the light at the end of the tunnel here?
We have other pieces to resolve. We've got a process that we've got to go rip apart and re-build. We have jobs to fill. We've got other litigation that's involved. So, no, this is end of the beginning. I'm not sure how public the rest of this will be.
It's hard to beat yesterday. We have some very good people that have left the company and the board. We have a lot of people who'd like to join the board. We're going to have to do for the board what we've done for the company. We have to re-build its very core.
HP counsel leaves with millions in options, benefits
Hewlett-Packard Co.'s departing general counsel's resignation Thursday came with millions of dollars worth of options and retirement benefits.
In return, Ann Baskins agreed not to sue the company and cooperate with its investigation of tactics used in a controversial probe of boardroom leaks.
The details of Baskins' resignation agreement were filed with the Securities and Exchange Commission after she declined to testify at a House hearing on Thursday.
In that filing the Palo Alto-based computer giant (NYSE:HPQ - News) said Baskins retains rights to exercise vested stock options, valued at nearly $3.7 million as of Sept. 27.
The company also said it will accelerate the vesting of other options so that the "aggregate intrinsic value" of the unvested options equals another $1 million on Nov. 20.
She also retains the balance of her 401-k plan, including company contributions, and other retirement benefits.
HP also agreed to indemnify Baskins "to the fullest extent permitted under HP's bylaws and applicable law;" an agreement by HP to advance expenses "actually and reasonably incurred in connection with any civil, criminal, administrative or investigative action, suit or other proceeding," with certain exceptions; mutual non-disparagement provisions; an agreement by Baskins not to induce any employee to terminate his or her employment with HP for a period of 12 months; and an agreement by HP to pay reasonable attorneys' fees incurred by Ms. Baskins in connection with negotiating the release agreement.
The SEC filing said the agreement "in no way limits the ability of Ms. Baskins or HP or its officers, directors and employees to respond to or cooperate with any government inquiry or investigation or to give truthful testimony as required by law."
BW
HP Goes to Washington
A tragi-comedy for our times makes its highly anticipated debut on Capitol Hill. Here are sketches of the leading players
True to congressional form, a Sept. 28 House of Representatives hearing on Hewlett-Packard's (HPQ) now infamous investigative methods was long on soliloquy, heavy on finger-pointing, and woefully short on high drama. And for a proceeding aimed at probing how a company handled leaks, this one was a sieve. In the days leading up to the hearing by the subcommittee on oversight and investigations, the news media was fed a steady diet of little plot revealers—a damning e-mail here, a memo there. Plenty to keep the HP headlines rolling.
Alas, by the time the lights dimmed, the foreshadowing had been overdone. Even the lines of the show's two biggest stars—HP Chief Executive Mark Hurd and former Chairwoman Patricia Dunn—were previewed the night before when House staffers posted each one's written testimony on the House Energy & Commerce Committee's Web site. So much for suspense.
Instead, the show was part tragedy, part comedy of errors. "This is enormously sad," said Representative Anna Eshoo (D-Calif.). Despite the flaws, there were some stellar performances. Herewith, a review:
Ann Baskins
Show stealer. HP's general counsel dropped the day's biggest bombshell without opening her mouth. Just after dawn HP and Baskins' attorneys announced that she had quit the company after 24 years. The lawyers digitally dumped some 30 pages of e-mails and penciled notes into cyberspace, a payload that gave the chattering class an adrenaline rush. Among the documents—a damning e-mail from HP Director of Ethics Kevin Hunsaker signing off on the legality of the "common" practice of lying to phone companies to obtain individuals' records. (It's known as pretexting and California's Attorney General Bill Lockyer begs to differ on the subject of its legality.) When she appeared before the committee nearly six hours later, Baskins invoked her Fifth Amendment right against self-incrimination. Then, with a sympathetic and supportive smile to Dunn, she took her leave. Baskins, Dunn said later, "bled HP-blue ink."
Bryan Wagner
This morality play's Fifth Business—neither hero nor villain, but crucial to the plot. Wagner was an employee of Action Research Group, a private investigative outfit in Florida, when in February he was assigned the task of obtaining the phone records of former HP Director George Keyworth and his wife. Now retired from the gumshoe industry, Wagner, 29, appeared before the committee in a rumpled shirt, sans suit, and sans lawyer. He wouldn't testify, but couldn't resist giving a clutch of waiting reporters his two cents. "The phone companies are at fault," Wagner said. "They obviously have some means to make changes. They could hire someone like me to show them what to do." An attorney passing his way told him he might want to keep his thoughts to himself, what with the invocation of the Fifth Amendment and all.
Larry Sonsini
Channeling Bill Clinton, a lawyer through and through. As outside counsel to the board, Sonsini in June had assured former HP board member Tom Perkins in an e-mail that "it appears" that the methods being used in Dunn's leak investigation were on the up and up—"well done" and "within legal limits." What does that mean? That would depend on Sonsini's definition of "appears." "I never took a position that pretexting is legal," Sonsini said. "The press took an e-mail [from me] and made it into a legal opinion." Confused? Representative Marsha Blackburn (R-Tenn.) sure was. "You seem to contradict yourself several times," she said. Sonsini told the congresswoman he chose his words carefully. "I said 'it appears.'"
Fred Adler
Mild-mannered scene stealer. This former fed, who now is in charge of HP's security investigations, volunteered the astonishing news that HP has a regular practice of using tracers—surreptitious computer programs embedded in e-mails that can be used to trace digital communication. The company uses the technology to track inventory theft or help law enforcement find missing children. In the case of the boardroom leak investigation, HP employed the technology to follow the path of an e-mail sent to a reporter. "It's still in use at HP," a straight-faced Adler said, without a touch of irony. Lawmakers were nonplussed. "That," said Representative Diana DeGette (D-Colo.), "is kind of sleazy." Adler assured the committee that HP doesn't use tracer technology on customers.
Patricia Dunn
An Oscar for a starring role. Dunn played the tragic heroine despite the committee's relentless efforts to paint her the villain. She stayed true to her character under enormous pressure, hitting her marks and nailing her lines with aplomb. Maybe too much aplomb. "I do not accept personal responsibility for what happened," was one favorite line. Also, "I dispute ever being told that the fraudulent use of identity was being used." And, "I deeply regret that so many people, including me, were let down." Representative John Dingell (D-Mich.) summed it up: "What were you thinking?"
Mark Hurd
Truthsayer: "If Bill Hewlett and Dave Packard were alive today, they'd be appalled."
The HP Way
The HP fiasco continues to stun.
According to testimony given to Congress Thursday, the tactics that HP used in its now notorious leak investigation are standard operating procedures at HP, have been for years, have been deployed "dozens" of times against other people under other circumstances and the use of "tracer" spyware is still a technique sanctioned by HP management. No one seems to know whether HP ever used it against a competitor.
Lest you need to be reminded, those tactics included attempting to "bug" a reporter's computer, planting a fake story with a reporter to see who she triangulated with, wholesale identity theft, rooting through the phone records of directors, reporters and their families, misuse of Social Security numbers, dumpster diving, old-fashioned surveillance and tailing, wholesale invasion of privacy and contemplating inserting spies in the newsrooms of major media outlets.
Apparently then this is the "HP Way."
Going into the Capitol Hill hearing on HP's spy caper, the Wall Street Journal reported that one of HP's suspected subcontract pretexters, Bryan Wagner, had taken a hammer and trashed his computer ahead of the California Attorney General Bill Lockyer getting anywhere near it. The Journal said Lockyer tried and failed to get a warrant to search Wagner's home in Denver.
So it now looks like you can add destroying evidence to the list of sins committed in HP's name.
Then Thursday morning, an hour or so before the hearing started, the news broke that HP general counsel Ann Baskins had tendered her resignation. Scheduled to testify, she showed up at the hearing and took the Fifth Amendment to protect herself against self-incrimination. Baskins, whose ouster was softened by a multimillion-dollar golden parachute and a deal for HP to pay her legal bills, refused to answer any questions whatsoever.
Understandable since, according a prepared statement by ousted HP chairman Patricia Dunn that the House Committee released late Wednesday night and reiterated in her testimony Thursday morning, Baskins' office directed the so-called Kona 2 phase of the investigation that saw the use of the most egregious tactics and HP relied on her legal opinion that the techniques used were legal.
Baskins, in turn, appears to have relied on the legal opinion of a person who was described as a "clerk" in the offices of Bonner Kiernan Trebach & Crociata, the Massachusetts law firm that shares its premises with Security Outsourcing Solution (SOS), the little investigation concern responsible for Kona 1 and 2 that - come to find out - has been on retainer to HP and has worked for the company, pretty much exclusively, for eight or nine years.
HP ethics officer Kevin Hunsaker, the senior lawyer on Baskins' staff who directed Kona 2, and HP global investigations manager Anthony Gentilucci, both of whom have now been fired, also took the Fifth and refused to answer any questions.
The same thing happened with a parade of HP contractors and subcontractors, including the guy with the hammer, who allegedly pretexted the phone records of close to two-dozen people during the HP probe. They were on Capitol Hill because they had been subpoenaed.
Dunn, who resigned last Friday at the board's insistence, refused to take personal responsibility for what happened and testified that HP CEO Mark Hurd had ultimate sign-off. In answer to a question, she said she sent the investigating team to Hurd for "approval of the techniques" used. Hurd, in turn, who told Congress that HP as a leader in privacy, said the investigation was Dunn's baby.
Dunn repeatedly claimed, despite multiple briefings and PowerPoint presentations by the hired investigators and internal staff, that she had no idea nor could she recall being told how phone records were obtained or knew what pretexting was until the last few weeks. She was under the impression phone records were "publicly available."
Throughout the Kona probe, she said, there was "never any hint that anyone at HP had any concerns" about its legality or propriety.
Dunn said she was told the investigation was using standard operating procedures and she was "fully convinced that HP would never engage in anything illegal…Indeed, given that attorneys were unambiguously overseeing the investigation in Kona 2 and were following similar practices as in Kona 1 reinforced my understanding that the investigations had been and were being handled appropriately."
Hurd, too, admitted he never asked about the investigative techniques used and said he "never thought about how they got the phone records." He is of the opinion that what started as a "proper and serious inquiry into leaks to the press became a rogue investigation."
Hurd, who has now replaced Dunn as chairman, took full responsibility for the fiasco and told Congress he screwed up by not being more attentive - he said he didn't read the final report by the investigative team that might have led him to question their operation - why remains unclear. In return, the House committee, doubtless aware that Wall Street connects him with HP's turnaround, only threw him softball questions. He emerged from the ordeal unscathed as indicated by the fact that HP stock was up a tad over 2% at the end of the day.
When asked, Hurd said that all pretexting activities at HP have ceased but dodged the question about the status of tracer technology. Apparently the company's investigation techniques are being reviewed. He has terminated HP's relationship with outside contractors and said there was an "open position" at the company.
Dunn testified that when the press leaks started last year she was urged by seven of HP's nine board members to make finding the source of the leaks her "top priority." Jay Keyworth, who ultimately confessed to a leak, was not one of the seven. There was no board vote directing that an investigation be undertaken.
The key reasons for concern over the leaks, she said, was the "corrosive" impact they had on the board and the fear that they would impact stock prices, creating a "major violation of securities regulations."
Dunn said that when the Kona investigations kicked off last year she was advised by HP's CFO and acting CEO Bob Wayman to use internal resources. She was ultimately referred to SOS owner Ron DeLia, who "was responsible for designing and implementing investigation involving breaches of confidential information at HP." At the beginning of Kona 2 she wanted to use Kroll Associates but Baskins recommended turning the investigation over to Hunsaker.
Dunn never "at any point considered" herself Kona's supervisor. First it was HP security officer Kevin Huska and later Baskins and Hunsaker. Dunn however named the project; seems that when asked for a code name for the investigation by one of the investigators she was at her vacation home in Hawaii.
Hunsaker brought DeLia back in and then work was farmed out to a host of subcontractors. Hunsaker and Gentilucci ignored the warning of their colleague Vincent Nye, a senior HP investigator, who flat out told them in a February e-mail that their Kona pretexting was "very unethical at the least and probably illegal" not to mention potentially damaging to the company.
Fred Adler, a former FBI agent and the only other HP employee besides Hurd not to take the Fifth, testified that it was his idea to try to insert "tracer" software into a CNET reporter's computer. Hunsaker and his crew, with Hurd's sanction, had dreamed up a fictitious source called Jacob, a supposedly disgruntled HP senior executive with a hot story, to see if the reporter checked it out with anyone on the HP board. If she did, they'd have their leak.
It was Adler who testified that the tracer concept has been used before and has not been discredited with HP management.
It now remains to be seen where all this goes. The California attorney general has said he has enough evidence to indict people inside and outside HP. There is still the SEC's inquiry to get past and pension funds have started agitating for more say in who sits on the board.
As H-P scandal reaches peak, Hurd's still solid
SAN FRANCISCO (MarketWatch) -- Could Mark Hurd end up being the Teflon CEO? For the time being, Wall Street appears to think so.
Following what was by many accounts a contrite and apologetic appearance before Congress on Thursday, in which Hurd said that "mistakes were made" in how Hewlett-Packard Co. handled investigations into media leaks, H-P shares rose 72 cents, or 2%, to close Friday at $36.69.
In addition, analysts and industry watchers say that H-P's market and business performance is probably more dependent than ever on Hurd staying on as chief executive and managing the company's operations.
"The stockholders certainly seem to want him to stay in place," said Rick Steinberg, founder and principal of Steinberg Governance Advisors of Westport, Conn. "In terms of the hearing, he did an outstanding job, by admitting he made mistakes and apologizing for what happened."
Since H-P admitted on Sept. 6 that investigators working for the company engaged in pretexting -- or misrepresentation of their identities to obtain private information about H-P board members, employees and journalists -- there has been no shortage of blame or resignations from the technology giant. Chairwoman Patricia Dunn, general counsel Ann Baskins, senior counsel Kevin Hunsaker and former head of global-security operations Anthony Gentilucci have all left H-P. According to documents acquired by the House Committee on Energy and Commerce, each of them had some direct involvement in the pretexting case.
But Hurd, who at least knew of investigations taking place to find the boardroom leaks, rolls on, so far relatively unscathed by the matter. If anything, he has consolidated his position at H-P by taking on Dunn's role as chairman after she stepped aside earlier this month.
At the hearings, while Dunn refused to accept any responsibility for the pretexting scandal and fallout, Hurd took a more reserved tack -- saying that the matter "was not my finest hour," and pledging that such investigative methods will never be used by H-P again.
'The scandal had no impact on [customers'] willingness to purchase H-P products.'
— Daniel Renouard, Robert W. Baird
"I am in charge of the company. I'm responsible for H-P," he said. "I should have been able to catch [the investigation gone awry]. I didn't."
Without question, Hurd is still riding on a lot of credit he has received for helping to turn around H-P in the 18 months since he took over from Carly Fiorina, the ousted chairwoman and chief executive. He instituted job cuts of 15,300 employees, or about 10% of H-P's workforce, as part of an effort to reduce overall company costs. But Hurd phased those cuts over 18 months so as not to provide such a huge shock to H-P, which had been reeling for years from what many saw as a floundering, if not failed, $19 billion acquisition of Compaq in 2002.
Since Hurd came on the job, H-P's stock has risen 87%. Analysts following the company say that the stock should continue to benefit from what is seen as the chief executive's conciliatory congressional appearance and steady leadership.
Hurd "appeared to satisfy the committee's desire for someone to take accountability, yet he also distanced himself from the pretexting activities," said Richard Farmer of Merrill Lynch.
Farmer, who holds a buy rating on H-P's stock, added that Hurd's position at H-P "is further solidified" following his congressional appearance, and that "investor sentiment will improves on the issue and the focus will begin to shift back toward [business] fundamentals."
Daniel Renouard of Robert W. Baird, who rates H-P's stock as outperform, called Hurd's testimony "credible and [we] expect Hurd will weather the storm."
But Renouard was even more blunt about how the pretexting matter will impact the chief and H-P. The analyst said that he came to this conclusion after surveying enterprise-storage customers about the scandal at a recent industry conference.
"Customers don't care," Renouard said, adding that those same customers said "the scandal had no impact on [their] willingness to purchase H-P products."
The HP Way ? ! ? ! ? ! ? ! ?
Fred Adler was hired by HP IT Security 3 years ago in Roseville (CA). A former FBI agent, he testified with Patricia Dunn in front of the congressional committee.
As part of his job, he developed the email tracers for HP and we learn here he also developed instant-messaging monitoring tools
Summary: Hewlett-Packard's spying operation included monitoring an employee's exchanges with a reporter at The Wall Street Journal.
September 30, 2006 http://www.nytimes.com/2006/09/30/technology/30hewlett.html?th&emc=th
H.P. Read Messages of Reporter
By MIGUEL HELFT for the New-York Times
WASHINGTON, Sept. 29 — Hewlett-Packard’s effort to plug news leaks included monitoring at least one employee’s instant-messaging exchanges with a reporter, according to documents provided to Congressional investigators.
The documents also provide other new details of the operation, including the company’s payments for the services of investigators, and they shed light on a feud that simmered for months between Patricia C. Dunn, the chairwoman, and Thomas J. Perkins, a board member who resigned in protest over the inquiry.
They are included in the voluminous files made available to lawmakers in preparation for the House subcommittee hearing held Thursday on the Hewlett-Packard case.
In a March 2 e-mail message, Kevin T. Hunsaker, the senior lawyer in charge of the investigation, asked Fred Adler, the company’s information security investigator, to “do some monitoring on incoming and outgoing calls to Pui-Wing Tam,” a reporter at The Wall Street Journal, “and keep a really close eye on her I.M. traffic with Moeller,” Mr. Hunsaker wrote, presumably referring to Michael Moeller of Hewlett-Packard’s media relations team.
An e-mail message sent by Mr. Adler some two weeks earlier appears to celebrate what was a new investigative tool for the team. “New monitoring system that captures AOL Instant Messaging is now up and running and deployed on Moeller’s computer,” Mr. Adler wrote to Mr. Hunsaker and others on the investigative team. “It instantly began to pay results.”
The rest of the message shows the text of close to 70 instant-messaging exchanges between Ms. Tam and Mr. Moeller, mostly discussing the company’s earnings in what appears a fairly routine exchange between a reporter and a company spokesman.
Experts say it is not clear whether the monitoring of an employee’s instant messages would raise any new legal issues for Hewlett-Packard or those involved.
If the employee is using the company’s service as an Internet service provider, “then the company can monitor lawfully anything that the person sends or receives,” said Clifford S. Fishman, a professor of law at Catholic University of America in Washington. But if the employee is using a third-party communications system, “it is less clear whether the company can monitor that.”
As far as the monitoring of calls referred to in the message, the form was not specified. Hewlett-Packard has acknowledged that its operation included inspection of company phone records as well as acquiring private phone records through subterfuge, in a practice known as pretexting. But it has said no wiretapping was involved.
“I was aware that the company was monitoring instant messaging,” Mr. Moeller said on Friday night, adding that Ms. Dunn and Mark V. Hurd, the chief executive, had both already apologized to him for the operation’s scrutiny of him. Mr. Moeller was previously identified as a target of the pretexting efforts, along with board members and journalists, including Ms. Tam.
A spokesman for The Wall Street Journal declined to comment.
The documents also give an account of a daylong tracking of the activities of Mr. Moeller during a technology conference in Los Angeles, including reports on overheard snippets of his conversations.
Other documents provided to Congressional investigators revealed that Hewlett-Packard was billed a total of $325,641.65 for various services related to the leak investigation’s second phase from January to April. That included $83,597.42 for surveillance, which was described as “Multiple Surv. And Sting Activity Palo Alto, Piedmont, SF, LA, CA & Denver CO.” A parenthetical note clarifies that the surveillance included “trash re-con of all areas.”
Background investigations on several board members and their relatives, as well as reporters for The Wall Street Journal and the online service CNet, did not come cheap. The bill was $66,688. There were also background checks on employees of Hewlett-Packard’s media relations department, costing $6,435.
And locating, identifying, charting and cataloguing records of interested parties — the part of the investigation that apparently included pretexting — cost $44,875.
Invoices from the Action Research Group, the Florida company that is reported to have arranged the pretexting, are also among the more than 100 documents obtained by Congressional investigators. Many of them run in the vicinity of $100, but a 2005 invoice for call records of Carleton S. Fiorina, around the time of her dismissal as chairwoman and chief executive, shows a price tag of $500.
The invoices conclude with the line “Thank you for using our services!!!”, all in capital letters, followed by a black-and-white rendition of Hello Kitty, a popular Japanese cartoon character.
The documents also illuminate the bitter conflict that developed over months between Ms. Dunn and Mr. Perkins, whose attacks on Ms. Dunn have been well publicized. They include an outburst at the board meeting in May, when Mr. Perkins resigned. But the animosity, according to Ms. Dunn, who resigned as chairwoman last week, had been building up earlier.
“I did not share details of my interactions with Tom during the year prior to his resignation,” Ms. Dunn wrote to other Hewlett-Packard board members in an Aug. 17 e-mail message. “Tom’s behavior to me in our one-on-one interactions was often so over the top that the simple facts would have seemed like exaggeration. I won’t indulge in a chronology of the intimidation, pressure, rudeness and criticism that Tom directed at me, but will simply say that I have never had remotely similar experiences with anyone.”
The investigation subcommittee of the House Energy and Commerce Committee, which held Thursday’s hearing, continued its examination of pretexting on Friday with a hearing at which representatives of six cellular carriers testified. The officials said they thought pretexting should be against the law, but did not specifically endorse a pending bill approved by the House committee.
The committee’s chairman, Representative Joe Barton, Republican of Texas, said Friday that the long-stalled legislation might come up for a House vote soon.
Two of the carriers have also initiated legal action against detective agencies identified as having played a role in pretexting in the Hewlett-Packard case.
On Friday, Cingular Wireless filed a lawsuit against CAS Agency Inc. of Carrollton, Ga., and Charles Kelly, the company’s registered agent. Cingular contends that CAS illegally obtained the telephone records of Dawn Kawamoto, a reporter for the online technology news service CNet, as part of the Hewlett-Packard operation.
The lawsuit, filed in United States District Court in Atlanta, also names 100 “John Doe” defendants and 100 unidentified companies that Cingular says conspired with CAS Agency.
The move came one day after Verizon Wireless filed a similar lawsuit against unidentified individuals for illegally obtaining phone records of its customers in the Hewlett-Packard effort.
The "new" HP Way
An HP IT employee, Fred Adler, during his testimony to the congressional sub-committee:
http://news.com.com/1606-2_3-6120934.html
"If Bill Hewlett and Dave Packard were alive today, they'd be appalled." Who said that?
Oh , yeah Mark Hurd a couple hours later , to the same congressional sub-committee
Business Week cover story, a must read - OCTOBER 9, 2006
http://www.businessweek.com/magazine/content/06_41/b4004001.htm?
Controlling The Damage At HP
Since he replaced Carly Fiorina, Mark Hurd has led an amazing turnaround. But can he keep HP humming in the face of a bruising scandal?
During Mark V. Hurd's 25-year career at NCR (NCR ), the company had plenty of good reasons to launch internal investigations. There was the time 10 years ago when an angry, laid-off worker, after getting into a tussle with Hurd in a pickup basketball game, made repeated death threats against him and his family. Years later, during a painful round of cost-cutting for the 120-year-old cash register and computer maker, Hurd and other top executives had their tires slashed in the executive parking lot. NCR installed a security system in Hurd's house and hired a guard. And several times employees posted sensitive financial data on Yahoo! (YHOO ) message boards.
In each investigation, Hurd, an executive who normally delves into the most minute details of daily operations, relied on his former chief counsel, Jon Hoak, to run the show. Hoak, who has since left NCR, vividly recalls Hurd's peering over his rimless reading glasses after one Yahoo leak and telling him: "We can't have this, so you go out and do what you have to. Just make sure everything we do is legal and above board."
Sound familiar? The parallels with the drama that's playing out today at Hurd's new employer, Hewlett-Packard Co. (HPQ ), are striking. To hear Hurd tell it, when HP's then board chairman, Patricia C. Dunn, authorized an investigation into press leaks from the board, he also trusted that she and the company's legal and security personnel would handle it properly. Hurd figured he had enough work resurrecting the company. On Sept. 25, red-eyed and clearly humbled, Hurd explained to BusinessWeek: "I'm a detail-oriented guy by trade. But when you have a place of this scale, you have to pick your spots where you're going to go dive. Compliance wasn't the first process I was going to go look at. I was going to go look at the performance of the company."
Even if Hurd is right about being mostly out of the loop, it's a decision he surely regrets. On Sept. 22 he stood before a room of reporters and read a statement apologizing for the spying tactics that HP officials and security subcontractors used to track down the source of leaks. Hurd admitted that he was not paying close enough attention to spot some of the actions, which he called "very disturbing." In the coming weeks, his version of events will be tested -- through testimony by Dunn, Hurd himself, and other HP officials before Congress on Sept. 28, and in various criminal investigations that are under way.
So far, there's little sign that the scandal will sidetrack an otherwise rousing turnaround story at HP, managed by the 49-year-old executive that some in Silicon Valley -- at least until recently -- had taken to calling the "Boy Wonder." HP's stock price faltered only when investors worried that Hurd's job was in jeopardy: They had discounted the scandal until it threatened the leader who restored their faith in the company.
WHAT MORALE?
It seems highly unlikely that Hurd will be forced to resign. But the question for employees and shareholders of the $90 billion company is whether he can remain focused on performance. He spent three days in Washington preparing for his congressional testimony and will also have the duty of rebuilding a board whose atmosphere had turned poisonous in recent years. He took over as chairman after Dunn was ousted on Sept. 22; he is already trying to recruit replacements for her and the two directors who quit in the fallout over snooping, Thomas J. Perkins and George A. "Jay" Keyworth. "What you have here is a board that has had more infighting with themselves than with me," Hurd says. "At the end of the day, we have to do the same work with the board that we've done with the company -- that is, to rebuild its very foundation."
Entirely separate from the scandal, Hurd faces major challenges to keep HP's recovery on track. So far, he has cranked up earnings through smart cost-cutting moves, which have simplified the company's operations and enabled it to take market share in products such as printers and PCs. There's certainly more room for near-term growth in existing sectors. But at some point, HP will need to create major new markets, as well, to stay in Wall Street's good graces. Many insiders wonder if Hurd is up to that. Says one longtime HP manager: "I think the honeymoon will last another year, until the analysts start wondering where the new growth will come from."
Already, the scandal is filtering into Hurd's day-to-day management style in surprising ways. He says half-jokingly that he finds himself repeatedly telling employees in meetings that whatever they do has to be "legal and ethical." "We're going to have to regain the world's confidence one person at a time to prove that this is the company they thought it was," he explains. Weighing in Hurd's favor is that HP's workers really want him to succeed. They seem more numb than outraged by the scandal -- sadly predictable, perhaps, after years of boardroom intrigue and layoffs. It has been years since HPers felt their company was a paragon of ethical behavior. "I don't think it's affecting morale, because the HP Way has been dead for years," says one staffer. "People are just glad to have [stock] options that mean something again."
During the 18 months since jumping from Ohio to California, Hurd seemingly could do no wrong. He recruited just the right number of outsiders into top jobs, pushed through a 15,000-person layoff and other moves to trim the company's annual costs by billions, and boosted operating margins from 4% to 6.9% in the past year. As unlikely as it would have seemed two years ago, HP has put PC king Dell Inc. (DELL ) on the run and will overtake IBM (IBM ) in revenues this year. Its shareholders have been rewarded with a nearly 80% rise in the stock price since Hurd took over.
Perhaps most impressively, Hurd buried the ghost of his charismatic but controversial predecessor, Carleton S. "Carly" Fiorina. Once Hurd set foot in Palo Alto, it was clear he was the anti-Carly. HP employees who Googled his name may have been given pause by the reports of cost-cutting at NCR, but they found hope in the dearth of personality profiles of their new CEO. Whereas Fiorina once had her portrait hung between those of founders William R. Hewlett and David Packard in HP's lobby, Hurd refused to put his own picture up. Today, Hurd appears dispassionate about his predecessor, to the point where he claims not even to be aware that she'll appear on 60 Minutes on Oct. 8 to pump her new book, Tough Choices. Hurd, who has no grudge and has been careful never to criticize her, says he'll watch Fiorina's TV interview "if I'm around, and if it's on in the room I'm in."
Some expect Fiorina to take a measure of credit for HP's comeback. Hurd himself admits he's pretty much running her strategy, albeit in a much more focused, disciplined way. "Mark could have been the best COO on the planet for Carly; they would have been a great team," says one HP executive. In terms of style, though, the two couldn't be more different. Fiorina's public presentations were choreographed like rock shows. One of her credos was that "management is a performance." Not so with Hurd -- unless you relish sitting through a dreadfully detailed nine-hour business review.
On his first visit to HP's Boise (Idaho) printer operations, where old-timers particularly disliked Fiorina, Hurd won points by driving up in a Hertz rental car, says one former executive. During his standing-room-only talk in the cafeteria, he scribbled on a flip chart the price-earnings ratios for IBM, Dell, and HP. "You know why ours is down here?" Hurd asked. "Because shareholders don't believe we can do what we say we'll do."
Even when he's taking subordinates to task, Hurd is more likely to challenge than to chastise. "With Carly, you'd walk out like you were a bad child and were going to be punished," says one HP vet. "He talks like your favorite professor, leading you through things until you understand it."
To understand how far Mark Hurd has lifted HP, you must first consider the trauma it has gone through. Fiorina arrived in 1999, after board members pushed out unexciting CEO Lewis E. Platt. HP was seen at the time as a laggard that arrived late to the dot-com party. IBM under Louis V. Gerstner Jr. had jumped into computer services in a big way, while HP slogged along selling servers, PCs, and printers. The board bet that Fiorina, a star sales executive at Lucent Technologies Inc. (LU ), would shake the company out of its slumber with her charisma and ambition.
She accomplished that, in spades. Within weeks, Fiorina had raised HP's profile while emerging as one of the world's most recognizable celebrity CEOs. Reality never matched the hype, though. Her ambitious efforts to transform HP quickly bogged down, particularly a complex structure that undercut the clear accountability that had been the bedrock of the company. Sure enough, HP's financial performance grew unstable, the stock sank, and employees lost faith in her ideas. As they did, they began to resent her look-at-me management style.
As problems became visible within Fiorina's company, they also began to emerge within her board. For decades, HP's directors were a stolid group dominated by longtime friends and progeny of the founders. But it then played a controversial role in backing Fiorina's decision to buy Compaq Computer Corp. in 2001. First, the board O.K.'d the $25 billion merger despite the concerns of scion Walter Hewlett. When the deal came under withering criticism from investors, the company called on directors -- particularly Keyworth -- to sing Fiorina's praises to the press and discredit Hewlett, who nearly won a proxy fight to kill the deal. "They were not people acting like honorable people. That's what we're really seeing: the fallout from that," says one HP insider from that time.
As HP continued to struggle to meet its merger goals, more rifts emerged within the board. By late 2004, directors that included Keyworth, venture capital bigwig Perkins, and longtime HP executive Richard A. Hackborn began to demand better performance. When Fiorina resisted calls to share operating duties, the spat found its way into the press. (While Fiorina suspected Keyworth, he was not the source of that leak, according to his lawyer.) On Feb. 7, 2005, with Fiorina still fuming over the leak, Dunn and others offered to accept her resignation. Fiorina refused, choosing to be fired rather than give the impression she would leave a job undone.
CHANGE OF HORSES
Enter Hurd. His candidacy to replace Fiorina and run the 11th-largest U.S. corporation at first seemed like a long shot. His name was initially mentioned by headhunters relatively late in the process, and didn't make much of an impression. One HP board member joked: "NCR? That's in Iowa, isn't it?" Hurd, somewhat spooked by the articles about Fiorina's ouster, says his interest was only "mediocre," as well.
But Dunn persuaded the other two members of the screening committee, Keyworth and Perkins -- the two she would later enrage with her leak investigation -- to meet Hurd at Perkins' San Francisco office. They were quickly won over. Hurd showed a deep understanding of the way HP really made money, and they were impressed to know that each year he tracked how he spent his time to make sure it was split equally among employees, customers, and investors. Hurd also eschewed any notion of quick fixes. Says Keyworth: "I picked him one hour after we met him."
Hurd almost balked at taking the position. The size of the job was daunting and, perhaps prophetically, he was worried about leaks after getting a call from a BusinessWeek reporter who said Hurd was likely to be named HP's next CEO. According to one source involved in his recruitment, Hurd said: "'I don't want to go to a company that has a goofy board.' He felt it was important to have a board that spoke with one voice." It took Hackborn's flying to Dayton for a two-hour talk to get him back to the table.
In the end, Hurd couldn't resist the opportunity. "It was a chance to play in an arena he has always wanted to be in," says retired NCR executive Bill Eisenman, a longtime mentor. "This was a chance that would only come around once in life."
He was ready. All his life, Hurd had been confident. As a stockbroker's kid growing up on Manhattan's East Side, he put far more energy into sports than into grades. He was a tennis standout in high school and then at Baylor University, but gave up on dreams of a pro tennis career for something more lucrative. He found sales. After joining NCR's Dallas office in 1979, Hurd quickly became the only computer salesman there to make his quota. He also met his future wife, Paula, who moved up the sales ranks along with him until quitting when he became company president in 2001. He moved up to corporate. Lee Panosian, a former NCR colleague who is now vice-president for global strategies at Lenovo, recalls walking for hours with Hurd through their Centerville (Ohio) neighborhood, smoking stogies and strategizing about how to land a deal or the optimal deployment of field salesmen.
"TORTURE THE DATA"
While many of his peers jumped ship after AT&T's takeover of NCR in 1991, Hurd smelled opportunity and stayed put. A few months later, AT&T bought Teradata, a maker of high-end data mining computers. It was a perfect match: Hurd helped the unit make inroads on Wall Street, in the Pentagon, and with huge corporate customers such as Wal-Mart Stores Inc. (WMT ) In the mid '90s, he oversaw the decision to get out of the commodity PC business and put all of Teradata's energy into machines running its sophisticated, market-leading software.
Hurd became known for his disdain for glossy, Band-Aid solutions that sounded good in a presentation. Instead, he would call people in the organization three or four levels down to get the details on some minute operational question. His muse was Teradata's own software, which he would use to run scenarios and simulations for how to achieve the lowest costs and highest sales. "There was a saying at NCR: Mark would torture the data until they confessed," says Steve Millard, who was Teradata's vice-president for global strategic partners.
In many ways, the table was perfectly set for Hurd's arrival at HP. He stepped into a company with 150,000 people hungry for his informal, straight-talking style of leadership. He immediately jelled with rank-and-file and veteran managers alike, most of whom had long since tired of Fiorina's soaring rhetoric and simply wanted clear, smart direction. "We had grown used to hearing vision and abstractions, but nothing you can sink your teeth into. It doesn't mean anything," says one insider.
Several Fiorina initiatives were teed up and ready to deliver. Chief Technology Officer Shane V. Robison had finished an exhaustive benchmarking study, giving the data-addicted Hurd plenty to chew on. The printer group, which was still dominant but facing increased competition and falling prices, had already begun a project that would involve hefty job cuts and reallocate spending to the most promising projects. After years of playing the patsy to Dell, even HP's PC division was making solid progress and had much improved products in the pipeline.
But huge changes were under way that would enable HP to start keeping its promises. Hurd gave the heads of the main businesses far more control over such things as their own sales forces and marketing dollars. He killed projects that seemed designed to gain PR rather than profits, such as reselling Apple's (AAPL ) iPods. And he began a slew of investments to increase the efficiency of corporate functions, especially a state-of-the-art data warehouse and lightning-quick information systems network. The central cog of Hurd's plan: pump the billions saved over time into the engineers and salespeople who could keep HP growing. "It's not a Phase 1, Phase 2 thing," he says. "It's one thing. We have to grow and cut costs simultaneously."
Sales may not be as sexy in Silicon Valley as a new music player or Web service, but it has been a critical factor in HP's turnaround. Besides nixing an über-sales staff for one that lets salespeople focus on the products they know best, Hurd brought in almost 1,000 new reps to improve service to major accounts. And he carefully targeted areas that had been left unaddressed. While HP always sold printers and consulting services, it never provided services to help companies manage all their printers, as IBM did. Says Hurd: "The consistent message I get from customers is: We just don't show up enough." Adds Intel (INTC ) CEO Paul S. Otellini: "He really has reenergized their sales forces."
Also crucial to the recovery is Hurd's success in attracting top outsiders to push through his agenda -- traditionally not an HP strength. Former Dell Chief Information Officer Randall D. Mott is pushing his staff to the breaking point to replace 87 poorly integrated data centers to create that cutting-edge network. Ex-Palm (PALM ) CEO Todd Bradley now runs the resurgent $27 billion PC unit, with the help of former Apple marketer Satjiv Chahil. Says HP board member Bob Ryan: "Before Mark arrived, you had a lot of ideas but not a lot of action. There were too few operating managers -- people who can really run businesses."
What's most striking about Hurd's work is not the big strokes, but the many smaller ones. He has demanded accountability in a company that had gotten lazy, in any number of ways. One staffer notes that he is now questioned on expense reports if he goes over $45 for a dinner. Many say this renewed focus on details starts at the top. While Fiorina rarely sat in on divisional reviews, Hurd not only holds them but keeps staffers busy with his follow-ups. Former software chief Nora Denzel marvels at one meeting held to discuss the cost structure of HP's customer service group. At one point, Hurd got interested in what cars tech reps drove when they had to make an on-site repair. How many had company cars? How many didn't have their own cars they could use? What model cars did HP provide, and were they automatic or manual?
Denzel says Hurd is "tough, but fair." Once, her software business missed its targets when expected deals didn't materialize in the final days of the quarter. She approached Hurd's office with trepidation, but once she had explained the reasons, he asked what he could do to help. She named three things: Call one regional sales leader to push him to focus more on software, call another to insist he make a key hire, and call an analyst who was spreading talk that Hurd was going to divest the software group. "I asked for three things," Denzel says. "By the time I got back to my office, they were all done."
Now, Hurd must apply that detail-oriented mindset to the scandal that has cast such a pall over HP's recovery. The Boy Wonder must oversee an investigation, respond to criminal probes, hire new directors, and make his quarterly numbers, all while under the glare of scrutiny he could have never imagined back in Dayton.
Editor's note: Writer Peter Burrows is one of the reporters whose private phone records were sought by investigators for Hewlett-Packard.
By Peter Burrows, with Louise Lee and Robert D. Hof in San Mateo, Calif., Adrienne Carter in Dayton, Lorraine Woellert in Washington, and Moira Herbst in New York
Second article: Mark Hurd: "I Should Have Figured It Out"
Mark Hurd on what he knew, when he knew it, and what happens now
In his first interview since publicly admitting he should have taken a more active role in preventing the HP board scandal, CEO Mark Hurd talked with BusinessWeek correspondent Peter Burrows on Sept. 25. Here is an edited version of their conversation about the investigation.
You have said you missed most of a meeting to discuss the leaks investigation in mid-2005, that you didn't read a key report earlier this year, and didn't know that an e-mail being sent to a reporter from a made-up HP executive had tracing software in it. Those sound like excuses to some. What should people make of this?
That I should have figured it out sooner. I'm not trying to shirk it. I wish I would have figured it out sooner.
Do you have any reason to believe your job is in danger?
No.
Why didn't you read the summary report of the investigation that was completed in March?
The whole subject of the discussion [before he received the report] was "what's the answer [to the identity of the leaker]"? My first thought was that this was really, really bad news. You had a really good board member [Jay Keyworth] who had made tons of contributions to HP over the years.
I'm not trying to justify the fact that he leaked a news story to CNET or whoever, but I knew this was going to be tough stuff. The guy had done a lot for the company, and had a lot of support -- not just on the board, but in the company. But when you get that kind of data, my instinct is to escalate it. Pattie [Dunn] did say: "What do you think we should do with this?" I said you have to escalate this up through the chain [to the board's audit committee and to the outside counsel]. She did that, which I think was the right process to go through. So my first reaction wasn't to say: "Tell me how we did this."
You've said that the reason Keyworth was ousted from the board was that he violated HP's standards of business conduct (SBC). Did you violate those standards as well?
I don't think so. I've read through the document multiple times, but I can't go any further than that. I think there's a different question than just: Did I violate the SBC? I'm the CEO, so right or wrong you're accountable for what goes on in the company.
What do you hope to accomplish with the investigation you're now leading?
It's the whole ethics and compliance process. Let's review the standards of business conduct, to make sure we feel good about it and it's up to date and it's aligned with our values. I just think we need to put fresh eyes on it, and look at it as a zero-based budget kind of thing....
It sounds absolutely nuts, based on the circumstances we're in. But sometimes it creates an openness to change. And I can't think of anyone more open to change than us.
HP was doing so well before this. Will this be a temporary bump in the road or a permanent blot?
This happened on my watch. Like it or not, you get credit for the good stuff and the bad stuff. But at the end of the day, my scorecard is less relevant than HP's. At the end of the day, what matters is whether HP is the kind of company that everyone respects and trusts, so it can take advantage of its opportunities in the marketplace. I've got to make sure that happens. The people of HP didn't do this.
Internal Memo Details Hewlett-Packard Leak Hunt !
A remarkable 18-page internal report details the hunt for the HP leaker. The document, a copy of which you'll find in the link below, was released yesterday by the House of Representatives committee examining the company's search, which included the obtaining of phone records for board members and journalists. The May 24 memo from attorney Kevin Hunsaker, HP's director of ethics, was addressed to the firm's board of directors, CEO Mark Hurd, and Ann Baskins, who was the company's general counsel until her resignation this week.
http://www.thesmokinggun.com/archive/0929061hp1.html
4 things HP's Hurd needs to do now
(Fortune Magazine) -- Every problem is an opportunity, which makes the Hewlett-Packard mess one hell of an opportunity for CEO Mark Hurd. The big question for him and HP : Will he grab it?
Hurd is a terrific nuts-and-bolts operator and cost cutter, but that's only half of a CEO's job. Now he faces a huge chance to build the other critical CEO skills - those of a leader rather than a manager.
HP CEO Mark Hurd says the buck stops with him, yet he isn't considering resigning. Meanwhile, HP's stock remains near the top of its 52-week range, despite the controversy. Is Mark Hurd still the right person to lead HP?
When Fortune's Adam Lashinsky asked him about that (see the interview), Hurd seemed dismissive of big-picture leadership - in fact, seemed not to recognize what it really involves. He is by nature more focused on internal operations.
"I like being part of teams that go into things that people don't think are doing very well and getting into them to do better," he says. And "the other accoutrements, particularly the cocktail party/golf course circuit, and I don't mean to belittle that, is just not something I enjoy."
I don't believe he really thinks that drinking and golfing are all there is to the CEO's job beyond operations, but the comment suggests he'll resist growing into the kind of chief a $90-billion-a-year company needs. It's time for him to get outside his comfort zone. Four specific leadership moves would be great for the company and for Hurd. Here's his to-do list:
1. Fix the board
One of the ironies of this director-centered debacle is that HP's board seemed a picture of governance perfection. Yet this whole blowup originated in powerful, unresolved conflicts between board members, including former chairwoman Patricia Dunn and former directors Thomas Perkins and George Keyworth.
Minus those conflicts, it seems unlikely that Keyworth would have kept leaking information, as HP claims he did, or that some less slimy way of solving the problem couldn't have been found. Hurd must change the board culture radically. Every director has to put all his issues on the table, and anyone who isn't comfortable with that will have to go.
2. Recommit to the HP Way
HP's brand will probably sail through recent events with barely a scratch. The scandal's greatest danger for the company is the effect on current and prospective employees. The HP Way, the code of behavior set down by founders Bill Hewlett and Dave Packard, is a living thing for many employees, and the first sentence says: "We have trust and respect for individuals."
That's not just corporate fluff. In a company of knowledge workers, trust keeps the place running. Hurd needs to get HP's leaders reenergized about the HP Way, debating it, rewriting it if they want, making it their own. Either that or throw it out. Just don't let it wither.
3. Hire the right general counsel
The job's previous holder, Ann Baskins, resigned on the morning she was scheduled to testify before the House subcommittee. She bears heavy responsibility for what happened, since her department was managing the outside contractors who did the pretexting.
She needs to be replaced with a lawyer who knows at least these two things: One, when you use private investigators, you must control them totally, since they have no conception of helping or harming larger corporate interests. And two, there's a lot more to the job than just staying within the law.
Baskins's lawyers insist that she firmly believed pretexting was legal. Who cares? It's sleazy, and for HP that's what mattered.
4. Settle everything and change the subject
If prosecutors plan on bringing corporate charges, settling them will be worth whatever it costs. Hurd must also produce a victory for HP. A sexy new product, an interesting new alliance, just a great quarter - I don't know what it might be, but he does. The world needs something different and good to say about the company.
Hurd is on probation. The stock has done great on his watch, but if it falters, or if any other significant problem rears up, he's got no lifelines left. If he seizes his opportunities to grow, though, he could come out of this a stronger chief executive than he was going in.
Why Hurd needs to take some questions
Fortune
The HP spying scandal got a little bit more complex on Friday.
On the one hand, at a press conference at the company's headquarters, CEO Mark Hurd admitted to knowledge of at least one seriously questionable investigative technique used to uncover who among its directors was leaking information to the press. On the other, the resignation of board Chairman Patricia Dunn suggests that the new company line may be to blame the possibly illegal lapses in ethics and judgment on the board, not company management.
Two senior HP officials closely involved with the investigation were fired today, according to well-informed sources. One was Anthony Gentilucci, who headed investigations for HP, and the other was the internal lawyer who oversaw the effort from inside, Kevin Hunsaker, who also was the company's chief ethics officer, of all things. The word from a source close to the investigation is that these two, in the opinion of Hurd, were essentially renegades operating at the behest of the board and went considerably beyond proper bounds in pursuing the project.
One of the great mysteries of this entire story has been how Hurd, Dunn, HP Chief Counsel Ann Baskins, and others in the company could possibly have believed that it was legal or ethical to obtain phone records of individuals by "pretexting" - pretending to be those people in calls to the phone company so the phone company could reveal their data.
Such pretexting was done, the company confirmed Friday, to 7 directors, 9 journalists, and two employees, as well as, in some instances, members of their families.
An internal company e-mail Fortune has obtained explains at least part of that mystery - the legality part - though it does not exonerate HP's leaders from their responsibility to use common sense and an ordinary sense of ethics.
The e-mail, from Hunsaker to his boss, Chief Counsel Baskins, dated May 1, 2006, strongly argues on several grounds that the practice of pretexting is "not unlawful," and says clearly that "the Investigation Team is confident that all phone records information obtained during the course of the investigation was obtained in a lawful manner."
Hunsaker writes that the laws of the states where the pretexting occurred did not prohibit it, and that the practice has been "a common investigative tool that has been used by professional investigators and law firms for more than 20 years - this fact was confirmed by discussing the issue with a number of experts in the field."
However Hunsaker also notes that Florida, where the subcontractor that oversaw the pretexting was located, had already passed a law that would make the practice illegal on July 1.
That is hardly the strongest endorsement of the moral or ethical rightness of taking such an action, but it does to some degree help one understand why Baskins was not more alarmed.
Hunsaker's having sent such an e-mail could help explain why he no longer is employed at HP.
In the press conference, Hurd said that he had approved of a company plan in March to send a fraudulent e-mail to Dawn Kawamoto, a reporter at CNET.
The e-mail to Kawamoto was intended to appear to be a leak from a (fictitious) disgruntled senior manager. The investigator's ostensible aim in sending it was to use it to implant, via an attachment, a software tracer in hopes that she would forward the message to a director who had been leaking information.
Hurd said that while he did know of the effort to send the e-mail, "I do not recall seeing nor do I recall approving the use of tracer technology." That leaves several questions unanswered. What did he think was the purpose of sending such a fake message, if it was not to do tracing? And why did he agree to doing something clearly wrong, by any common-sense standard?
Hurd took no questions, because the company's lawyers don't think he should "pre-empt" the questions of a congressional committee before which he will testify next week, according to an HP public relations person who spoke beforehand.
The HP mess has moved into a new phase, in which Hurd and Dunn are increasingly likely to be at odds. I wouldn't be surprised to see them soon trading charges about what each did or didn't know. This despite the pretty-sounding press release HP issued today announcing Dunn's departure, in which Hurd is quoted as saying "There is no doubt in my mind that [Dunn] had the best interests of HP in mind throughout her time on our board."
Meanwhile, Dunn says in the release "I followed the proper processes by seeking the assistance of HP security personnel. I did not select the people who conducted the investigation, which was undertaken after consultation with board members." The battles lines may be being drawn.
While getting rid of some of the employees whose judgment was most egregious is clearly a step in the right direction, Hurd needs to do much more to reassure HPs customers, employees, and investors that such huge lapses in ethical standards and judgment will be less likely in the future. The fact that the company's chief ethics officer was orchestrating the unethical behavior suggests that policies, internal education and attitudes inside the company are seriously in need of remolding.
HP has historically positioned itself as the most ethical and conscientious of all large tech companies. That the company that uses the highest-minded rhetoric is the one now dragged into the muck is tragic. As Hurd said Friday, "it has always been our deep values and beliefs that have set us apart from our competitors."
While Hurd announced that the company has hired an eminent outside attorney to conduct an extensive review of the company's "investigative methods and...Standards of Business Conduct processes," that does not go nearly far enough. The world is still waiting for Mark Hurd to practice the transparency that he said Friday has been "my goal from the beginning."
HP's costly scandal
Hewlett-Packard (HPQ) CEO Mark Hurd may have known as early as July 2005 that investigators were using phone records to find the source of boardroom leaks, the Wall Street Journal reported. But a memo suggests he didn't know anything illegal was going on. (Reuters) The computer maker paid spies more than $325,000 for work that included digging through trash and posing as journalists and board members to get their phone records. "Cost of catching leaks: $325,000," said Stanford University professor Paul Saffo. "Cost to company's reputation: Priceless." (Bloomberg)
HP Security Pro Vowed to Delete E-Mails
SAN JOSE, Calif. (AP) -- A Hewlett-Packard Co. security expert instructed an investigator to make "make absolutely sure" he deleted private phone records of non-HP employees obtained in the company's ill-fated effort to root out the source of boardroom leaks, a series of internal e-mails show.
Fred Adler, a former FBI agent working in HP's IT security investigations department, vowed in the Feb. 9 e-mail to investigator Arthur Molineaux that he would also delete records that were not the property of the computer and printer maker, according to congressional documents provided Monday to the Associated Press and other news outlets.
"As for the non-HP owned records you obtained and sent to me in an unsolicited, good faith attempt, please make absolutely sure you delete them as you stated you would," wrote Adler, who has previously been praised with another member of the security detail for sounding the alarms that HP's tactics might land it in legal trouble. "I will do the same."
An HP spokesman reached late Monday night declined to comment on the e-mail.
The e-mail was included in hundreds of pages of documents provided to the media by the congressional panel investigating HP's possibly criminal probe that has prompted the departure of three board members and three top employees.
To unmask the person who leaked private boardroom discussions to the media, HP investigators and third-party detectives combed through detailed phone logs of directors, journalists and former and current HP employees, and rummaged through trash, trailed targets when they went out of town.
Federal and state authorities are investigating whether HP insiders or contractors violated the law by obtaining the phone records through a shady practice known as "pretexting," in which the investigators impersonated their targets to trick the phone companies into coughing up private records.
In other revelations from the congressional documents, a private investigator hired by HP apparently contracted with a former reporter to develop a strategy for duping journalist Dawn Kawamoto of CNET's News.com into revealing her secret company source who divulged details of private boardroom discussions.
Kawamoto wrote a story based on an anonymous source, later identified as then-board member George Keyworth II, that detailed a private board retreat at a posh resort and prompted HP to renew a previously unsuccessful probe into boardroom leaks.
In an e-mail dated Feb. 6, Ronald DeLia of Security Outsourcing Solutions wrote to the HP team spearheading the probe, including then-ethics chief Kevin Hunsaker, Adler and others, that a former reporter named "Diane" suggested to him several strategies for tricking Kawamoto.
One recommended tactic to build trust was to send Kawamoto a tip with a piece of unannounced news set to break in the following days.
However, the investigators, who were planning to plant tracking software on the e-mail attachment to identify anyone it was forwarded to, were instructed to send the document at least 2 days before it is made public instead of just one, because "information obtained 2 days prior to its release has more of an 'insider feel,'" DeLia wrote.
"The reporter has to feel comfortable or have a sense the source is someone who has accurate information and is in a position to know," he wrote.
Also, HP investigators apparently coordinated with the company's media relations department to bait that e-mail with a juicy bit of unannounced real news in an attempt to "gain some major credibility" with Kawamoto, according to one e-mail from Hunsaker.
The investigators tried to lure the reporter with a piece of upcoming news concerning the appointment of a new leader for HP's handheld business unit, a plan that was cleared by then-Chairwoman Patricia Dunn, then-General Counsel Ann Baskins and Chief Executive Mark Hurd.
In e-mails between HP security team members on Feb. 8 and 9, the investigators detail plans for Bob Sherbin, HP's head of public relations, to send the press release to Hunsaker at least two days before the public announcement.
The security squad would then install the tracer technology and send the message to Kawamoto.
Reached late Monday, Sherbin said he didn't know about the tracer technology and believed the press release would be used properly.
"I was acting under instruction from senior management, and I had every reason to believe that the material would be used properly," Sherbin said.
But the investigators first needed approval from Dunn and Hurd, which came in a Feb. 9 e-mail from Dunn to Hunsaker and Baskins: "I spoke with Mark and he is on board with the plan to use the info on new handheld leader," Dunn wrote.
Hurd later testified that he approved the plan but said he didn't recall authorizing the use of the tracer technology, which is not generally considered illegal.
The rigged e-mail was launched later that day, and one member of the security detail, Anthony Gentilucci had trouble containing his excitement.
"This is like waiting for the Apollo 13 spacecraft to emerge from the dark side of the moon," said Gentilucci, who has since resigned from HP.
The company said later that the tracer trick was unsuccessful, possibly because the software failed or Kawamoto didn't open the attachment.
Four days later, on Feb. 13, HP officially announced the news contained in the message that it was making its handheld business a separate unit within its Personal Systems Group division, and that former Sun Microsystems executive Dave Rothschild would lead the unit.
Reporters Reassigned in HP Spy Scandal
SAN FRANCISCO (AP) -- Hewlett-Packard Co.'s intrusion into the private lives of 10 journalists has created an ethical dilemma for their bosses as they weigh whether well-connected reporters should be allowed to cover the scandal despite possible conflicts of interest.
The approaches have varied among the five news organizations employing the reporters whose personal phone records and Social Security numbers were obtained by HP as part of a covert scheme that may result in criminal charges.
Some of the affected reporters aren't being permitted to write about HP at all while at least one has been allowed to dig up more details about a corporate soap opera that has attracted intense news coverage for the past month.
"The default position in something like this is that there is a conflict of interest and the reporters shouldn't cover the story," said James Bettinger, director of the Knight Fellowships for Professional Journalists at Stanford University.
"But there is also a high value to getting the complete story and getting it out to the reader. And if you take some of these reporters off the story, you lose their institutional knowledge," he said.
To further complicate the decision, some of the reporters may have legal claims against HP for prying into their personal affairs.
Both CNet Networks Inc. and The Associated Press have temporarily removed reporters from the HP beat after concluding their objectivity could be compromised by the company's invasive tactics.
CNet's decision affects three reporters -- Dawn Kawamoto, Tom Krazit and Stephen Shankland. AP has reassigned Rachel Konrad, who is married to Shankland and was covering the scandal before learning that HP's investigators had obtained her phone records and Social Security number.
"I wanted to avoid any appearance of a conflict presented by her reporting on a possibly illegal investigation that may have targeted her family," said John Raess, chief of AP's San Francisco bureau.
The affected CNet and AP reporters have continued to provide information to other reporters writing about the scandal.
The New York Times also isn't allowing another targeted reporter, John Markoff, to write about the scandal, but that won't prevent him from writing about other topics affecting the company, said Times spokeswoman Diane McNulty.
BusinessWeek magazine has assigned one of its top technology reporters, Peter Burrows, to write about the imbroglio's fallout so its readers can benefit from his insights and contacts.
Meanwhile, The Wall Street Journal hasn't ruled out the possibility that one of its targeted reporters, George Anders, may contribute to its coverage of the scandal.
Both Burrows and Anders wrote books about HP that exacerbated the company's concerns about the boardroom leaks that triggered its spying campaign.
Burrows "has a deep knowledge of the company that serves BusinessWeek readers well," said Stephen J. Adler, the magazine's editor-in-chief. "He has always hewed to the highest ethical standards in his coverage of HP, and will continue to do so."
Keeping Burrows on the beat already helped BusinessWeek. He scored the first extensive interview with the company's chief executive, Mark Hurd, after HP pressured its non-executive chairwoman, Patricia Dunn, to relinquish her job four months ahead of schedule.
The article included an editor's note disclosing Burrows' personal involvement in the scandal.
HP's detectives focused on two other BusinessWeek journalists, Ben Elgin and Roger Crockett, even though they have rarely written about the company. If they do write about HP in the future, their ties to the scandal also will be disclosed, BusinessWeek spokeswoman Kimberly Quinn said.
Anders hasn't written about the scandal yet, but the Journal may allow him to pursue the story because "we have seen no evidence that shows (him) to have been a target" of HP's invasive tactics, said Robert Christie, a spokesman for Dow Jones & Co., the paper's owner.
That stance contradicts HP's own accounting of its investigation as well as a Forbes magazine article by Anders' wife, Elizabeth Corcoran, who wrote that the company had obtained her work and cell phone numbers while trying to dig up information about her husband.
Another targeted Journal reporter, Pui-Wang Tam, can't write about the scandal but can cover other topics affecting the company, Christie said.
HP's investigators evidently respected Tam's skills. Internal company documents turned over to a congressional panel describe her as "sharp" and "a seasoned reporter."
Indictments in HP case may be near
Report: California Attorney General set to file criminal charges against former chairman Dunn and others.
NEW YORK (CNNMoney.com) -- California Attorney General Bill Lockyer is prepared to file criminal charges against former Hewlett-Packard chairman Patricia Dunn Wednesday, according to a published report.
BusinessWeek also reported that Kevin Hunsaker, HP's senior counsel and chief ethics officer, and private investigator Ron DeLia will also be charged, as will two outside investigators involved in the company's controversial leak scandal.
HP Chairman Patricia Dunn's supporters say her behavior was neither stupid nor weak.
Chief executive Mark Hurd, who has come under increased scrutiny lately, is not expected to be indicted, the report said, citing sources close to the investigation.
Lockyer's office could not be immediately reached for comment.
The indictments would be the first criminal charges filed against individuals involved in the HP leak probe.
HP's Hurd is contrite, but indictable?
Mark Hurd sits down with Fortune's Adam Lashinsky and speaks candidly about the scandal that has rocked HP and the entire business world.
(Fortune Magazine) -- It's 8 A.M on Friday, Sept. 29, and HP CEO Mark Hurd and I are having coffee in a basement meeting room at the Four Seasons Hotel in Washington, D.C. Dressed in his unvarying uniform - dark suit, button-down shirt, crisply knotted tie - Hurd greets me in a near whisper. He is tense, which is understandable. Fourteen hours ago he wrapped up his testimony before a congressional panel that's poking into the spy scandal which has engulfed Hewlett-Packard.
In a misguided attempt to break the ice, I ask if he's having fun yet. "I wouldn't describe this as fun, Adam," he says. Full stop. And so it goes for nearly an hour. What emerges is a picture of a chief executive who is bent but unbowed by what he's been through since it emerged in early September that HP investigators used despicable, and possibly illegal, tactics to uncover the source of a leak on its board of directors.
Hurd is contrite about the fact that he authorized a scheme to smoke out the leaker by sending misinformation to a reporter. Yet he's unwilling to address what that decision says about his own moral compass. "We had a fairly difficult situation," he says. "The team wanted my agreement that they could dangle some important information in front of the leaker. And I agreed to that. Now, hindsight's 20/20. We get a little more experienced and a little smarter as we go through things. I wouldn't do it again. But to be clear, I understood the team's strategy, and I agreed to that." I point out that difficult situations, not easy ones, are where ethics are truly tested. "We could talk about this for a long time," he responds. "It is what it is."
Why didn't Hurd read a report he was given that explained the methods HP's investigators used to find the source of the leak? He explains that he was presented with a copy of the report when he walked into a meeting of the investigations team on March 15, the same day as his first address to shareholders.
"I was about to deliver a speech," Hurd says, recalling the scene. "I probably wasn't as focused as sometimes I might be." More important, he says, because the leaker was identified as longtime HP director George Keyworth, he and then-chairwoman Patricia Dunn were immediately faced with a tough call on whether to push for a confrontation with the board veteran. "The question is, Do you pick up the document and turn to page whatever, or do you say, 'Are you sure?' " He opted for the latter and his team assured him that Keyworth was the culprit. "I can tell you ... my first reaction wasn't to say, 'Hey, Pattie, why don't you look backward at how the data was collected.' "
Hurd has said repeatedly that the buck stops with him. Yet I point out that so far the buck has stopped primarily with Dunn and Ann Baskins, HP's veteran general counsel, both of whom have resigned. Hurd, in contrast, has been promoted, taking on the additional title of chairman. "I don't report to myself," he says. "I've been focused from the beginning on doing the best I can to fix this." He says he hasn't considered quitting, and he doesn't regret abandoning his relative obscurity as CEO of NCR in Dayton to take the HP job. Repeatedly, he professes his love for HP and its employees, whom he's been reminding to hold their heads high. "I'm sorry for the people of HP that they've had to go through this," says Hurd. "But I believe the company will regain its pride."
By the end of our hour, Hurd has relaxed considerably. He tells me he's received an avalanche of support from friends and strangers alike, especially after his session on Capitol Hill. I ask how he's blowing off steam, and he says he can't play tennis because of recent knee surgery and his rehab doctor is on his case for missing too many sessions. I ask if he can see the light at the end of the tunnel, and he points out that there are jobs to fill, there is a board to rebuild and there is litigation to fight. Says Hurd, as he bolts to hop a plane to Cedar Rapids, Iowa, where he's visiting a customer: "This is the end of the beginning."
Attorney General files criminal complaint against ex-chairman Dunn, others involved in leak probe; CEO Hurd not named.
NEW YORK (CNNMoney.com) -- California Attorney General Bill Lockyer sought felony indictments against former Hewlett-Packard chairman Patricia Dunn and others involved in the company's leak probe Wednesday, Reuters reported.
In addition to Dunn, Lockyer filed criminal complaints against Kevin Hunsaker, HP's former chief ethics officer, and private investigators Ronald DeLia, Bryan Wagner, and Joseph DePante, the newswire said, citing a court clerk.
California Attorney General Bill Lockyer may issue indictments in the HP leak probe scandal soon.
Chief executive Mark Hurd, who has come under increased scrutiny for the role he played in the probe, was not named in the complaint, Reuters said.
The indictments would be the first charges filed against individuals involved in the HP leak probe.
Investigations continue at HP
USA TODAY
SAN FRANCISCO — Hewlett-Packard still faces a thicket of federal investigations after California's attorney general filed criminal complaints against former chairman Patricia Dunn and four others tied to HP's boardroom news-leak scandal.
HP said in a statement on Wednesday that it "is continuing to cooperate with state and federal investigators." It said it would have no further comment.
Attorney General Bill Lockyer's complaints on Wednesday did not name any current HP executives, including Chairman and CEO Mark Hurd, who is leading an important restructuring of the Silicon Valley computer and printer maker.
Still, HP's criminal defense attorneys at Morgan Lewis & Bockius must defend the company against investigations by the:
•U.S. Attorney and FBI. Last month, the U.S. Attorney's Office in San Francisco and the FBI acknowledged they were conducting an investigation into the HP spying scandal. At the time, the FBI said it was reviewing possible fraud and identity theft violations.
HP, in a Sept. 11 filing with the Securities and Exchange Commission, said it had been informally contacted by the U.S. Attorney's Office in San Francisco, requesting information "similar" to that sought by Lockyer's office.
Luke Macaulay, spokesman for San Francisco U.S. Attorney Kevin Ryan, on Wednesday said the inquiry is continuing.
•SEC. The agency's enforcement division is investigating the circumstances around Tom Perkins' resignation as HP director in May to protest the news-leak probe.
The agency is looking at two SEC filings HP made: One on Sept. 6, in which the company first disclosed the news-leak investigation and its role in spurring Perkins to quit. The second filing, on May 22, reported Perkins' resignation without explaining the circumstances.
The SEC also has asked HP for information about the company's news-leak investigation itself. The agency on Wednesday had no comment, spokesman John Nester said.
•Congress. The House Energy and Commerce Committee has been examining HP's use of "pretexting," a shady technique where investigators posed as HP directors, employees and journalists to get private phone records.
Dunn, Hurd and 12 other witnesses appeared before a committee hearing last week. Among the five individuals named in Lockyer's complaint, only Dunn agreed to testify before the panel. The other four refused, citing their right against self-incrimination.
The Silver Lining in HP's Scandal
Today From Barron's
THE SECRET IS OUT. The board of Hewlett-Packard isn't the epitome of corporate governance and astute business leadership. But we didn't need Pattygate to reach that conclusion. If there is a residual benefit from this unseemly quagmire of inept corporate espionage, it is this: The Palo Alto tech titan may finally fix its board.
HP's board has been less than stellar for some time now, starting as early as the twilight of former CEO Lew Platt's career. By all accounts, Platt was an affable leader who benefited by having the dot.com wind at his back for much of his reign as HP CEO from 1992 to 1999 (he was elevated to chairman in 1993).
But critics contend that Platt's poor leadership was responsible for HP's turn-of-the decade fall from grace, which led the board to recruit inexperienced super-saleswoman Carly Fiorina from the mid-ranks of Lucent Technologies to replace him. Critics point to Platt's belated entry into the cut-throat personal computer business in 1995 — a decade after Microsoft went public — as his biggest misstep. The board probably should have started to nudge him toward early retirement then, but he didn't retire until 1999.
A greater sin than Platt's, however, was the passive board's unwillingness to question his strategy.
In addition to dragging its feet, the board chose an untested Fiorina as the new boss of Hewlett-Packard (ticker: HPQ). It wasn't an altogether terrible decision, except that Fiorina lacked top-level management experience and an understanding of technology. Certainly, anyone who met the CEO, including me, would agree that she was a smart and charismatic leader, who inherited a messy situation shortly before the Internet bubble imploded. Fans would even argue that she deserves partial credit for the company's turnaround under current CEO Mark Hurd. But critics contend that Fiorina was in over her head and caused an operational nightmare.
The board's biggest mistake leading up to Pattygate was its support of Fiorina's bitter battle for Compaq Computer. The deal was a lousy one. Hewlett-Packard was in a bad way, and Fiorina used the acquisition to obfuscate the systemic problems she was failing to fix.
It was during the merger proxy battle when now-deposed HP Chairman Patricia Dunn first came to many folks' attention. Dunn, then CEO of Barclays Global Investors, a unit of Barclays PLC (BCS: 51.86, -0.78, -1.5%), was an HP director. San Francisco-based Barclays Global Investors, with its multitude of index funds, was one of HP's largest shareholders.
Given Dunn's position at HP, Barclays Global Investors hired a third-party proxy firm to determine which way the firm should cast its millions of votes in the merger decision. This was perfectly legal. But some thought that Dunn should have recused herself from most of the HP board's merger-related business. Was this a warning sign of flawed corporate judgment?
Some Fiorina supporters argue that HP's recovery under Hurd, including the revival of the personal computer business, had vindicated Fiorina's pricey merger, which alienated founding-family scion Walter Hewlett.
I couldn't disagree more. Doubling down on personal computers still doesn't make sense, especially at a cost of $25 billion. (HP's plan, announced last week, to buy Voodoo, a maker of high-end gaming PCs is another matter; it puts the company into a potentially lucrative niche market.) The so-called direct-selling Internet distribution advantages of Compaq never became a factor, and the benefits of Compaq's mid-level storage products were squandered by Fiorina before being salvaged by Hurd. Much of HP's newfound success in PCs — still a dubious business to be in — could have been accomplished without Compaq. (Interestingly enough, it was the Compaq merger that brought Thomas Perkins to HP's board. Perkins, who had been a Compaq director, went on to have his now-well-publicized row with Dunn over leaks.)
In the end, the board's controversial choice of Fiorina failed. HP's shares slid during her tenure. And events leading up to her untidy dismissal as chairman and CEO in February 2005 were integral to the current spy scandal. Details of board deliberations about her were leaked to the press, along with other information.
Dunn, who never ran a stand-alone public corporation, was named chairman in February, 2005. Several weeks later, the Hewlett-Packard board made one of its better decisions in a decade by hiring former NCR CEO Hurd as the new chief executive. In May, Dunn ordered the "rogue" investigation to plug her leaky boardroom.
Last month, Dunn finally did shareholders right by resigning as chairman, but she didn't apologize for a scandal that could still produce criminal indictments. "I do not take personal responsibility for what happened," Dunn told inquiring (and grandstanding) congressmen Thursday, at a special hearing on the Hill.
In contrast, Hurd scored points by appearing more contrite and falling on his sword. But he still hasn't fully cleared himself of knowing about deceptive tactics used to obtain personal phone records. He also disclosed much more involvement with, and knowledge of, the secret investigations than originally thought. He also made it clear that he has little tolerance for leaks, prompting lingering suspicions about his involvement.
Dunn is no longer a contributor to the board's incompetence — she was deposed on Sept. 22 — but she remains a thorn in Hurd's side; she's pledged not to go away quietly. In fact, in her published testimony to Congress, Dunn fingered HP's long-serving chief financial officer, Robert Wayman, as being complicit in her plumbing endeavors. Wayman was temporarily CEO between Hurd and Fiorina.
In addition to Dunn, two other non-executive board members have resigned. One is Perkins, a founding partner in venture-capital powerhouse Kleiner, Perkins, Caufield & Byers. He quit in May to protest the spying on board members; HP's SEC filing about his departure exposed the shenanigans. The other is George Keyworth, a longtime board member implicated as a leaker.
Thus, there is an opportunity for HP to substantially make over its board, with three slots now open. There could be a fourth if Wayman is brought down by Dunn's implication of him last week. Richard Hackborn was named "independent lead director" upon Dunn's resignation, but shareholders are asking for more outside representatives on the board and perhaps even a strong outside leader to replace Hurd as chairman.
Most investors are willing to turn a blind eye to Hurd's possible involvement in the scandal because of HP stock's stellar showing under his leadership. Whether he remains chairman and is entrusted to shape a new board remains to be seen. But if he does get a chance to lead the selection of new directors, he'd do well to put better ones in place than those the company has had over the past decade. That just might help him survive the flickering flames at HP without getting singed further.
More Charges Possible in HP Spying Probe
SAN JOSE, Calif. (AP) -- Authorities have hinted they may file more charges in Hewlett-Packard Co's ill-fated media-leak investigation, even after wrangling two of the technology company's top insiders.
Ousted Chairwoman Patricia Dunn and former ethics chief Kevin Hunsaker surrendered, were booked and released Thursday, a day after being charged -- along with three private investigators -- with felonies for their roles in HP's spying scandal.
At least one expert said the California Attorney General's office might strike plea deals with the three investigators -- Ronald DeLia, Matthew DePante and Bryan Wagner -- to secure their testimony against Dunn and Hunsaker and gather evidence against any other HP insiders believed to have sanctioned their conduct.
"Their involvement is just the tip of the iceberg," said Scott Christie, a former prosecutor who headed the computer hacking and intellectual property unit of the U.S. Attorney's Office in New Jersey.
"Others knew about what they were doing, and approved of their conduct. There may be others charged and there may not be, but I would expect the AG will try to work his way up the ladder," Christie added.
Attorney General Bill Lockyer said after filing the charges in Santa Clara County Superior Court on Wednesday that the investigation was not complete.
HP CEO Mark Hurd is not among those named in the criminal complaint, nor was HP's former General Counsel Ann Baskins, who had some oversight over the probe.
Dunn appeared briefly in court Thursday, signing a promise to return to court on Nov. 17 for an arraignment. Afterward, she smiled and held hands with her husband before hopping in a chauffeur-driven sedan for the short trip to the county sheriff's office for booking.
Hunsaker also was booked and released, and his arraignment was scheduled for Dec. 6, his legal team said.
DeLia and Wagner, both out of state, have made arrangement to surrender within a week, according to Lockyer's office. Prosecutors said they had not yet been able to reach the lawyer for DePante. A call to that lawyer by The Associated Press on Thursday was not returned.
The five defendants each face four felony counts: use of false or fraudulent pretenses to obtain confidential information from a public utility; unauthorized access to computer data; identity theft; and conspiracy to commit each of those crimes. Each charge carries a fine of up to $10,000 and three years in prison.
HP's investigation, which took place earlier this year and in 2005, erupted into a national scandal last month after HP disclosed that detectives it hired had obtained the private phone records of directors, employees and journalists in HP's effort to ferret out the source of media leaks.
Using a shady tactic known as "pretexting," the detectives obtained the Social Security numbers of their targets and fooled telephone companies into divulging their detailed call logs.
After Dunn's court appearance, neither she nor an attorney representing her, S. Raj Chatterjee, would comment.
But in an interview with CBS' "60 Minutes" to be broadcast Sunday, Dunn defended the investigation of directors and members of the media.
"Investigations, by their nature, are intrusive," Dunn said, according to excerpts released by the network Thursday. "If you think that Hewlett-Packard is the only company that has an investigations force -- which by the way, is peopled mostly with former law enforcement officers that do all kinds of private detective work, monitoring, posing as other people in order to solve problems to protect shareholder value -- you're being naive."
Hunsaker's lead lawyer, Michael Pancer, reiterated Thursday that his client had been assured of the legality of the tactics and was fired from HP when he refused to resign.
"At no time did he -- or would he -- ever authorize or engage in any activity that he thought was illegal," Pancer said in a statement.
The telephone rang unanswered Thursday morning at DePante's office in Melbourne, Fla. No listed home number for him could be located. Wagner did not immediately return a call.
DeLia had previously asserted his innocence but has declined to elaborate or take questions.
After the charges were filed, HP issued a statement that it is cooperating with Lockyer as well as federal authorities who are also exploring possible criminal charges. The Palo Alto-based company declined further comment.
In all, the personal data of more than 24 people were compromised, including one instance in January when an investigator changed the password for a reporter's cell phone and viewed her call log for nine minutes, according to the criminal complaint.
Dunn, who was infuriated by a leak about a private board retreat, ordered the investigation but said she didn't know the detectives used such extreme measures. She resigned from the board last month.
Hunsaker oversaw the probe, and left the company on Sept. 26.
DeLia runs a Boston-area detective firm called Security Outsourcing Solutions, a longtime HP contractor commissioned to conduct the leak probe.
DeLia in turn hired DePante's company to gather information, and Wagner was hired to obtain the private phone records. According to the complaint, Wagner acknowledged destroying the computer linking him to the HP probe "because it had incriminating evidence on it and he would not assist in locating it."
Pretexting will become a criminal offense in California when a new law signed by Gov. Arnold Schwarzenegger takes effect Jan. 1. Violators will be punished by $2,500 in fines and up to a year in jail, though the law will not retroactively apply to the HP investigation.
Is Dunn Really A Felon?
Something feels wrong here. Before I describe what, however, I need to discuss what is not wrong.
It is not wrong that former Hewlett-Packard Chairman Patricia Dunn was publicly ridiculed for ordering and overseeing a cloak-and-dagger investigation of boardroom leaks.
It is not wrong that Dunn (finally) resigned over this. She should have taken responsibility and resigned immediately, whether or not she knew about the "pretexting."
It is not wrong that HP board members like Thomas Perkins would be outraged about the investigation and quit the board in protest, and it is not wrong that everyone thinks pretexting (aka, fraud) is unethical--it obviously is.
It is also not wrong that everyone thinks Dunn made a bad business decision--she did. And it is not wrong that HP has been globally shamed for engaging in such a practice--it should have been.
What feels wrong is that Dunn has been charged with four felonies. Unless the California attorney general knows something that the rest of us don't (possible), Dunn neither intended to commit a crime nor knew one was being committed.
On the contrary, she took repeated steps to assure herself that the investigation was legal. She sought and received assurances from, among others, HP's general counsel, Ann Baskins--an expert far better qualified than Dunn to determine the investigation's legality (and who, for some reason, has not been charged with the same crimes). Baskins reportedly concluded and still believes that the investigation was legal. Wilson Sonsini, HP's outside law firm, concluded and still believes that the investigation was legal. As do other legal experts.
So what more could Dunn have done? Used her own legal spidey sense to say, "Hey, my lawyers tell me it's fine, but I think they're wrong"? Again, the issue is not whether the investigation was smart or ethical--it wasn't--but whether it was criminal. And it seems a more-than-fair defense for Dunn to say, "I consulted legal experts--not hacks, mind you, lawyers at the top of their field--and they assured me it was legal."
Dunn will have an opportunity to make this defense, of course, but she will have to do it in court, after sacrificing her board seats, reputation, more than a year of her life and tens of millions of dollars in legal fees. And given that hindsight is 20/20 and juries aren't omniscient, she might still go to jail.
Meanwhile, the man who put all these events in motion--the leaker, George Keyworth--has been portrayed as a helpless victim, deeply wronged, worthy of sympathy. Keyworth has every right to be outraged that his employer defrauded the telephone company to get his phone records. He does not, however, deserve to feel holier-than-thou about his own conduct in the affair.
On the contrary, Keyworth betrayed HP, its shareholders and the rest of the board, repeatedly. He violated his professional duty, repeatedly, and then (by not resigning when called on it) refused to take responsibility for his actions. Keyworth's defenders--in the rare instances when he is criticized--point out that he "had HP's interests in mind." Maybe so, but confidential information is confidential information, and he betrayed the company by leaking it.
Was Keyworth's behavior a crime? Of course not--just as what Patricia Dunn personally did to try to stop it doesn't sound like a crime. But it was unethical, unprofessional and a betrayal of responsibility and trust. So hold off on the Keyworth hagiographies.
The HP scandal is a major embarrassment, one that deserved to lead to firings, resignations, regret, apologies and bad publicity. Based on the facts that have been released to date, however, it should not lead to jail time or a criminal indictment, at least not for Dunn.
UPDATE: A couple of smart readers have observed that 1) ignorance of the law is not a defense, and 2) Dunn's changing stories and refusal to take responsibility undermine her defense.
On point two, I am taking Dunn at her word in her Congressional testimony--which was, as I recall, that she didn't know the investigators were "pretending to be someone else" to get the phone records until after the investigation, and that HP's corporate counsel, Ann Baskins, who did know, had pronounced the investigation legal. If either of these assertions is false, then the picture changes.
On point one, I agree that ignorance of the law is no defense--when the law that someone is accused of breaking is clearly defined and when the accused knows it is being violated. In this case, although there should have been a law against pretexting, many legal experts think that there wasn't. More importantly, Dunn claims that she didn't know that the investigators were engaging in pretexting, so even if it was against the law, she says she was unaware of it.
In other words, there is an important difference between ignorance of the law and ignorance that the law was being broken. The latter isn't a defense, either, if the person should have known. But if the person takes reasonable steps to assure themselves that a law is not being broken, I think this should be a viable defense. If it isn't, then every person who manages employees who commit crimes will be liable for those crimes--a situation that would deter most sane people from ever becoming managers.
Wall Street Journal
California Charges Dunn, 4 Others In H-P Scandal --- Action Sends Strong Message To Business About Privacy; Precedents for the Web Age?
By Peter Waldman and Don Clark
California Attorney General Bill Lockyer, sending a stern message to corporate America, filed criminal charges against former Hewlett-Packard Co. Chairman Patricia Dunn and four other people in connection with the company's investigations into boardroom leaks.
The charges, which stem from H-P's allegedly illegal tactics for acquiring personal phone records, move the H-P imbroglio into an important new phase. The affair already has mushroomed into one of the nation's most embarrassing corporate scandals in years. The criminal proceedings are likely to have implications that go far beyond the particulars of the case, setting precedents for boardrooms, corporate ethicists and private investigators across the nation.
"This is the first time to my knowledge that the chairman of the board of a major American company is being charged with a privacy violation," said Joel Reidenberg, a professor at Fordham University Law School in New York and director of its center on law and information policy. "This sends a very powerful message to corporate America that privacy matters."
Each of the five defendants, who were charged in state court in Santa Clara, faces four felony charges: fraudulently obtaining private information from a public utility; accessing computer data without permission; identity theft and conspiracy to commit those same crimes. Each charge carries a maximum penalty of three years in prison and a fine of up to $10,000.
Mr. Lockyer's targets in the case suggest he is pursuing links from top to bottom in the chain of action behind the debacle. That chain started with Ms. Dunn who, disturbed by H-P-related leaks to the media, launched two boardroom investigations, in 2005 and in 2006. The probes ultimately backfired this summer after venture-capitalist Thomas Perkins quit H-P's board in a huff and accused the company of improperly obtaining his personal phone records as part of its leak investigation. The Wall Street Journal brought the backroom battle to light in a page-one article on Sept. 6.
Along with Ms. Dunn, Mr. Lockyer yesterday charged H-P's former chief ethics lawyer, Kevin Hunsaker, and three outside investigators who helped H-P try to discover which of its directors might be leaking information to the press. Documents have emerged suggesting that Mr. Hunsaker worked with H-P's outside investigators to pry into private phone records, use operatives to tail certain H-P directors and journalists, spring a sting operation on an unsuspecting reporter in an effort to get her to reveal her source, and contemplated sending spies into newsrooms disguised as janitors.
Also charged yesterday were Ronald DeLia of Security Outsourcing Solutions Inc., Needham, Mass., who led both leak probes from start to finish, Matthew DePante of Action Research Group, Melbourne, Fla., and Bryan Wagner of Littleton, Colo. Mr. DePante allegedly helped H-P obtain the phone records it sought, and Mr. Wagner allegedly did some of the so-called pretexting, impersonating others to obtain their records from phone carriers.
A Santa Clara County judge issued arrest warrants for all five defendants, and set bail ranging from $100,000 for Mr. DePante to as little as $5,000 or even nothing for Ms. Dunn and Mr. Hunsaker, for whom the judge held open the possibility of being released on their own recognizance.
The case against Ms. Dunn, who is scheduled to start six months of chemotherapy tomorrow for recurrent ovarian cancer, rests on prosecutors' claim that she knew H-P's investigators were obtaining phone records through fraud. She has said she thought the records came from publicly available sources. "As her many supporters fully expect, she will fight these charges with everything she has," said James Brosnahan, Ms. Dunn's lawyer.
Though the attorney general didn't name H-P as a defendant in the complaints, the charges signal the beginning of a potentially lengthy legal process that could keep the company's name in the headlines for months or years.
H-P's former general counsel, Ann Baskins, wasn't charged in the case, although she was named in the prosecutors' court affidavit yesterday as having participated in a key conference call in June of 2005. At that time, Mr. DeLia "explained pretexting, telling Dunn and Baskins that it involved investigators requesting information from operators orally, over the phone, 'pretending' to be someone else if necessary," prosecutors wrote.
Also not charged was Tony Gentilucci, who resigned as H-P's manager of global security investigations in the wake of the probe. Both he and Ms. Baskins declined to testify at a House subcommittee hearing on the matter last week, invoking their Fifth Amendment rights against self-incrimination. Their attorneys couldn't be reached for comment.
Mark Hurd, H-P's chief executive officer, isn't expected to be targeted by prosecutors. Mr. Hurd told the House subcommittee that he attended briefings where the investigation was discussed, adding that he didn't recall hearing about the tactics investigators used. However, a memo by H-P's law firm, Wilson Sonsini Goodrich & Rosati, says Mr. Hurd told attorneys for the firm in August 2006 that he recalled that during one meeting, "probably on July 22, 2005," somebody "mentioned obtaining phone records off the Web" as part of the probe.
"There currently is no evidence that Mark Hurd engaged in criminal conduct. However, our investigation remains open and continues," Mr. Lockyer said yesterday at a news conference.
Lawyers for Mr. Hunsaker and Mr. DeLia didn't return phone calls. Messrs. DePante and Wagner didn't return phone calls. Messrs. Hunsaker and DeLia last week declined to testify before the House subcommittee, citing their Fifth Amendment rights, as did Mr. DePante's father, Joseph, the owner of Action Research, who wasn't charged yesterday.
H-P, meanwhile, issued a statement saying: "H-P is continuing to cooperate with state and federal investigators looking into the boardroom leaks issue. The company has no further comment."
During the leak investigations in 2005 and 2006, H-P investigators obtained the personal phone records of at least a dozen people, including directors and employees, as well as journalists and other outside parties. Among them were two Wall Street Journal reporters, including Pui-Wing Tam, whose page-one story last year about friction between the H-P board and then-Chief Executive Carly Fiorina set off the first leak investigation.
The disclosure of the investigations prompted a series of probes by state and federal agencies, as well as last week's high-profile House subcommittee hearing. Some in Congress are seeking to pass a bill that would clearly define pretexting as illegal. Some lawyers involved in the H-P investigation argue that the practice isn't illegal, except when financial records are involved.
California laws are clearer, however. One of the statutes under which Ms. Dunn and the four others were charged yesterday, Penal Code Section 538.5, specifically outlaws "executing a scheme or artifice to obtain, from a public utility," customers'"billing records."
The California statute also makes clear that it isn't just the people who obtain such information who could be criminally liable, but "every person who transmits or causes to be transmitted" the information. That provision could prove particularly important in prosecutors' case against Ms. Dunn, who instigated the leak probes and has acknowledged knowing that personal phone records were scrutinized.
Ms. Dunn, who testified for hours before the House subcommittee, spearheaded the probes, which began in the spring of 2005 following leaks from the board that year and intensified after other leaks in early 2006. She acknowledged learning from Mr. DeLia that personal phone records were being obtained during the investigation, but said she believed it was a customary H-P practice and didn't learn of the term "pretexting" until much later.
Though Mr. Lockyer said publicly three weeks ago that his office had enough evidence to charge people with crimes both inside and outside H-P, his investigation bogged down over H-P's unwillingness to share certain documents with prosecutors, according to lawyers familiar with the case. The logjam broke in the past several days, these people said, after prosecutors obtained some 700 pages of internal H-P emails, investigative reports and legal papers from congressional investigators in Washington, who had gathered the documents from H-P for last week's House hearing.
Among the congressional documents is a series of memos written in August by H-P's outside lawyers at Wilson Sonsini Goodrich & Rosati, which H-P retained this summer to review the conduct of the leak investigations. H-P had been resisting providing the Wilson Sonsini documents to prosecutors in Sacramento, citing attorney-client privilege, these lawyers said. The memos include write-ups of interviews with all the main players in the spying imbroglio, including Ms. Dunn and Mr. Hurd. Prosecutors quoted extensively from the law firm memos in their affidavit yesterday.
Wilson Sonsini's conclusions differed markedly from Mr. Lockyer's. In a presentation to H-P's board in August, the firm essentially exonerated Ms. Dunn from wrongdoing, finding she "reasonably relied on repeated assurances of legality by HP legal." The Wilson Sonsini report said that, at the time of the investigations, no laws specifically barred people from using false pretenses to obtain others' phone records.
HP not alone with "rogue" investigations
SAN FRANCISCO (Reuters) - To think Hewlett-Packard Co., the world's second-largest computer company, is alone in pursuing aggressive internal investigations would be naive, say HP's former chairman, experts and lawyers; they do it all the time.
But do they routinely turn to such skulduggery as rifling through garbage? Impersonate someone to get their phone records, known as pretexting? Or send fake e-mails embedded with tracing technology?
Perhaps not the companies themselves, experts said, but the investigators they hire do use those methods. And, in light of HP's full-blown scandal into its board leak investigation, that gives big companies plenty of reasons to be skittish.
"Corporate America is worried and should be worried," said Jamie Wareham, global chairman of the litigation department at law firm Paul, Hastings, Janofsky & Walker LLP. "Do you think these guys in the business of pretexting only have one client and that's HP? I don't think so."
HP had turned parts of the leak probe over to Security Outsourcing Solutions, a small Boston private investigations firm, which in turn used subcontractors to investigate.
Wareham said he knows of "some large companies that are worried some of their investigative agencies use these sorts of tactics," though he declined to name them. Some companies he knows are conducting audits of their private investigators in light of HP's experience, he said.
What began as an effort under prior Chief Executive Carly Fiorina in what lawyers say appears to have been an aboveboard effort to find the source of boardroom leaks devolved into a scandal that has claimed former HP Chairman Patricia Dunn, former general counsel Ann Baskins, and several other HP executives.
California's attorney general on Wednesday filed felony charges against Dunn and four others for spying on journalists, HP employees and the company's board of directors. HP is also under investigation by the U.S. Securities and Exchange Commission and other regulators for the investigative tactics used.
Attorney General Bill Lockyer's office said it investigated at least five other cases involving potentially illegal use of database brokers, but has declined to give details.
Companies routinely conduct investigations, but their number has grown since the Sarbanes-Oxley Act of 2002 was signed in to law in July of that year. That wide-ranging law established new or enhanced standards for disclosing financial and accounting details for publicly traded U.S. companies.
"Companies now more than ever, post Sarbanes-Oxley, are routinely doing internal investigations," said William Keane, a partner at the law firm Farella Braun+Martel, noting that they typically cover issues of securities or accounting fraud, employment and discrimination matters as well as worker theft.
"I would say if there are investigations going on that include obtaining private personal phone records, they would be the exception rather than the rule," Keane said.
Dunn's involvement in HP's leak investigation in 2005 and 2006 prompted her resignation. She testified before U.S. Congress that corporate investigations are the norm, rather than the exception. And many may involve unsavory tactics, she offered.
"The fact is that I believe that these methods may, in fact, be quite common not just at Hewlett-Packard, but at companies around the country," Dunn said.
And although HP is now the poster child for corporate investigations gone "rogue," as HP's current Chief Executive Mark Hurd testified before the same congressional panel, it may not be lonely for long.
"This is kind of like the first options-backdating case," lawyer Wareham said, likening HP's leak scandal to the some 100 companies whose stock option grant practices are under scrutiny by regulators. "It's not the last one you're going to be reading about."
Former Hewlett-Packard (HPQ) chairman Patricia Dunn, facing charges of approving the practice of using private investigators to obtain the phone records of HP's board of directors, went on 60 Minutes Sunday to say she was innocent.
"The idea that I supervised, orchestrated, approved all the ways in which this investigation occurred is just a complete myth," she said. "It's a falsehood. It's a damaging lie."
Dunn, 53, has late-stage ovarian cancer and less than a 70% chance of living five years. She said her lawyers approved the 60 Minutes interview, which was unusual coming within days of being charged with felonies by California Attorney General Bill Lockyer.
The charges, filed in state court, allege that investigators working for HP impersonated board members and reporters to obtain their phone records without their consent, a practice known as pretexting. Dunn was aware the records were obtained under false pretenses, the attorney general alleged.
Dunn became HP's chairman in 2005 at a time when members of the board were leaking confidential information to the press regarding mergers and other sensitive topics. Those leaks destroyed trust on the board, Dunn said.
She said she approved investigating the board to find the leak but that she relied on HP lawyers to ensure everything was done legally. Dunn is one of five charged. HP declined to comment on 60 Minutes.
When asked if using pretexting was not at least unethical, Dunn said that people who sit on boards give up a lot of privacy. "Your life is much more an open book," she said. Dunn said it was wrong for HP to get reporters' records but that she did not learn that had happened until last month.
On the same 60 Minutes program, former HP CEO Carly Fiorina said that she was "shocked" by the depth and range of tactics used in the scandal, and shocked to learn that she may have been a target.
She implied that her firing was an act of sexism. Asked if a man would have been fired in the same manner, Fiorina said: "Somehow, men understand other men's need for respect differently than they understand it for a woman. I'm disappointed to have to say that, but I think it's undeniably true."
Fiorina said there were no "normal business reasons" for her firing. "I can only conclude that it was personal in some way."
Dunn said her cancer has made her philosophical and that being charged with crimes is not the worst thing that can happen.
"The Golden Gate Bridge is always out there," she said with a laugh during the interview.
"I have a story to tell," she said. "I need people to understand what happened, and I'm glad to have the chance to do it."
Ex-HP Chair Dunn says charges she led spying a lie
NEW YORK (Reuters) - Former Hewlett-Packard Co. board member Thomas Perkins orchestrated a campaign to oust Patricia Dunn, the ex-chairman of the computer maker, in response to a probe she led to plug board-level leaks, Dunn told the news program "60 Minutes," in an episode aired on Sunday.
The interview with Dunn followed her arraignment last week on felony charges for ordering a company investigation that led to spying on journalists and board members. Four former HP employees or contractors were also charged in spying scandal.
"It was a disinformation, a classic disinformation campaign," Dunn said in an interview with CBS Corp.'s "60 Minutes" program. "He (Perkins) set the mind-set for basically everything that's believed about this right now," she said.
In the interview, Dunn said that a majority of H-P's board urged her to start an inquiry into the leak. However, she denied passing along personal information such as home phone numbers on board members to internal company investigators. She added she only learned of spying on journalists last month.
"The idea that I supervised, orchestrated, approved all of the ways in which this investigation occurred is just a complete myth," Dunn said. "It's a falsehood. It's a damaging lie."
Dunn said Perkins began to target her after the investigation identified board member Jay Keyworth as the source of leaks earlier this year, a fact, Dunn said, that Perkins wanted to keep secret from the full board.
A spokesman for Perkins was not immediately available to comment.
Keyworth eventually resigned, and Perkins, feeling betrayed that Dunn did not keep the secret, Dunn said, also quit.
"He turned to me sitting nearby and pointed at me and said, 'You betrayed me.' He said that several times. 'You betrayed me, Pattie,"' Dunn said of Perkins' reaction when she revealed the Keyworth's role in the leaks to the board.
Asked if she felt Perkins was "out to get her" she replied: "He wanted me off the board. This was to get me off the board. I don't know if he ever thought through the consequences that would go beyond my getting off the board," Dunn said.
Perkins contacted federal and California state agencies to begin a probe of Dunn, she said.
"If you have enough money and you're willing to spend enough, you can buy and sell somebody's reputation," Dunn said. Asked by "60 Minutes" whether she's charging that that is what Perkins did, Dunn said, "That is what he did."
Fiorina blames divisive HP board
Fiorina's book, Tough Choices, out this week, says the HP board "did not have the courage to face me" when they ousted her.
By Michelle Kessler, USA TODAY
SAN FRANCISCO — Deep "dysfunctions" in Hewlett-Packard's board have troubled the computer maker for years — and contributed to its current snooping scandal, former CEO Carly Fiorina said Monday.
Fiorina, who ran HP (HPQ) from 1999 to 2005, says she struggled with a board that refused to confront issues directly, but was happy to scheme behind her back.
The board ultimately ousted Fiorina, a decision that she says was unexpected and never explained. She describes their conflicts in a her memoir, Tough Choices, in stores this week.
Now, that same board is in trouble because it hired detectives that used trickery to obtain the private phone records of journalists, board members and employees — probably including Fiorina. That may be against the law. California Attorney General Bill Lockyer is seeking indictments against former HP chairman Patricia Dunn and four others involved in the scandal.
Fiorina, who left the company in the scandal's early days, says she has few inside details. She's still trying to figure out how many of her own personal records were accessed. But overall, "It appears that personal agendas overcame people's good judgment," she says.
It's a problem that Fiorina says she knows well. In her book, she describes repeated battles with a board that she says was usually polite and accommodating in person — and secretly scheming behind the scenes.
"That isn't the way business should be done," she says.
Some board members were particularly troublesome:
• George "Jay" Keyworth, a former science adviser to President Reagan, repeatedly proposed impractical mergers, then got angry when Fiorina didn't embrace his ideas, she writes. He has since confessed to leaking information to the press and has resigned.
• Venture capitalist Tom Perkins "clearly became a disruptive force in the boardroom during my tenure, and he apparently remains a disruptive force," Fiorina says.
Perkins, a close friend of Keyworth, played a key role in Fiorina's ouster. He resigned from the board this year after clashing with Dunn. He later forced HP to publicly reveal its phone-record swipe.
• Dunn, who became chairman after Fiorina's ouster, remained mysterious about the reasons for her decision to seek a change in CEO. "I never participated in a conversation with the board about why or how they chose to fire me," Fiorina says.
• Walter Hewlett, the son of an HP co-founder, initially supported a proposed $25 billion acquisition of Compaq Computer. Once the deal was announced, he stunned Fiorina by saying he would oppose it. He refused to even meet with her, she writes.
Fiorina says the problem with confrontation wasn't limited to the boardroom. The company's vaunted corporate culture, known as the HP Way, "had gotten a bit corrupted," Fiorina said Monday. "People tended to favor politeness and avoiding confrontation (over) direct talk."
That made HP slow and staid, putting it at a disadvantage to competitors such as Dell and Sun Microsystems. Fiorina worked hard to change it, and says she had some success. But the culture persisted in the board, in part because it met infrequently, she says.
HP has had a remarkable turnaround in spite of this, Fiorina says. Her successor, Mark Hurd, has gotten most of the praise.
"This isn't me vs. Mark," Fiorina says. But, she says, "The Hewlett-Packard company was transformed on my watch. ... I don't deserve all of the credit, but I do deserve some."
Fiorina says the timing of her book is coincidental. She wanted to write it now, because she has time before her next venture, she says. Fiorina says she wrote the book herself, without the help of a professional writer, in about four months.
She hopes that the memoir, which describes her rise from temporary typist to AT&T executive to HP CEO, helps people see her as a real person. Through her difficult times at HP, "I became a caricature — too tough, too flashy," she says.
Fiorina says she doesn't yet know what her next move is. Politics are one option, though she wouldn't comment on reports that HP outside counsel and Silicon Valley icon Larry Sonsini urged her to run for governor.
Another is heading a new company. She says she stays in close touch with the tech industry and still lives in Silicon Valley. As CEO, "I made choices I'm proud of. I would make those choices again," she says.
"It was a great experience," she says. "I'm proud of what I and tens of thousands (of HP employees) accomplished. I take great pleasure in seeing Hewlett-Packard (succeed)."
Investigators in Hewlett-Packard Scandal Arraigned in California, Plead Not Guilty
SAN JOSE, Calif. (AP) -- Three private investigators who allegedly obtained confidential telephone records as part of Hewlett-Packard Co.'s boardroom spying probe pleaded not guilty Tuesday to identity theft and other felony charges.
Ronald DeLia of Massachusetts-based Security Outsourcing Solutions Inc., Matthew DePante of Florida-based Action Research Group Inc., and Bryan Wagner of Colorado were arraigned in Santa Clara County Superior Court. Each was later booked and released on personal recognizance.
DeLia, DePante and Wagner are among five people criminally charged last week for their roles in the spying scandal at the computer and printer giant. Former HP Chairwoman Patricia Dunn surrendered and appeared in court late last week. The company's ousted ethics chief Kevin Hunsaker turned himself in and was released.
The three investigators are accused of impersonating HP board members, employees and journalists to trick telephone companies into divulging their private phone logs.
All five are charged with using false or fraudulent pretenses to obtain confidential information from a public utility; unauthorized access to computer data; identity theft; and conspiracy to commit each of those crimes. Each charge carries a fine of up to $10,000 and three years in prison.
They are all scheduled to return to court Nov. 17.
Wagner's defense lawyer, Stephen Naratil, said outside court that his client worked for many companies and didn't know what the telephone records were being used for.
He declined to comment on prosecutors' claims that Wagner acknowledged destroying the computer linking him to the HP probe "because it had incriminating evidence on it."
"He's a hard worker," Naratil said. "He didn't know anything about HP. He didn't know anyone at HP. He was just doing his job."
DePante's defense lawyer, Richard Preira, reiterated his client's innocence but declined to comment further.
DeLia's defense lawyer declined to comment.
State Attorney General Bill Lockyer has said the investigation is ongoing and could lead to more charges.
DeLia, a longtime HP contractor on security investigations, was allegedly the middleman between HP and the other two investigators.
According to an affidavit filed in support of the charges, Dunn worked with DeLia on HP's ultimately unsuccessful media-leak investigation in 2005.
HP then contracted with him again this year after a story appeared on CNET's News.com in January with an anonymous source dishing about a private board retreat.
DeLia contracted with Action Research Group, where DePante is a manager, to obtain the private phone logs, who in turn hired Wagner as a subcontractor, according to the criminal complaint.
Prosecutors say a series of e-mails shows that DeLia regularly updated Dunn, Hunsaker and other members of HP's security team on the investigation, which became public last month and has prompted the resignation of three board members and three top HP employees.
According to the criminal complaint, private investigators working for HP compromised the personal data of more than 24 people. By March, the detectives had compiled records of 1,750 phone calls made on 157 cellular phones and 413 landlines.
The probe eventually identified longtime board member and former presidential adviser George Keyworth II as the anonymous source in the News.com story. Keyworth was outed in a board meeting, prompting the resignation of another director, venture capitalist Tom Perkins. Keyworth himself later resigned.
Dunn initially said she would cede the chairmanship to HP Chief Executive Officer Mark Hurd in January while remaining on the board, but she eventually stepped down entirely.
Hunsaker refused to resign from HP and was fired, according to his defense lawyer, Michael Pancer, who said Tuesday that his client would also be arraigned on Nov. 17.
David H. Holtzman
The cult of arrogance behind the Hewlett-Packard imbroglio pervades the business community and is bigger than any one scandal
I feel sorry for Hewlett-Packard. Not the company's executives, of course—they deserve whatever happens to them. I was thinking about Bill Hewlett and Dave Packard and their heirs. Sixty-seven years ago, Hewlett and Packard started a great technology company that became the prototype of today's successful Silicon Valley companies.
HP (HPQ) established a reputation as a company that gave good value to customers and was a great place to work for employees, and it set the ethical standard for thousands of similar companies with a principled mission statement it called "The HP Way." It was progressive enough to be the first company in the Dow Industrial Index to appoint a woman as CEO.
For those who have missed the recent freak show coming from HP's headquarters in Palo Alto, Calif., here's the abbreviated version: Former Chairwoman Patricia Dunn hired private investigators to spy on her fellow directors, employees, and several reporters because someone inside was leaking sensitive corporate information to the press. The detectives even took the amazing step of "pretexting" their cell phone records. Pretexting is when you call up a company and lie, pretending you're the account holder, to get access to their account information.
UNREPENTANT. Since then the story has twisted and turned, as these tales are wont to do. Dunn quit and was replaced as chairman by CEO Mark Hurd. Hurd apparently was given a report of the investigation while it was ongoing, but "didn't read it," substituting negligence for guilt as his alibi. Congress is investigating HPGate for some reason that I'm sure has nothing to do with next month's election. The California Attorney General has filed charges against Dunn, other HP executives, and investigators. Meanwhile, attention to the company's probe continues to make headlines with the publicity blitz surrounding former HP CEO Carly Fiorina's new book. On Oct. 8, both Fiorina and Dunn were on 60 Minutes reliving the sordid mess in separate interviews.
So what's the problem here? It's arrogance. What Dunn did was arrogant on a colossal level—Marie Antoinette let-them-eat-cake arrogance. Watergate arrogance. Pretexting may or may not be illegal, but it certainly stinks. It shouldn't pass the ethics smell test on any level. But that doesn't seem to register with Dunn. She took the unusual step of going on 60 Minutes to defend herself. She was unrepentant and said that people who sit on boards give up a lot of their privacy.
I suspect many boardrooms share the belief that leaking inside information to the press is so detrimental that any action to smoke out a squealer is justified. Indeed, Dunn herself validated this assumption in her 60 Minutes discussion: "If you think that Hewlett-Packard is the only company that has an investigations force…monitoring, posing as other people in order to solve problems to protect shareholder value—you're being naive."
There is a cult of arrogance behind HPGate that pervades the business community and is bigger than any one scandal. It manifests differently from time to time, but its roots all grow out of the same soil. Whether it's option-repricing, insider trading, or spying on journalists, business decisions are made at the highest corporate levels that are at best murkily legal and visibly unethical. Ethical thinking does not seem to be part of today's business environment. I am sure that Dunn is correct and many companies also spy. Many others probably think about it but don't do it, not because they think it's wrong, but out of fear of getting caught. Give former Chairwoman Dunn her due. She had the guts to take action to try to solve a major problem affecting her company.
LIP SERVICE. Dunn also appeared before Congress last week and refused to take personal responsibility for the situation. Her excuse is the modern day Nuremburg defense—she blamed her lawyers. By asking HP's attorneys to make sure that everything she did was within the law, she believes that her actions were clean. The state of California apparently disagrees with this assertion since they did not charge HP's former general counsel, Ann Baskins, along with Dunn and others.
The real problem here is the flawed business belief behind HP's thinking. To misquote Nietzsche, it can be summed up as "What doesn't convict us, makes us stronger."
Corporate governance has an ethical component that exists independent of the legal environment. The real question when discussing controversial issues like spying on directors and reporters should not be "is it legal?" but "should we do it?" Every blue-chip company has a mission statement that lays out moral principles of behavior in detail. It's too bad that many executives only pay lip service to their credo. In closing, here's one of the five principles from "The HP Way":
"We conduct our business with uncompromising integrity.We expect HP people to be open and honest in their dealings to earn the trust and loyalty of others. People at every level are expected to adhere to the highest standards of business ethics and must understand that anything less is unacceptable. As a practical matter, ethical conduct cannot be assured by written HP policies and codes; it must be an integral part of the organization, a deeply ingrained tradition that is passed from one generation of employees to another."
SAN FRANCISCO (Reuters) -
In a television interview aired on the news program "60 Minutes" on Sunday, Dunn said she was the victim of "a classic disinformation campaign" from former board member Thomas Perkins, and that she had not orchestrated or approved investigators to spy on directors and reporters in the probe.
"I notice that Patti has a vigorous PR defense that seems to have very little relevance to the facts or court case," Lockyer told Reuters at a breakfast meeting. "But if it makes her feel better about her life, that's good."
Lockyer said he was pressing ahead with investigating the scandal. His office earlier this month filed felony charges against Dunn, HP's former in-house lawyer and ethics chief Kevin Hunsaker, and three others in connection with the intrigue that has tarnished the reputation of the Silicon Valley computer and printer maker.
"We work on that every day," Lockyer said. "We just continue to look at the records and to interview people. Wherever it goes is wherever it goes."
A spokesman for Dunn could not immediately be reached for comment.
Dunn has denied knowledge of the tactics private investigators hired by HP used, and also denied passing along personal information such as home phone numbers of board members to internal company investigators. She said she only learned of spying on journalists last month.
On Tuesday, three private investigators who prosecutors say helped HP spy on directors and journalists pleaded not guilty to felony charges including conspiracy and identity theft.
Legal proceedings against Dunn and others are due to resume on November 17 in Santa Clara County Superior Court in San Jose.
Asked if California officials could charge others in the case, Lockyer, a Democratic candidate for state treasurer in November, replied: "Who knows? I don't know. I can't say there will be or there won't be. They are doing their work."
In a separate interview late Thursday, Oakland Mayor Jerry Brown, who is running for attorney general, said of Dunn's televised interview, "I heard her on 60 Minutes. She certainly was very eloquent."
Brown, a former California governor and three-time presidential candidate, declined to say what he might do in the case if he becomes attorney general.
"It is somewhat delicate to be prejudging cases without reading the facts," he said. "I haven't read that case, but I'd certainly keep a very open mind."
HP tells reporter security firm searched her trash
A Wall Street Journal reporter was told by Hewlett-Packard Co. that during its probe of boardroom leaks investigators rummaged through her garbage, checked her phone records, videotaped her, according to reports Thursday.
In a first-person story in the Wall Street Journal, reporter Pui-Wing Tam said Palo Alto-based HP disclosed to her on Wednesday that its security firm engineered various tactics to learn as much as possible about her reporting.
HP Chief Executive Mark Hurd promised in testimony before Congress that the company would be forthcoming with details of its leak investigation to all targets of the probes.
Tam wrote that over the course of a year, the firm tried access her home phone, cell phone and office records at least five times. She said the company managed to get a list of calls she made to her editors, husband and a reporting source who worked for a rival of HP.
Tam wrote that some of her questions have not yet been answered, including how HP investigators got her phone number and when the videotaped footage was taken.
HP told Tam that it can't give her the entire details yet because they're having trouble getting all the information from security firms, she wrote.
Also surfacing during the investigation was the name of Associated Press reporter Rachel Konrad, who is marred to CNet reporter Stephen Shankland, one of nine journalists HP has confirmed as targets of the probe.
HP chairwoman Patricia Dunn and the company's ethics chief Kevin Hunsaker, who directed the boardroom spying probe, have been charged with identity theft and three other felonies. Three outside investigators were also charged in the case.
Published October 19, 2006 by the Silicon Valley/San Jose Business Journal
Former HP Ethics Chief Kevin Hunsaker Pleads Not Guilty in Ill-Fated Boardroom Spying Probe
SAN FRANCISCO (AP) -- Kevin Hunsaker, former ethics chief for Hewlett-Packard Co., has pleaded not guilty to four felony charges for allegedly directing the computer and printer maker's ill-fated boardroom spying probe, authorities said late Thursday.
Hunsaker was arraigned Tuesday in an unannounced hearing in Santa Clara County Superior Court, weeks ahead of his scheduled Dec. 6 court date, said Tom Dresslar, spokesman for California Attorney General Bill Lockyer.
Hunsaker, who refused to resign from HP and was fired, is one of five people charged for HP's investigation into the source of a boardroom leak to the media. The probe involved obtaining the private phone records of journalists and board members through a shady practice known as "pretexting."
Former HP Chairwoman Patricia Dunn, who initiated the probe, appeared in court last month to surrender and was released on her own recognizance. Three private investigators -- Ronald DeLia, Matthew DePante and Bryan Wagner -- pleaded not guilty and were also released.
All five are scheduled to appear in court again on Nov. 17, when Dunn is expected to enter a plea and the other four will have their preliminary hearings.
The defendants each face four felony counts: use of false or fraudulent pretenses to obtain confidential information from a public utility; unauthorized access to computer data; identity theft; and conspiracy to commit each of those crimes.
Each charge carries a fine of up to $10,000 and three years in prison.
SAN JOSE, Calif., Nov 15 (Reuters) -
Former Hewlett-Packard Co. Chairman Patricia Dunn on Wednesday pleaded not guilty to felony charges for spying on reporters and directors in a scandal that sullied the reputation of one of Silicon Valley's most venerable and respected companies.
Dunn's appearance at the San Jose, California, courthouse was the latest development in the boardroom-leak scandal that tarnished the reputation of a company that had long championed privacy and aspired to a code of conduct toward employees and customers called the "HP Way."
In HP's probes, investigators impersonated company board members, employees and journalists to get their private telephone records.
After pleading not guilty, Dunn and her attorneys walked out of the courthouse and past reporters, declining to answer questions. About half a dozen television trucks and more than a dozen reporters had gathered outside.
Dunn, who resigned in September and appeared before U.S. Congress the same month to testify about the investigation, has said she regretted the way the probe was handled, but did not accept personal responsibility for any deceptive tactics used.
California Attorney General Bill Lockyer filed charges last month against Dunn and four other defendants because of tactics used in HP's effort in 2005 and 2006 to find the source of leaks to the media.
Dunn's attorney, Jim Brosnahan, has said that California's accusations were false.
Dunn, along with four other defendants named face four felony charges: conspiracy; fraudulent use of wire, radio or television transmissions; taking, copying and using computer data; and using personal identifying information without authorization. Each count could bring a maximum of three years in prison.
Also charged are former HP ethics officer Kevin Hunsaker and investigators Bryan Wagner, Ronald Delia and Matthew DePante of information supplier Action Research Group.
SAN FRANCISCO (MarketWatch) --
Wachovia Corp. Chief Executive G. Kennedy Thompson has been added to the Hewlett-Packard Co. board of directors, marking the electronics manufacturer's first boardroom appointment since a pretexting scandal roiled the firm earlier this year.
Thomson, 55, who has led Wachovia since 2000, will become the ninth member of the H-P's board. In order to ensure his appointment, H-P had to formally increase the size of its board to nine members, from eight.
Thomson's "strong independence, his extensive experience running a large complex organization, and outstanding character will make him a valued asset to our company," H-P Chairman Mark Hurd said in a statement released Friday.
The appointment comes just a day after H-P reported a well-received, fourth-quarter profit of $1.7 billion, or 60 cents a share, on $24.6 billion in revenue for its fourth fiscal quarter. During the same period a year ago, H-P earned $416 million, or 14 cents a share, on revenue of $22.9 billion.
The company also said in a regulatory filing that it was cooperating with the Securities and Exchange Commission and Federal Communications Commission probes. It added that it was not worried about the investigations' status.
The New Yorker looks into HPGate
ZDNet Blog, 2/11/07, Dan Farber
Worth reading: James B. Stewart, most recently the author of DisneyWar, investigates HPGate, Hewlett-Packard's misguided pursuit of boardroom leakers, for the The New Yorker. He doesn't shed much new light overall on HPGate in his article, to be published tomorrow, but provides some perspective and fresh details, such as on the relationship between alleged boardroom leaker Jay Keyworth and my colleague, CNET News.com reporter Dawn Kawamoto.
Along with Tom Krazit, Kawamoto wrote the story in January last year that motivated now former HP board member Patricia Dunn (caricature at left from The New Yorker article) to "break out the lie detectors" and spearhead the "Kona" investigation that included accessing phone records of reporters, board members and HP employees.
Stewart quotes Keyworth in the aftermath of the leak investigation led by Dunn, who now faces four felony counts as a result a reckless witch hunt:
"I've had some tough criticism in my life," he said, "but I've never been dragged in the mud like this before. I kept the nation's atomic secrets! I'm on the board of General Atomics, which makes the Predator aircraft. I'm close to top people in the U.S. military. Now I've been branded a 'leaker.' " Though readily acknowledging that he was a source for Kawamoto's January 23rd article (a "puff piece," as he calls it), he resents insinuations that he leaked any confidential Hewlett-Packard information.
According to Stewart's account, current Chairman and CEO Mark Hurd, who is credited with turning the $90 billion company around in the last two years, as well as Dunn and other executives were knowledgeable about the accessing of phone records:
"At the first mention of getting access to directors' and reporters' personal phone records, she should have tried to stop the investigation. But the same could be said, even more emphatically,of others connected to the investigation: Hunsaker and Baskins, certainly--both of them lawyers--but also Mark Hurd, who as chief executive was privy to both Kona I and Kona II, attended an early meeting at which phone records were discussed, and was briefed on their progress.
"'Mark got the same legal advice I did,' Dunn said. 'He got the same memos. We were both victims.' But Hurd remains chairman of Hewlett-Packard, and Dunn faces four felony counts. Dunn worries that she won't live long enough to defend herself in court. [Dunn has been diagnosed with advanced ovarian cancer]."
Hurd has described the situation as "isolated incidents of impropriety, and not an indication of how we conduct business at Hewlett-Packard." As I written before about this topic, HP's black bag operation is like a scene from "All the President's Men" or "Keystone Cops," with bumbling, clueless, unethical, misguided, pernicious participants. It's not that trying to find leakers is wrong, it's the methods. As Stewart points out, the HP executives associated with the leak investigation could have prevented or stopped the pre-texting and other questionable activities.
San Jose Mercury News, 2/28/07, Therese Poletti
Storied venture capitalist Tom Perkins, credited with blowing open the spying scandal at Hewlett-Packard, says corporate boards obsessed with legal and regulatory compliance cannot detect an Enron or WorldCom-type fraud if board members don't fully understand a company's business.
In his first public remarks since the HP spying scandal erupted last September, Perkins on Tuesday told an audience at a venture capital event that in light of his recent experience on the HP board, he sees an alarming trend in corporate America of compliance-obsessed directors with no expertise in the firm's business setting the agenda on big company boards.
Emerging director
"Perhaps they will eventually understand the actual business, perhaps not," he told more than 200 people gathered at the VentureOne conference in San Francisco. "One of the great ironies, in my opinion, is that the best of compliance boards would be entirely unable to prevent another Enron."
During his 35-minute talk, Perkins outlined two kinds of board members, placing himself in the category of an old-style venture capital-type who is extremely involved in the business. He called that type a "guidance director."
In contrast is the new emerging director, whom he called the "compliance director." He described that person as someone increasingly focused on Sarbanes-Oxley requirements, who jumps from company board to company board, dispensing and heeding advice from consultants and lawyers.
Perkins, 75, derided the latter, which he called a "plug-to-plug compatible director" who believes he or she is equally capable of serving on a bank board as on that of a technology behemoth such as HP.
During the HP boardroom scandal, which erupted after Perkins quit over the way then-HP Chair Pattie Dunn conducted an investigation into boardroom leaks to the press, some reports described a conflict between Dunn and Perkins over her focus on corporate governance minutia. Perkins said he was worried at the time about how IBM and Dell were trouncing HP.
"It was a battle about governance and competing models of governance," Perkins said. He then recalled that when Carly Fiorina was chief executive, he came up with the idea of creating a technology committee on the HP board that would act like an audit committee over HP's spending on research and development. Fiorina agreed to form the committee, a group he believes threatened Dunn.
"We became very influential," Perkins said. "Pattie Dunn detested this committee. She lobbied for its elimination. She won." He said he believes her search for a leaker on the HP board was her backhanded way of killing the technology committee.
Too few 'geeks'
But today, he said, with too few "geeks" on its board, HP has evolved fully into a compliance board, "possibly untroubled by worries about technology and marketing strategy."
"I think the guidance board will vanish and it will be replaced by compliance boards who just listen to lawyers and consultants," he said, referring to the general corporate trend.
Perkins added that he did not believe Dunn should have been charged criminally in the case. Dunn, who ordered the investigation, and three others have been charged with four felony counts for using deception to obtain the personal phone records of board members, HP executives and nine reporters.
Dunn's lawyer blasts Perkins
San Jose Mercury News, 3/1/07, Ryan Blitstein
The spying scandal that dragged Hewlett-Packard's name through the mud last fall seems destined never to fade away.
The latest chapter is this week's fierce verbal exchange between legendary venture capitalist Tom Perkins, credited with blowing open the HP scandal, and James Brosnahan, senior partner at Morrison & Foerster and lead counsel for ousted HP Chairwoman Patricia Dunn.
At a venture capital event Tuesday, Perkins criticized the way Dunn ran HP's board.
On Wednesday, Brosnahan fired back:
"Tom Perkins attacked my client. He did so unfairly. He did so falsely when he knows she cannot answer him," he said in a statement e-mailed to the news media. Dunn can't respond directly to Perkins' accusations because of the legal case pending against her. The case erupted after Perkins quit over the way Dunn, then-HP chair, conducted an investigation into boardroom leaks to journalists.
"He's rewriting the history of what happened," Brosnahan told the Mercury News. "Normally, I wouldn't say anything, but when he attacks my client personally, we're not going to sit here and let him get away with it. It's just awful what he did."
Perkins' assistant told the Mercury News on Wednesday that his lawyer had received Brosnahan's statement but said Perkins would not comment on it.
At Tuesday's event in San Francisco, Perkins decried what he said was a disturbing increase of "compliance directors" on corporate boards -- people focused on Sarbanes-Oxley requirements at the expense of guiding and managing the company's business. He complained of the "plug-to-plug compatible director" who believes he or she is equally capable of serving on a bank board as on that of a technology giant like HP -- a probable reference to Dunn, the chairwoman and chief executive of Barclay's Global Investors before she joined HP.
During the HP boardroom scandal, some reports described a conflict between Dunn and Perkins over her focus on corporate governance minutia. Perkins said Tuesday that he was worried at the time about how IBM and Dell were trouncing HP.
"He has suggested that he alone cares about a profit," Brosnahan wrote in the statement. "Rarely has a prominent businessman uttered such an immediate self-refuting statement. Hewlett Packard is Hewlet [sic] Packard and it seems to be getting along quite well without Mr. Perkins."
Dunn, who ordered the investigation, and three others have been charged with four felony counts for allegedly using deception to obtain the personal phone records of board members, HP executives and nine reporters.
Brosnahan also accused Perkins of attacking Dunn and the HP board to generate publicity for an upcoming memoir, "Valley Boy," which Perkins said during the speech would include a chapter on the HP scandal.
"This whole thing wouldn't have happened but for Mr. Perkins' vendetta against Pattie Dunn," Brosnahan said. "Now she's got these charges against her, but we're fighting them."
Judge Drops All Charges Against Ex-HP Board Chairwoman Dunn; 3 Others Avoid Jail Time
SAN JOSE, Calif. (AP) -- California's criminal case surrounding Hewlett-Packard Co.'s ill-fated boardroom spying scandal has all but evaporated, although the four defendants still aren't off the hook with federal prosecutors.
A judge dropped all charges Wednesday against former HP Chairwoman Patricia Dunn, while three other defendants avoided jail time by pleading no contest to misdemeanors.
But the U.S. attorney's office in San Francisco, which already has secured one conviction against a low-level investigator in the case, said it continues to investigate the boardroom spying scheme that rocked one of Silicon Valley's most respected companies. Spokesman Luke Macaulay declined further comment.
The sudden end to the state's high-profile case, however, may not bode well for federal prosecutors' probe, with some legal experts saying Wednesday's developments may indicate the evidence wasn't very strong.
"At some point the attorney general's office knew that this case wasn't going to hold a lot of water," said James Post, a Boston University professor and expert on corporate governance and business ethics.
All four defendants had initially been charged with felonies, including identity theft and fraud, for their roles in a scheme to unmask the source of boardroom leaks. Investigators' tactics included "pretexting," or pretending to be someone else, to obtain the calling records of directors, employees and journalists.
The original charges carried hefty fines and prison terms.
Former HP ethics chief Kevin Hunsaker and two private investigators -- Ronald DeLia and Matthew DePante -- ultimately pleaded no contest to misdemeanor charges of fraudulent wire communications charges.
Santa Clara County Superior Court Judge Ray E. Cunningham did not immediately accept their pleas and said the charges against them would be dropped in September after they complete 96 hours of community service and make restitution.
Prosecutors said Dunn's health -- she's been undergoing treatment for advanced ovarian cancer -- played a role in the decision to drop the charges against her.
"Based on her level of involvement in the pretexting scheme, and her health condition, (Attorney General Jerry Brown) believed dismissal of her case was appropriate," said Brown's spokesman, Nathan Barankin.
The other three defendants appeared to be more "directly and actively involved in the pretexting activities" than Dunn, he said.
HP's investigation, which took place in 2005 and 2006, erupted into a national scandal after HP disclosed that detectives it had hired obtained the private phone records of directors, employees and journalists.
The case made a household word out of "pretexting," a shady tactic in which detectives use their targets' Social Security numbers to fool telephone companies into divulging their detailed call logs.
Dunn ordered the investigators to find the source of the leak after a board member gave company information to a reporter. But she said she didn't know the detectives would go to such extremes.
She resigned last September at the height of the scandal.
"I have been strengthened by wonderful support during this difficult time -- both from my dear friends and from people I have never met," Dunn said in a statement Wednesday. "I have always had faith that the truth would win out and justice would be served -- and it has been."
None of the four defendants attended Wednesday's hearing.
Outside court, defense lawyers for Hunsaker and the two investigators said the deal with prosecutors -- which did not include an admission of guilt -- was an appropriate resolution to the case.
"This was a worthless case -- this was never a criminal case," said Thomas Nolan, one of Hunsaker's lawyers. "All these people acted in good faith. They believed that what they were doing was right and legal."
The four were charged in October with four felony counts: use of false or fraudulent pretenses to obtain confidential information from a public utility, unauthorized access to computer data, identity theft, and conspiracy to commit each of those crimes.
Each of the charges carried a sentence of up to three years in prison and a $10,000 fine.
But while the deal with state prosecutors allows all four defendants to escape jail time, they may not be entirely out of trouble.
To date, only one person has been charged by federal authorities in connection with the boardroom spying.
Private investigator Bryan Wagner pleaded guilty to identity theft and conspiracy and agreed to testify for the prosecution. Wagner had also been charged by the state, but those charges were dropped after he struck a deal with federal investigators.
Legal experts have repeatedly questioned whether the state would be able to win convictions given the murky legal statutes surrounding pretexting. Deep-pocketed defendants Dunn and Hunsaker also hired topflight attorneys and mounted vigorous public defenses.
"On the governance side and the privacy side, we're better off today when we were when this first broke," Post said. "But I'm not trying to excuse the kind of example that was made of Dunn and Hunsaker."
Prosecutors said the case has led to important reforms in the area of corporate governance and privacy protections.
"What we heard from critics from the start was that this (practice) was perfectly legal," Barankin said. "I think this outcome disproves that."
AT&T Inc. has reported a dramatic decline in the amount of pretexting since the HP scandal broke, he said.
Wednesday's news broke as HP's shareholders gathered for their annual meeting -- their first chance to grill Chief Executive Mark Hurd about the scandal.
Hurd declined to discuss the criminal probes but said the company is committed to transforming the board and creating "a board that you as shareholders can be proud of." Shareholders voted down a proposal to let stockholders nominate candidates for the board of directors.
There was some confusion early Wednesday about the agreement between prosecutors and the defendants. The attorney general's office initially said Dunn and the three others had agreed to plead guilty, but the office later said that was inaccurate.
Through the investigation, shares of the region's oldest and biggest technology company remained immune to the scandal, steadily rising through much of last year.
Hewlett-Packard Ethics Chief Tackles Spying Scandal Aftermath
Bloomberg, 4/24/07
April 24 (Bloomberg) -- Focused on boosting sales and cutting jobs over the past two years, Hewlett-Packard Co. Chief Executive Officer Mark Hurd paid scant attention to the company's probe into boardroom news leaks.
It's a mistake he says he won't repeat, and he's counting on Jon Hoak, his former general counsel at NCR Corp., to help him. Hurd hired Hoak as chief ethics and compliance officer Oct. 11, two weeks after being chastised on Capitol Hill for what he called a "rogue operation" that had company investigators pawing through trash and obtaining personal phone records to find out who leaked sensitive board discussions.
"The events of last year were a wake-up call," said Hoak, 58, in a March 29 interview at the world's largest personal- computer maker in Palo Alto, California. "We can't afford to have another significant ethics and compliance issue."
In his six months on the job, Hoak has doubled the compliance staff to 12, changed how investigators are hired, set up two committees to review policies and traveled to 15 countries to educate employees. He's also readying a report mandated by the California Attorney General and due by July that details efforts made by Hewlett-Packard to repair its reputation.
The scandal pushed Hewlett-Packard out of the top 10 ranking of U.S. companies noted for corporate governance, diversity and fairness to employees for the first time in eight years, according to a survey of 1,100 companies by Business Ethics magazine. It also led the U.S. Federal Communications Commission to issue new rules this month requiring phone companies to give customers a password to access their records.
'Overworked Staff'
"The failure at HP was a failure of ethical leadership, not headcount," said James Post, a professor of management at Boston University. "The fact that they had only six on staff before the 2006 scandal suggests an overworked staff, but I doubt that a few more people in the ethics department would have deterred the board chair, the head of ethics, and the general counsel from their chosen investigatory path."
Like most companies, Hewlett-Packard investigates a range of incidents, from reports of possible sexual harassment and corporate theft to concerns about contract negotiations, Hoak said. It often hires outside investigators.
The number of staffers working on ethics and compliance varies among companies, said Post. International Business Machines Corp., with almost 356,000 employees, has a chief trust and compliance officer with eight people reporting to her, John Bukovinsky, a spokesman for the Armonk, New York-based company said. Coca-Cola Co., with 71,000 employees, has a staff of 13 in its ethics and compliance group, said spokesman Dana Bolden.
'Almost Nil'
Hoak said the chances are "almost nil" for a repeat of last year's debacle, when the probe into boardroom leaks spiraled into scandal in September after the company admitted some tactics were unethical and possibly illegal. Chairman Patricia Dunn was ousted, general counsel Ann Baskins quit and Hurd admitted he hadn't actively monitored the leak hunt.
Hoak joined the computer maker after Hurd told a U.S. House committee that investigators hired by the company used fake identities to get personal phone records of directors, employees and reporters, a practice known as pretexting. They followed directors, planted software on reporters' computers to monitor e- mails, and got call logs of executives including Hurd and former CEO Carly Fiorina.
"No one is proud of what happened last year," Hurd, 50, told shareholders at the annual meeting last month.
At a two-day meeting of Hewlett-Packard's top 150 managers in San Jose, California, in March, Hurd said building a world- class ethics program was among his top 12 priorities, Hoak said.
'Right Questions'
"They are asking the right questions of themselves and taking the right steps," said Patricia Harned, president of the Ethics Resource Center in Washington, a non-profit which promotes organizational ethics, after being briefed by Hoak. "But it will be some time before they will be able to make change in the culture."
Shares of Hewlett-Packard, also the world's largest printer maker, rose 4 cents to $41.41 yesterday on the New York Stock Exchange. They have climbed 13 percent since the scandal broke Sept. 4 as the company won back the PC market lead from Dell Inc.
The scandal led to a $14.5 million December settlement with California over the use of pretexting. Hewlett-Packard must submit a report to the attorney general no later than July 31 outlining improvements to its investigative practices. If the state decides those efforts don't go far enough, it may recommend a state court take further action, according to the 12-page, Dec. 7 settlement.
'Bunch of Cowboys'
In his early days reviewing Hewlett-Packard's programs, Hoak found that last year's scandal was "an aberration rather than an indication of a culture problem or a bunch of cowboys running a company," he said. "Our processes were loose."
Employees weren't aware of programs already in place to report questionable business practices, including an 800-number and e-mail address for anonymous tips, Hoak said. So he printed posters, set up training with senior managers and beefed up information about the programs on the online employee newsletter, called HPNow.
Hoak plans a Webcast in May to ensure all 156,000 employees adhere to the company's standards of conduct and ask questions when they're unsure. Yet "the sheer scope of HP's operations makes the implementation of any policy a formidable task," said Post, the Boston professor.
Hewlett-Packard has also reduced to 10 from dozens the number of outside contractors hired to do investigations. Contract firms now must vet their plans with the company and notify it if they make any material changes, Hoak said.
Ethics Committee
Hoak also chairs a new Ethics and Compliance Committee that meets quarterly to review investigations and discuss policies. It reports to the audit committee of the board, which typically oversees ethics and compliance at most companies.
In addition to Hoak, Hurd hired former federal prosecutor Michael Holston as general counsel to replace Baskins, joining a growing list of companies including Boeing Co. and Lockheed Martin Corp., who've tapped former government officials to help ensure ethical and legal lapses don't recur.
Holston, 44, served as an outside lawyer for Hewlett-Packard for more than 10 years. He plans to reorganize the legal department, which was "tainted" by last year's events, he said in a March 30 interview.
Adding former government officials to a company's roster brings "a certain credential of integrity to the process," said Susan Hackett, vice president of the Association of Corporate Counsel in Washington.
Hurd told the House committee in September he didn't pay enough attention to the boardroom probe and didn't read documents he should have.
While CEO of NCR, the Dayton, Ohio-based maker of automated teller machines, Hurd would "spend a lot more time reading detailed financial reports from the businesses than he would on the ethics and compliance stuff," said Hoak. "He's learned his lesson and by God he's going to read these things."
Hewlett-Packard probe by SEC is settled San Jose Mercury News, 5/24/07
In another attempt to move beyond last year's spying scandal, Hewlett-Packard said Wednesday that it settled an investigation by the Securities and Exchange Commission over how the computer and printer giant disclosed the resignation of director Tom Perkins from its board in May 2006.
The more-detailed disclosure in September of why Perkins resigned blew the lid off the HP spying scandal. In a September SEC filing, HP disclosed that Perkins resigned from HP's board over his concerns over how HP chair Patricia Dunn conducted an internal investigation into boardroom leaks to reporters. HP's investigators had used a tactic known as pretexting to obtain personal phone records of board members, their families and journalists.
The SEC concluded that HP should not have limited its disclosure in May just to the fact that Perkins had resigned. It said HP should have reported that Perkins resigned because of a disagreement with HP's operations, policies or practices. The SEC said the company should have provided a brief description of the circumstances around the disagreement.
The SEC imposed no monetary or other penalty in connection with the settlement and said this incident was its first enforcement of a new rule in place since 2004.
"We think that the regulation is pretty clear, that if there is a disagreement with the company or its policies, it should be disclosed," said Marc Fagel, the SEC's chief of enforcement in San Francisco. Fagel said that the SEC chose not to fine or penalize HP because the rule is relatively new and because the company was acting on advice of its lawyers. "They did get legal advice," Fagel added. "We think that was the wrong advice."
He said HP interpreted the disagreement between Dunn and Perkins as personal and not necessary to disclose. But the disagreement was over how Dunn was handling a board meeting and a company investigation. "That goes to questions of corporate governance," Fagel said.
The Palo Alto company said it agreed, without admitting or denying the SEC's findings, to a cease and desist order in which it will no longer commit or cause any violations of the public reporting requirements of the Securities and Exchange Act of 1934.
"HP acted in what it believed to be a proper manner," Michael Holston, an HP executive vice president and general counsel, said in a statement. "However, we understand and accept the SEC's views and are pleased to put this investigation behind us."
Perkins, a prominent venture capitalist who waged a campaign exposing HP's investigation tactics, said he was pleased that the scandal was at an end.
"I am delighted that the HP boardroom drama is now satisfactorily concluded," Perkins said in an e-mail response. "Fortunately, it was never about HP itself. ... I am proud of HP as the world's biggest and best high-tech enterprise."
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