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Sunday, September 10, 2006

The HP follies

Patricia Dunn

H.P. Chairwoman Aims Not to Be the Scapegoat

SAN FRANCISCO, Sept. 8 — Patricia C. Dunn, Hewlett-Packard’s chairwoman, was known as a remarkable saleswoman as she rose to the top of the financial industry.

But on Sunday, she will have to sell her board on the idea that she should not be dumped as the scapegoat for the scandal rocking the company. While the agenda item is how the company handled an investigation of its own directors — and the possibly illegal techniques used to obtain their private phone records — the underlying theme is whether she should remain.

In a telephone interview Friday, Ms. Dunn moved to address some of the questions raised in the furor, defending her efforts to stop news leaks from the company’s boardroom while conceding that the methods had been “sloppy.”

Emphasizing that her actions had been taken with the board’s knowledge and approval, she said: “The chairman is not a unilateral power position. I am a servant to the board.”

While acknowledging calls from outside the company for her resignation, she said the criticism was unfair. “I fully intend to remain in these positions unless asked to vacate them by the board,” she said. “If they do ask me, I will step down.” But she is not lobbying or polling members. “This is not a job I asked for or a job that I particularly wanted,” she said.


But while the business rebounded, boardroom tensions persisted, fueled by news leaks from within. The company ultimately hired private investigators to identify directors who disclosed information to the news media and those investigators posed as board members — a practice known as pretexting — to gain access to their personal phone records.

Those tactics have led to a criminal investigation by state prosecutors. “A crime was committed,” the California attorney general, Bill Lockyer, said Thursday, though “who is charged and for what is still an open question.”

The revelations emerged this week, set in motion by a former board member and pre-eminent Silicon Valley venture capitalist, Thomas J. Perkins, who resigned in anger over the investigation in May and then pressed the company to acknowledge his reasons for leaving.

Ms. Dunn said Friday that she felt that a personal dispute was at the center of the storm. “Tom is a powerful man with friends in powerful places,” she said. “This brouhaha is the result of his anger toward me. He is winning the p.r. war.”

“He was the most hawkish member of the board for finding the leaker,” she added. “He wanted us to bring in lie detectors.”

Ms. Dunn said an initial investigation of news leaks from the board began in April or May 2005. She said she had turned to the head of corporate security to handle it, since that person also handles investigations of misconduct by employees, including unauthorized leaks to the press. “The more gentlemanly methods that were used in the past didn’t work,” she said.

She said she was not able to supervise the investigation because, as a member of the board, she was herself a potential target.

The investigation faced another problem. Not only could the board not supervise it, but the company employees handling it were in the difficult position of investigating their bosses. So they turned it over to an outside consulting firm that H. P. still refuses to identify; that firm, in turn, gave the investigation over to a firm that used the pretexting techniques.

The second investigation, in January 2006, was run by the office of H. P.’s general counsel, Ann Baskins. It also involved outside investigators, Ms. Dunn said, and private records were viewed in both investigations.

She said that the company investigated 10 leaks and that evidence in 7 of them pointed to George A. Keyworth II, who was asked to resign at a board meeting in May. He refused, but the company said this week that it would not nominate him for re-election.

Ms. Dunn said they never determined the source of the three other leaks. “Our board is happy to know that the leaker is caught,” she said. She said the leaks had been “longterm, persistent and intractable” with potential for ruining trust among board members. She termed the attempt to stop the leaks a “noble cause.”

She said that no one on the board “endorsed, understood or approved” of pretexting and that the company was putting new guidelines in place to prevent such practices in future investigations. “It wasn’t implemented well,” she said. “But I had no choice but to follow this violation. It fell to me to do it.”

Ms. Dunn, the daughter of a vaudeville actor and a Las Vegas showgirl, has generally avoided the limelight. She declined repeated requests for interviews until Friday.

With Hewlett-Packard’s board preparing to meet Sunday by telephone, Charles M. Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, says Ms. Dunn may not have her job for long.

“I think it is going to be very hard for her to stay,” he said Friday. “This was a mess created in the boardroom itself and someone has to be ultimately responsible.”

The prospect of being investigated, he said, affects directors’ abilities to seek out information independent of management and makes it less likely others will come forward. “An investigation like that emasculates the board,” Mr. Elson said.

But Jeffrey A. Sonnenfeld, a professor at the Yale School of Management who has studied corporate governance, said that Ms. Dunn should not be blamed for the errors of the investigation and that she deserved credit for acting against boardroom cronyism by unmasking the leaker.

Were the board to act now to dismiss her, Mr. Sonnenfeld said, “It is showing nothing but cowardice.”
Someone was whining that I hadn't written about this, or that Apple resolved their leaker lawsuit.

Let me guess, Professor Sonnenfeld isn't a lawyer.

Because HP is probably on the hook for civil and criminal charges. Every state has different laws, but impersonating someone to find their phone records is an invasion of privacy and the board member may have grounds for suing Dunn, suing HP and suing the detectives.

Job? California may prosecute her.

She can whine about Perkins all day long, but she needs to worry a lot more about Keyworth, because he could win substantial damages for having his privacy violated, as could the reporters involved.

What a mess.

posted by Steve @ 12:19:00 AM

12:19:00 AM

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