HP Chairwoman Out As Board Scandal Continues To Grow

By Ken Spencer Brown
Investor's Business Daily
September 22, 2006

Hewlett-Packard Chairwoman Patricia Dunn resigned immediately Friday, as executives scrambled to defend their roles in Dunn's efforts to learn who leaked company info to the press.

"The people of HP don't deserve this, nor do any of the people impacted," HP CEO Mark Hurd said at a packed news conference at HP (NYSE:HPQ - News) headquarters Friday. "I take full accountability to get this right. Our job is to fix this and get back to running the business."

HP called the press conference to try to quell the furor over its two-week-old boardroom scandal. Hurd said he approved and was briefed on Dunn's investigation. But he said he was unaware the probe involved questionable methods, including an e-mail attachment to trace where a reporter forwarded the message.

HP didn't allow video cameras inside the conference and didn't take questions. Guards checked bags as reporters entered.

Dunn's probe involved getting private phone records of board members, nine reporters and others. Investigators followed some of them home and elsewhere and might have dug through the garbage of some. Investigators even considered getting cleaning and administrative jobs at newspapers to spy on reporters.

Hurd has hired an outside lawyer to look into the matter. On Friday, the lawyer, Mike Holston of Morgan Lewis, said HP gave outside investigators access to at least one worker's Social Security number, a new revelation in the saga. "This is a complicated situation," Hurd said. "And the more I look into it, the more complicated it becomes."

Hurd said the company might never get a full accounting of the probe, suggesting that the outside investigators HP hired aren't cooperating. Hurd is set to speak before the House Energy and Commerce Committee on Thursday along with Dunn, HP general counsel Ann Baskins and HP outside counsel Larry Sonsini.

Ron DeLia, the main outside investigator hired by HP, also is scheduled to testify.

Dunn earlier had announced she'd relinquish the HP chairmanship in January but remain on the board. That outraged critics who thought she should be fired immediately -- especially after she joked about the matter while receiving a business award and standing ovation at a Silicon Valley event on Thursday.

Dunn and many supporters have defended the probe, saying a company must guard its secrets. She says she authorized no illegal activity and was "appalled" to find out that investigators had gotten information through trickery.

But e-mails detailed in several published reports suggest Dunn -- and possibly Hurd -- knew about some of the probe's tactics early in the process.

The board scandal has surfaced as HP rebounds from a three-year slump after its controversial merger with Compaq in 2002.

Since taking the CEO job last year, Hurd had been praised for engineering a sweeping reorganization and cost cuts that have revived earnings. But the company known for touting the enlightened values of "The HP Way" has become a flash point in a debate over privacy laws and ethics.

Some question if Hurd will last.

"He's toast," said Mike Paul, president of public relations firm MGP & Associates. "This is a man who came in as Mr. Clean, Mr. Integrity, Mr. Ethics. And now his fingerprints are all over these e-mails and this strategy."