September 22, 2006 1:56 PM PDT

HP chairman resigns, CEO confirms knowledge of probe

PALO ALTO, Calif.--Hoping to slow a growing storm of criticism over a controversial leak probe, Hewlett-Packard on Friday said that Patricia Dunn would step down immediately as chairman and board member, to be replaced by CEO Mark Hurd.

However, Hurd also confirmed on Friday that he knew about several key phases of the investigation and attended meetings at which the investigation was discussed. Hurd said he was e-mailed a report summarizing the investigation but that he did not read it.

"I could have, and I should have," he said. At the same time, Hurd said the investigation was necessary. "I feel strongly that leaks hurt the company's reputation and its ability to operate effectively. It was the responsibility of the HP chairman to pursue the leak situation."

Attorney Michael J. Holston, a partner at the law firm Morgan, Lewis & Bockius, said the report "outlined the source of the leaking and outlined the investigative techniques involved--including pretexting." In addition to being sent to Hurd, it was also sent to Dunn and HP General Counsel Ann Baskins, according to Holston.

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The press conference, in which questions from the press were not permitted, comes ahead of a congressional committee hearing next week. Meanwhile, the California attorney general and federal authorities are pursuing criminal investigations.

On Friday, Hurd gave more details on his knowledge of the probe into the boardroom leaks and said he hired law firm Morgan Lewis earlier this month to investigate the matter.

"I believe we have now a substantial set of the facts," Hurd said. "I will also say that some of the findings that Morgan Lewis has uncovered are very disturbing to me."

Holston detailed the involvement of several other HP employees in the leak probe, including Baskins. And he confirmed many elements of the investigation's time line, which had two phases, as well as the outside firms, including investigation firm Security Outsourcing Solutions, that were involved.

Morgan Lewis has collected more than 1 million pages of documents, according to Holston. He said the firm has reviewed "many of those pages." "We are committed to reviewing the remaining documents as fast as we are able," he said.

He promised a further inquiry into the matter. "Our investigation is not complete. There is still more work to be done," he said.

Hurd emphasized that it's a complicated situation, that keeps getting more complex.

"As of today, we still do not have all of the facts," Hurd said. "I also cannot guarantee that we will ever be able to obtain all of the information regarding this investigation. This is due to its complexity, the number of people involved, with many of them outside the company."

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HP's CEO Mark Hurd speaks Complete audio of HP's CEO Mark Hurd on his company spying on reporters and HP officials to stop media leaks.

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Lawyer details HP investigation Morgan Lewis lawyer Mike Holston outlines what his company's investigation has learned.

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HP said that the investigation had two phases. The first phase, dubbed Kona I, stretched from early 2005 to late summer 2005 and the second, called Kona II, began in January 2006, when CNET News.com published a story that reported on an HP board meeting, Holston said.

But there is still some confusion around the time line of HP's investigation.

Kona I may have concluded by late summer 2005, but HP apparently kept looking for leaks. In January 2006, HP's investigative contractor, Security Outsourcing Solutions, had an investigator keep an eye on an offsite board meeting to "determine if any journalists were seen at or around the site," said Holston.

He also said after News.com wrote its Jan. 23 article detailing that board meeting, the leak hunt resumed. But government investigators have told two News.com reporters that their personal phone records were accessed the week before that story was published.

In fact, News.com reporter Tom Krazit was told his phone records were accessed on Jan. 20, the same day he contacted Robert Sherbin, HP's vice president of external communications, for comment in advance of the story. Sherbin told News.com he had been asked to alert other HP officials of potential leaks, but did not remember who he contacted about his discussion with Krazit. Reporter Dawn Kawamoto was told by government investigators that her phone records were first accessed on Jan. 17.

Holston said the first investigation was inconclusive, while the second probe did uncover the source of the leaks. "During the course of Kona II, certain members of the investigation team provided assurances that the techniques being used in the investigation were legal," Holston said.

"The investigation included tactics that ranged from the review of HP's internal e-mails and instant messages, to the physical surveillance of an HP board member and at least one journalist, to the pretexting of telephone call information of board members, HP employees and journalists," he said.

While these tactics had already become public, Holston also disclosed for the first time on Friday that investigators may have gone through people's trash in February 2006, though the company would not say whose trash may have been accessed.

In the second phase of its investigation, HP also sent CNET News.com reporter Dawn Kawamoto a bogus e-mail tip that included an electronic tracer designed to reveal the IP address of anyone who received a forwarded copy of the e-mail.

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Although the journalist corresponded with the fake informant, "the investigation team never received any confirmation that the tracer was activated," Holston said.

Hurd said that he approved the sending of a bogus tip, but did not approve the use of the tracking technology.

"I was asked to and did approve the naming convention that was used in the content of the e-mail," Hurd said. "I do not recall seeing, nor do I recall approving, the use of tracer technology." Holston said the Morgan Lewis inquiry also found no evidence that Hurd was asked to approve use of the tracer.

On other surveillance methods, Holston said the Morgan Lewis investigation does not show any indication that computer keystrokes were tracked. Also, while a PowerPoint presentation detailing the investigation does discuss potential "undercover operations" at the San Francisco offices of the Wall Street Journal and CNET Networks, there is nothing that shows this actually occurred, he said.

As for the physical surveillance, Holston said investigators staked out a January board meeting to see if any journalists were nearby. Also, an investigator followed an HP board member on a trip to a conference in Colorado in early 2006 and observed him, his spouse, and possibly other family members at his California home.

In February 2006, investigators surveilled a journalist at her residence, Holston said. In all cases the surveillance was done by SOS, Holston said.

During the investigation, HP or its investigators also obtained Social Security numbers of four reporters, three board members and one employee, Holston said. The identifying numbers, typically considered confidential, were used for the purpose of getting their phone records.

Holston also said that HP is "not currently aware of any investigation into leaks continuing after May 18, 2006."

Dunn isn't the only person to leave HP. Kevin Hunsaker, senior counsel and HP ethics director, and Anthony Gentilucci, an HP global investigations manager in Boston, are in the process of leaving the company, according to sources familiar with the matter. Those departures may not be the last related to the matter, a source said.

Board member Richard Hackborn was named lead independent director. In addition, HP has hired Bart Schwartz, a former U.S. prosecutor, as counsel to perform a "forward-looking and independent" review of HP's investigative methods and the company's standard of business conduct processes, Hurd said. "This will ensure we have the appropriate level of rigor and discipline so we can be assured that this type of situation can never happen again," he said.

Despite acknowledging some involvement, Hurd pledged to further investigate the matter and attempt to "take full accountability" to set things right.

"Our job is to fix this and get back to the job of running a business," he said. (Click here for a PDF transcript of Hurd's remarks.)

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24 comments

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How Unfortunate
It's not too far off to speculate on Hurd resigning, and an icon of Silicon Valley being smeared out of technology industry leadership. "Management By Walking Around" at HP did not survive Mr. Hewlett and Mr. Packard, who grew their business with honor and dignity.
Posted by Witless in Santa Cruz (3 comments )
Reply Link Flag
Unfortunate indeed...
Funny thing is Hurd really seemed to maintain that same honor and dignity that HP was known for. Not to say he did not, but this entire case defiitely places his ethics on trial. Here's a funny lil' story on Mr. Hurd...poor guy. <a class="jive-link-external" href="http://www.iwantmyess.com/?p=104" target="_newWindow">http://www.iwantmyess.com/?p=104</a>
Posted by bayny (12 comments )
Link Flag
Tom Perkins
Now, when the investigation was in its infancy and former HP Board member Tom Perkins discovered he was amongst those falling to both pretexting and email snooping he decided to step down.

bayny, I'm on the fence. As long as Hurd can balance disavowing his role in it I think he can maintain his position with HP. The guy really brought the company out of the darkness after Carly Fiorino's departure.
Posted by marileev (292 comments )
Link Flag
I hate it when...
people whose memory we rely upon for solid, day-to-day decision making fails when it comes to recalling the most salient details sought by investigators. Just once, I like to hear "I don't recall how many stock options I have, but I sure remember the e-mail tracer thingy. I didn't authorize it."
Posted by obtusefied (1 comment )
Reply Link Flag
selective memories
Patricia Dunn's and Kevin Hunsaker's (HP's Chief Ethics Officer) emails show that Mark Hurd was aware and approved the bogus product specs and email virus... I mean tracer <a class="jive-link-external" href="http://www.iwantmyess.com/?p=104" target="_newWindow">http://www.iwantmyess.com/?p=104</a>
Posted by marileev (292 comments )
Link Flag
Sadly
Sadly, too little too late!, for it is akin to closing the gate after the horse has run away!

But then again, Patricia and all her fellow conspirators in this affair made their choice of their own free will and now must live with the consequences, and fall on their respective swords to resign in disgrace is a better option!

Still, it wive give rise to the next Wall Street in joke!, when publishing a critique of any company/corporate senior exec. "say have you heard the latest, I am now in the big league ,all my phones, friends and parents have been investigated and pretexted by a Patricia Dunn 'done wrong' clone!, for my latest article!"

Now then, if the all the shareholders could raise enough voting proxy shares to outrank and dump all the all boardmembers period!, at the next annual general meeting, that would go a long way to start cleansing process!

Oh well, time is not on his side now!
Posted by heystoopid (691 comments )
Reply Link Flag
Coulda, Shoulda, Woulda!
"I could have, and I should have," he said.

I don't for a second buy his ascertain that he didn't read it or know what was going on, the fact that HP's leak situation probe was such a big deal implies he's either a lier, a fool, or just plain stupid. It matters little which one it is, he doesn't belong as Chairman.
Posted by Galt (12 comments )
Reply Link Flag
Coulda, Woulda, Shoulda,,,, Agree!!!!
Mark Hurd has NOT been CEO long enough at HP to be able to take the LUXURY of skimming over or SKIPPING internal documents on such an extremely sensitive issue as a major corporate board information leak!!!!! That was an ABSOLUTE BLUNDER ON HIS PART!!! Either, he is not as smart as thought, or he is too smug in his own intellect. I agree,,, NOT qualified for the job, of CEO/COB
Posted by JustPutt2 (6 comments )
Link Flag
HP's Disgusting Tactics
I have admired H-P for many years, but the recent news of H-P's pretexting has tarnished the public's image of them forever.

Am I biased? You bet! In December 2005, I bought my first H-P computer, a Compaq Presario SX1522X, and I am sorry I did. I have had nothing but problems with this computer and wish I could get a refund on it.

By comparison, my 23-year-old Apple IIe is on the desk behind me and still works beautifully.

H-P's pretexting fiasco will probably be the tip of the iceberg. What other evils lurk in the shadows of H-P?
Posted by Tuxedo_Junction (2 comments )
Reply Link Flag
a little note
just a little note... I'm not denying how good or bad that Presario might have been, but I've always said something:

"Don't blame the computer for what Windows does".
Posted by danielvargas2 (2 comments )
Link Flag
Corporate Governance
Mark Hurd stated that there were "best intentions" as to why the investigation was begun, but Dunn never took into consideration her responsibility to HP's shareholder.

CNET has more coverage on corp. governance here:
<a class="jive-link-external" href="http://news.cbsi.com/Has+HP+done+enough+in+corporate+governance/2100-1014_3-6118799.html?tag=cd.top" target="_newWindow">http://news.cbsi.com/Has+HP+done+enough+in+corporate+governance/2100-1014_3-6118799.html?tag=cd.top</a>
Posted by marileev (292 comments )
Link Flag
HP reliability
A friend and I both bought HP cameras and the docks which enable you to see a slide show of photos on your TV. It produced horrible pictures and a long email correspondence has just concluded that it is faulty but did not explain why two unit bought a long distance apart have the identical fault. Three other makes of camera I have tried produce JPG files which my TV can read from a CD or DVD and show as slides but HP JPG files processed in the same way just produce a blank screen. HP have avoided answering my queries on this. A big change from the days of Hewlett and Packard when HP instrumentation was the best you could get.
Posted by irdac (60 comments )
Link Flag
clue
get a dell next time
Posted by gggg sssss (2285 comments )
Link Flag
It is like high school clique's
It is like high school clique's. A bunch of kids gang up on one kid, turn around kill him then start blaming one another for their actions. The information that was leaked, to say the least, "The ends did not justify the means!" Meaning the only reason Patty got pissed over the leak was because the share holders would see how the board was spending money on lavish surroundings for regular meetings. That pissed off Catty Patty to no end. I don't think the woman has an ethical bone in her body. She was informed as to how to handle the problem and Kenworthy had said all she had to do was ask and he would have told her. Perkins informed Patty how to handle it, but you don't tell Patty how to do things, she will handle anyway she wants because she is Chief Cat and there is nothing anybody can do about it! Everyone that board was in on it and should resign from the board and a new formed, hopefully more ethical then the last. If I was a stockholder, I sure as hell would vote them out for a new crew.

The statement made during her awards says it all, "I understand rich, I will never understand famous." Understands rich, why patty? I am Rich and I can do anything I want and there is nothing anybody can do about it. I know I have been around people of wealth enough to know how most them think. But I digress!
Posted by techtype (25 comments )
Reply Link Flag
Hp gets even more scarry
Did anyone notice that as Attorney Michael J. Holston,was speaking he lowered his voice and sid in an almost mumbel that they (hP thugs I assume) had "gone thru someones trash"... None of the news outlets have picked up on that yet. I went back to listen to the rebroadcast of the conference call (go to newsroom, under the company info tab on the HP site to hear it for yourself)
Posted by Dolp830 (9 comments )
Reply Link Flag
HP Scandal
AS CEO Hurd is charged with the knowledge sent him---it is gross negligence to claim ignorance.
Posted by alaric34 (1 comment )
Reply Link Flag
Important detail left out
This story mentions whom some of the recipients were, but who was the sender?

Likewise, Hurd claims he never read the E-mail.

During a secret and potentially hot investigation such as this, why would Hurd NOT read such an important piece of E-mail.

Hurd as well as the Ethics chairman along with the entire board's credibility is on the line here.

Just how many more were included on that addressee list and who was the sender?

The sender sent it to those in the know and thus knowing who the sender was will be a good point to investigate and find out more info about exactly whom knew about what and when!!!

Walt

Walt
Posted by wbenton (522 comments )
Reply Link Flag
Social Security Numbers
SOS couldn't have just called up HP human rerources and asked for the SSN of board members and some employees.

Either someone on the board would have obtrained those numbers and transmitted them to SOS, or they would have authorized HR to divulge this private information to SOS.

That is one area where details have not yet been made public.

I don't think Dunn's resignation was due to the revelation that Hurd was also involved, but rather because what is to come is going to be very damaging to her.

Hurd underlined that he now knew much of what had really happened. This means that current decisions are being taken to prepare the media for what is to come and hopefully defuse bombs before they explode.

With Dunn gone, any bad news about Dunn won't impact HP as much.

Furthermore, by firing Dunn now, she probably gets a nice golden parachute. If they waited for charges to be laid against her, she would probably be fired for "good cause" and not get any compensation.
Posted by jfmezei (24 comments )
Reply Link Flag
Chief Ethics Officer Canned On Friday
HP's Chief Ethics Officer, Kevin T. Hunsaker was canned on Friday. According to the story below he made specific requests that the investigator obtain personal telephone records. Sounds like a great guy. I am sure he will quickly be snapped up by Big Oil, just like Richard Armitage (Plamegate) who now sits on the board of ConcocoPhilips. Crime does pay, if it's bigtime crime.

<a class="jive-link-external" href="http://www.theage.com.au/news/Technology/HPs-ethics-chief-pointed-investigator-toward-directors-suspectedof-leaking-email-shows/2006/09/23/1158431932837.html" target="_newWindow">http://www.theage.com.au/news/Technology/HPs-ethics-chief-pointed-investigator-toward-directors-suspectedof-leaking-email-shows/2006/09/23/1158431932837.html</a>
Posted by CancerMan2 (74 comments )
Reply Link Flag
Innocent of crime
I suppose now that she has resigned the FEDS will find insufficient evidence for criminal charges. Again, the rich take care of the rich.
Posted by GrandpaN1947 (187 comments )
Reply Link Flag
Sometimes it's better to Rebuild than to Fix....
When an infestation gets to the very foundation of a company it is sometimes better to bring in the "Big Guns" and start over.
I don't mean the company as a whole but I do mean the corporate structure and particularly the board and Legal counsel areas.
I hope Mark Hurd survives this but as new revelations seem to be unfolding daily that is a lgitimate question.
Posted by fred dunn (793 comments )
Reply Link Flag
yes,.. yes,.. yes,..
Of course, you've heard it all before right here with my focusing of the brighter lights in the darker recesses of HP crypt, but it IS time to now do a little reality check on HP and our IT businesses.

I have a few specimens in my lab. HP monstrosities, picked up at the consumer level and quaranteened. Has anyone managed to pick through the myriad of applications that bury themselves into an HP home system when it is setup or recovered from the pay-for recovery disks? Hint: how much information have you given away in the last year alone? Yes!, let us do an investigatiion if we are serious about understanding what precisely is going on at HP.

The first thing that is abundantly striking is that we all brandish huge sticks when it comes to insistances on having the best and brightest, the most up to date, and the highest level of diligences, front and center in our technology employees. Getting huge sums of money dumped on you for an executive postion is not a reason to suddenly dispense with your intelligence, duty of care or moral tenacity.

I do not believe for even a fraction of a second that Hurd did not read the report!! Pointe finale!! No way! You are an executive and so called 'captain of industry' (hmmm) because you have that great power to be able to examine all the detail. What a sad state of affairs that the technologists ARE the best and lead by a group of senior/executive ninnies and incompetents. Ahh but this is more and more the American way of life. America the brave and the free revells in the gross negligence and moral turpitude of its business executives.

Anxious to dispense with discoveries, the quick and clean, always acceptable method in America is to, make someone resign. Problem solved, game over, no problem, 'that was somebody else' doing all that bad stuff. The woefully inadequate solutions provided by HP, and all of the North American public and private sectors, is the dissociative pronouncement of a "guilty party".

One day when the coffee is not quite as thick and the morning air a little fresher it will be like a proverbial ton of bricks when it is realized no one does, or ever has, bought into this ideology which is meant o suggest that a proper punishment has been doled out in fair and objective fashion.

"Very disturbing to me". Hahahaha HA ha... [http://Forgive me here for a moment.|http://Forgive me here for a moment.] I persisted for months presenting Hurd with very disturbing facts,... is the public really so naive that they might for a second think he cares!!!?

Why are we still relying on HP to conduct its own "investigation" into its own "investigation"?

"Complicated situation"?!?!? "Complex"?!?!? There is nothing in here that is either 'complex' or 'complicated'. The U.S. should have had in place, decades ago, real check and balances, a control on how business conduct themselves rather than a faux posturing of righteous indignation.

And there is that legal jargon again first deployed in the Mesozoic Era, " I do not/can not recall". Oh! Gosh, just a minute while I hold my sides.

'Millions of pages', well this is all to difficult for me to fathom, I think we should just get someone to resign and call it even.
Posted by Dragon Forge (96 comments )
Reply Link Flag
HURD should be herded
This idea that CEO Hurd knows nothing...sees nothing...did noooothing is ridiculous. These broken records where CEOs proclaim being hands-on and then instantly take their hands off the wheel when anything about ethics pops up...let alone criminal misconduct...is an example of the insular pat-on-the-back boardroom mentality. The only problem here is that the boardroom players attacked each other. Too bad. The firing of Fiorina sparked a boardroom brawl...and now they are at each other's throats...or private phone records. Not only is Dunn done...but Hurd should be herded right on out of there. According to Perkins, Hurd knew and approved the methods of the investigation. Criminal...you bet. But it speaks even more to this CEOtitist...a disease of massive arrogance, privilege, and separation from the reality of life within and outside their corporations. We as normal people are sick to death of massive greed and power brokering in America. And within venerable HP, just like venerable Enron (MOST Admired Company AND Most Socially Responsible according to the press at one point) there lurks the underpinnings of elistism and invincibility. Out with the lot of them at HP I say...just like with our Congressmen and Senators in the near elections. Time for a real change that reflects a concern for fundamental rights and the well being of average people. They can take their millions and go play on some remote island, drinking rum juice drinks, and bashing each other, but not harming how we work and live anymore.
Posted by BoxlessThinker (6 comments )
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