September 22, 2006 5:37 PM PDT

Has HP done enough in corporate governance?

In the world of corporate governance, Hewlett-Packard committed a no-no.

Legal experts give HP credit for taking early steps to clean up the mess that followed revelations that the Silicon Valley giant investigated board leaks using measures such as obtaining journalists' home phone records. Yet some experts said HP may need to go further, given that potentially unethical behavior among top executives could undermine the fabric of the company.

"At the center of corporate governance is an ethical corporate culture, and a corporate culture that could produce something like this needs to be re-examined by all involved," said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.

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CEO Mark Hurd said Friday that HP Chairman Patricia Dunn would step down immediately, and that the company has hired the law firm Morgan Lewis & Bockius to investigate internal operations.

Corporate governance refers to the background rules, regulations and incentives of a board of directors that aim to ensure managers look after shareholders' welfare. All corporations have a board of directors that are bound by fiduciary law, which stipulates that members exercise "care and loyalty" while managing the company. That means they're looking out for the company's and shareholders' financial interests, not their own.

When trying to discover board leaks, which could pose problems to the company's overall strategy, board members would be obligated to join together collectively and decide how to handle it, according to corporate governance experts. The problem, it seems, is the questionable tactics such as "pretexting," or posing as an indivual to obtain that person's phone records, that HP and its investigators used to investigate those leaks.

"You could go a long way down that road without violating the law," said Robert Daines, co-director of the Arthur and Toni Tembe Rock Center for Corporate Governance at Stanford University. "They went to great extremes and chose bad methods to what might have been a valuable goal."

So what's next? Daines said it's important that HP do no less than law enforcement officials in investigating itself and ensure that it doesn't happen again.

Still, Elson believes that HP should have kept the board leaks a matter only for the board itself. "The tone that was set by this is very damaging to the company and its reputation," he said.

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A company's reputation is its life's blood. Industries who bank on trusted products or trusted services can't afford to be lax <a class="jive-link-external" href="" target="_newWindow"></a>

Nor can decision-makers like Dunn, Hurd or HP's Chief Ethics Officer skirt their responsibilities to the organization <a class="jive-link-external" href="" target="_newWindow"></a>

The trust issue is compounded when you have a public company who has to answer to its shareholders. Daines is right, HP could have gone further without breaking the law. Now, those bad/questionable methods dirty the Hewlett-Packard image and reputation.
Posted by marileev (292 comments )
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