September 12, 2006 6:54 AM PDT

Leak scandal costs HP's Dunn her chairman's job

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HP's boardroom drama

May 8, 2007

(continued from previous page)

According to a Securities and Exchange Commission filing by HP, an outside investigative firm hired by the company relied on a subcontractor who impersonated the identities of board members and journalists to access personal phone records, which were then used to help determine which board members were talking with the press.

The disclosure of the practice, called pretexting, has led to the departure of two of the 11 directors the company had when the investigation was disclosed to the board May 18.

Tom Perkins Tom Perkins

Tom Perkins, the famed Silicon Valley venture capitalist (of Kleiner Perkins Caufield & Byers) protested the Dunn-led investigation when it was disclosed to the board in a May meeting.

At the heated meeting, Dunn pointed to fellow board member Keyworth as a source of leaks and asked him to resign. Keyworth declined. Perkins, who wanted the matter to be dealt with privately, was outraged by the way the disclosure was handled, and he abruptly quit.

The saga may have ended there, except for the way HP disclosed Perkins' departure publicly and to the SEC. In a short press release issued the next day, the company simply said, "HP announced today that Thomas J. Perkins resigned from its board of directors on May 18, 2006, with immediate effect. The board has 10 members following his resignation."

Noting that Perkins had been with HP for 50 years, Hurd was quoted as thanking him "for his service and dedication to our company."

A filing with the SEC was similarly brief: "On May 18, 2006, Thomas J. Perkins announced his resignation as a director of Hewlett-Packard Company ("HP"), effective immediately. The text of HP's press release relating to Mr. Perkins' resignation is filed with this report as Exhibit 99.1."

Perkins, however, wanted the real reasons for his departure to be known. In July, he sent an e-mail to HP board members, pointing out the pretexting methods used in the investigation and asking that the record of the meeting be changed to reflect that he resigned in protest.

"I did not resign from the board for frivolous reasons," he wrote, "but because HP was standing (in) dangerous waters--waters hazardous with both illegal and unconscionable governance practices--and because my advice was being ignored."

In a later letter to the company, Perkins complained that he had not received a response to his request. "Thus, it appears that my disagreement is not only with (Dunn), as I initially thought, but also with the company. As my disagreement concerns probable unlawful conduct, improper board procedures and breakdowns in corporate governance, it constitutes a disagreement 'on any matter relating to the registrants operations, policies or practices' requiring disclosure to the SEC under...the Sarbanes-Oxley Act of 2002."

Perkins also warned that he was "legally obliged to disclose publicly the reasons for my resignation. This is a very sad duty."

Keyworth's departure was also tinged with regret. In the statement released by HP, he decried the handling of the investigation and expressed his desire for the company to regain its footing.

Mark Hurd Mark Hurd

"The invasion of my privacy and that of others was ill-conceived and inconsistent with HP's values," Keyworth said in the statement.

Last Wednesday, a day after CNET News.com and other publications reported the reasons for Perkins' resignation, HP filed documents with the SEC explaining the events that led to his departure. The filing also noted that on Aug. 31, the directors decided that Keyworth "should not be nominated for another term."

But Keyworth, who said he was the source for a January CNET News.com story, has since decided to resign rather than wait for his term to expire. In a statement, Keyworth said he believed he was acting in the best interests of the company.

"I acknowledge that I was a source for a CNET article that appeared in January 2006," Keyworth said. "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 longstanding board member with continuity over much of the company's history.

Keyworth said past statements were "praised by senior company officials as helpful to the company...The comments I made to the CNET reporter were, I believed, in the best interest of the company and also did not involve the disclosure of confidential or damaging information."

Keyworth and Perkins, while lashing out at the methods used to investigate media leaks, expressed optimism about HP's future.

"There is but one issue that matters now, and that is that Mark Hurd and the company have every opportunity to move beyond and above the current morass," Keyworth said in the statement.

Perkins on Tuesday said, "I believe in HP. I believe in (CEO) Mark Hurd. I applaud Jay Keyworth for his courage in stepping down today and thank Patricia Dunn for her grace in letting HP move on. This, too, shall pass."

Hurd, meanwhile, apologized to Perkins. "On behalf of HP, I apologize to Tom Perkins for the intrusion into his privacy," Hurd said. "I thank Tom for his contributions, his principles and his help in getting HP past this episode toward its rightful place as the envy of corporate America."

He also praised Keyworth for his long tenure on the board. "Jay is an important member of the HP family," Hurd said. He has served admirably for more than two decades and has provided great expertise, especially on matters relating to technology policy. We wish him well."

In the statement, HP said Keyworth often had contacts with the press to explain HP's interests at the company's request. "The board does not believe that Dr. Keyworth's contact with CNET in January 2006 was vetted through appropriate channels," according to the statement, "but also recognizes that his discussion with the CNET reporter was undertaken in an attempt to further HP's interests."

Dunn on Wednesday said she learned that pretexting had been used to gain access to the phone records of reporters. In an interview with CNET News.com, Dunn said, "I am not happy that the way this investigation has been conducted has led to this major embarrassment." Asked if she believed pretexting is illegal, Dunn replied, "I have no idea, but it's wrong."

Dunn added: "If the board wants me to resign, I will absolutely accept their judgment on this. I have full confidence that if they ask me to, it'll be the right thing to do for shareholders."

CNET News.com's Martin LaMonica and Anne Broache contributed to this story.

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38 comments

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Sometimes it pays to be "Stupid"
The "Stupid Excuse" is wearing thin in corporate america. If the leak investigation were anything that Dunn and friends "thought" it was going to be they could have tapped any inside salesperson to do some quick checking around. Thus, there was no reason for a private investigator to be called in and paid exorbantly.

Instead, they hired a firm that they knew would do things like pretexting. These firms would be out of business if they didn't do that sort of thing. Hopefully, HP's board has enough business savy to know this which is why they were hired in the first place - thier brains and experience.

What didn't work for Kozlowski shouldn't work for Dunn: the "I'm incompetent" excuse. Either she's lying or she's stupid, and both of these should lead to REMOVAL from the HP Board.
Posted by phillynets (73 comments )
Reply Link Flag
It's Plausable Deniability
You use a third party intermediary to do your dirty work so you can claim you knew nothing about it. That's why the Hollywood types used Anthony Pellicano to do their spying for them.
Posted by CancerMan2 (74 comments )
Link Flag
Pat, you belong...
...at the top of this list.

How come Patricia Dunn isn't in the Top 10 yet?

<a class="jive-link-external" href="http://www.whotohate.com" target="_newWindow">http://www.whotohate.com</a>
Posted by morkster (7 comments )
Link Flag
Definitely a much needed start
Even with Patricia Dunn stepping down as Chairman (but not leaving the HP Board), that leaves a lot of people on the HP Board who apparently (from their silence) condoned the investigation and the use of "pretexting". There are many highly qualified people available to replace these other Board members and bring back a sense of ethical standards and improved governance to HP. I hope that Tom Perkins or some other respected Valley figure will nominate a slate of candidates to challenge the official nominees of the HP Board next Spring. I also hope that institutional shareholders will vote for such a slate to send a clear message about the limits of acceptable corporate behavior.
Posted by twasserman (11 comments )
Reply Link Flag
Tom Perkins should be brought back NOW
To take over as chairman. Dunn should be sacked by close of business today.

Hurd and Keyworth can be tomorrow's session.
Posted by Too Old For IT (351 comments )
Link Flag
Tom Perkins should be brought back NOW
To take over as chairman. Dunn should be sacked by close of business today.

Hurd and Keyworth can be tomorrow's session.
Posted by Too Old For IT (351 comments )
Link Flag
You cover my rear and I'll cover yours....
That is all that is being said here. The board has changed nothing and I hope that the external investigations bring them down since they won't step down themselves.

I am most disappointed in Mark Hurd's actions as I thought he was going to be great for HP. Now I find that he is only a lapdog to the board.
Posted by fred dunn (793 comments )
Reply Link Flag
News.com -- your headline is misleading
She is still staying on the BOD, so she has NOT lost her job. Regardless, I do not see this "solution" as a satisfactory one. I see HP engaging in the usual corporate buddy tactics: covering each others' *****. SHE SHOULD BE GONE.

Therefore, I think HP will suffer considerable consumer backlash. I know it will from me. I've already started looking at Epson, Brother, and Canon products. I'm GONE.

HP: Invent? HP: Spy.
Posted by giggles (46 comments )
Reply Link Flag
she DUNN something
now lets get something DUNN about it
Posted by Atomic1fire (270 comments )
Link Flag
Headline is correct (as of now)
Not sure if they changed it, but it currently reads that she lost her chairman job. That does not mean she is off the Board of Directors.
Posted by zaznet (1138 comments )
Link Flag
"Action" my arse...
...if she was in any other position besides the Board, she would've been handed her walking papers eons ago (and no one would've really heard about it), and she would've possibly been doing the perp walk by now.

If even half of what she's been alleged of doing is true (and it certainly seems to be), HP's 'remedy' is rather shameful, to say the least.
Posted by Penguinisto (5042 comments )
Reply Link Flag
what a joke - she still has a job at HP
Her actions were unethical and most likely illegal. And she is not only going to stay on the board at HP but also she will only step down in January. This is a clear message from HP that they do not remotely care about ethics, privacy, and common decency as long as you hold a high level position. Do you think an engineer would have had the same fate? he/she would have been escorted out the door by HR on day 1. It will be a long time before I spend my money on their products again.
Posted by ffx06 (1 comment )
Reply Link Flag
Hallelujah
But why "a long time" ... why not NEVER?
Posted by giggles (46 comments )
Link Flag
SHE IS NOT EMPLOYED BY HP - she is employed by their stockholders. BIG DIF
she still has a "job" because she is NOT employed by HP but by hp's stockholders - which she is one. Other than her voluntary resignation, only the stockholders voting en-masse could remove her.
Posted by zboot (168 comments )
Link Flag
She's being eased out - she's toast
She's being eased out rather than immediately sacked, that's all. She WON'T be reappointed to the board next year. It'll be kind of hard to fulfill her board duties from a jail cell, which is where she will be. Martha Stewart's name was on the building, Dunn's ain't.
Posted by MikeDson (50 comments )
Link Flag
different set of rules
If someone who was a regular employee had done something like this, how long do you think it would take HP to FIRE them? This is nothing but a wrist slap with a feather.

I stopped buying HP for my company when Carly was buying Compaq. I had been thinking about buying from them again.....but not now! Stockholders should revolt and demand that she really loose her job.
Posted by befuddledms (113 comments )
Reply Link Flag
Remove the women from power?
Looks like HP has been on a witch hunt of sorts over the past
couple of years. They have now successfully removed the two most
powerful women in the company from power.

Just an observation.
Posted by ronjay (109 comments )
Reply Link Flag
REMOVED Incompetence from Power
Witch hunt?????? yeah right.
The two incompetent losers should have NEVER been hired in the first place.

Carly was a walking disaster area, she appointed so many retards to positions of power I am surprised HP is still in business. If there are any other losers hired by the disaster queen, they need to go as well.
Posted by nothingavailable (53 comments )
Link Flag
I would have fired her for not taking action!
What is so sacred about spying that you can't even counterspy? I would still hold her responsible but for not acting sooner!
Posted by luisosio (3 comments )
Reply Link Flag
that's what i'm talking about...
Can't people keep their mouth "shut"? Leaks here, leaks there, leaks everywhere. "Anonymous sources" and "speaking on the condition of anonymity" when you're in a position that expects you to be able to keep a secret seems to have run amok. I don't agree with some of the alleged things that were done, but I think they had every right to employ all LEGAL means available to them to find that blabbermouth.
Posted by kevvykev (4 comments )
Reply Link Flag
Slap in the wrist...
Nothing really changed in HP. Dunn still works there and can still influence the politics in the board of directors. Once the media furvor dies down, it will be "business as usual" within HP.
Posted by treet007 (123 comments )
Reply Link Flag
Aw, poor Dunn loses her job
Aw, poor Dunn. All she did was spy on other board members, what's the big deal? And now she has to suffer the horrible of fate of stepping down from her chairman position- a half year from now. HP swooped in and swiftly defended their moral character, didn't they?

Thankfully Dunn will still be on the board and a guiding force for HP's direction.
Maybe in the wake of this HP can create an Ethics branch and have Dunn lead it up to atone for her misgivings.

That sounds just comically farcical enough that HP would be dumb enough to do it.

Here's the icing on the cake: Dunn probably has a contract clause that gives her some massive multi-million dollar bonus for not having completed her tenure as chairman for HP.

Could high-level corporate antics stink any more than they do?
Posted by Fireweaver (105 comments )
Reply Link Flag
Buh bye now
Board members who condoned or went along with illegal activity
need to be fired today and brought up on charges tomorrow. Dunn
should already be out the door and no longer on the board, and if,
as it appears, the board of HP did not publicly reveal the illegal
activity the minute they learned of it, and if Perkins' allegations are
correct, they should all be sent to preside on the the board of the
local concrete country club. Period.
Posted by Groucho6 (104 comments )
Reply Link Flag
Weak Excuse
"These leaks had the potential to affect not only the stock price of HP but also that of other publicly traded companies," she said.


So which is better, having this information leaked to the press so investors can act on the information, or keeping it secret so insiders can trade on the information while keeping ordinary investors in the dark?

You're gonna have to try harder than "they took away my insider profits" to justify authorizing fraud, Ms. Dunn.
Posted by solrosenberg (124 comments )
Reply Link Flag
She Needs to be fired
So Mrs. Dunn hired an outside firm to find out who was leaking company information to the press. What make what she did very bad was the fact that this company got personal info about their executives which in my opinion has nothing to do with work. If you what to find out who is leaking company info then you call a meeting and ask them point blank who the F**k is leaking this information and who ever is doing it needs to stop it right now, or you can call in each executive and have a personal sit down meeting with them to find out if they are happy with the company, do they like the direction in which the company is going, do they see anything that the company can improve on and if they are the one that is leaking company information. What makes this soo bad is the fact that when the information got out about what she did and the information that was uncovered she acted dumb. What do you mean you didn&#8217;t know, aren&#8217;t you the one that sign the check, aren&#8217;t you the one that ask this company to find out who is leaking company information to the press. Why didn&#8217;t you find out from the company on how they are planning to find out who the leaker is? I&#8217;m sure that you are not a dumb woman, but for you to say that you didn&#8217;t know just make you seem incompetent and just makes it easy for the board to dismiss you. The only reason for you not to say that you didn&#8217;t know is that when you hired this company you know or had a hunch that they might do something illegal and if that&#8217;s the case then guess what don&#8217;t hire them because it might comeback and bite you in the ass. Also I hope this sends a message to corporate America that behavior like this is not acceptable. So HP this is what you need to do since the actions that Mrs. Dunn may look like it also illegal you need FIRE her not ask her to step down teach her a lesson and show to the tech community that you will not put up with this kind of behavior
Posted by firestarter (43 comments )
Reply Link Flag
idiots
she still has a "job" because she is NOT employed by HP but by hp's stockholders - which she is one. Other than her voluntary resignation, only the stockholders voting en-masse could remove her.
Posted by zboot (168 comments )
Link Flag
Corporate World is becoming like the government
It seems like you can screw up in the worst possible way (just like Politicians) and still be rewarded for it. What concept. I wonder if any member of the HP board are politicians themselves.
Posted by bucketscum (1 comment )
Reply Link Flag
RE: Corporate World is becoming like the government
Bush will probably give her the Congressional Medal of Freedom.
Posted by befuddledms (113 comments )
Link Flag
Corporate World runs our Government
It's not a surprising observation that you made. The corporate world runs our government. Most high-ranking elected and appointed officials are current or former board members of large corporations.
Cheney and Bush have direct, active ties to major corporations that receive huge no-contest government contracts.
Governement is quickly becoming the not-so-secret ***** of corporations and their money and it will only get worse because it's become an accepted, if not downright flaunted practice.
Posted by Fireweaver (105 comments )
Link Flag
Leak or Plumbing
Sometimes you want to unofficially pass information to the press. It's only a leak when you decide it's not the information you wanted out there.
It's a corporate tool that usually works to the institutions advantage. Sometimes leaks can also help the public uncover wrong-doing.

It's just not black and white.
Posted by thatkelly (8 comments )
Reply Link Flag
So there are consequences?
Finally a "leak scandal" results in some sort of consequence for the person at fault. Most of the time the person in charge of the company who was at fault for a security leak doesn't have to deal with the aftermath of a data breach.
<a class="jive-link-external" href="http://www.iwantmyess.com/?p=95" target="_newWindow">http://www.iwantmyess.com/?p=95</a>

This should be a wake-up call to other top-level execs to start taking security seriously.
Posted by ml_ess (71 comments )
Reply Link Flag
Well, if she could've shut her trap
Then this wouldn't be happening. The next question
<a class="jive-link-external" href="http://www.teckmagazine.com/content/view/659/42/" target="_newWindow">http://www.teckmagazine.com/content/view/659/42/</a> is how many billions is she going to steal on the way out?
Posted by (156 comments )
Reply Link Flag
I wouldn't be surprised about her payout
I wouldn't be surprised that her payout from the Chairman's job, will make Carly's look cheap in comparison, when she goes!
Posted by heystoopid (691 comments )
Reply Link Flag
WTF!!!?
So she gets a slap on the wrist. She still gets director's pay for doing nothing.

They need to fire her &lt;beep&gt; along with any other directors involved.
Posted by bob donut (90 comments )
Reply Link Flag
First Fort 500 Woman Exec Caught Spying?
Is this a case of the "First Fortune 500 Woman Exec Caught Spying"? In the spirit of the liberal press "First Woman..." obsession, I would like to know if women have crashed yet another corporate glass ceiling by being just as crooked and deceitful as men. I do hope that the EEOC will make sure that Fortune 500 companies are fulfilling their quota of women and minority crooks. At least HP has already met the quota.
Posted by CancerMan2 (74 comments )
Reply Link Flag
HP Board lacks integrity
The spying scandal is a sorry comedown for a company that HAD a reputation for excellence and integrity.

The board's actions have been more of the CYA variety than of truthfulness.

* WHAT PHONE RECORDS? The board played dumb when they realized that directors' phone records were used in the leak investigation. No one asked, "How did we get these records?"

* BOARD MEMBER RESIGNED FOR "PERSONAL REASONS": Perkins resigned in May. HP resisted proper reporting to the SEC of the reasons for Perkins' resignation until the past few days.

* STONEWALLING: Dunn and Hurd have made only weak apologies. Dunn has been far more strident about tracing the leaks from an individual than about the corporate breech of integrity in fraudulent investigations.

* PROTECTING CRIMINALS: HP has refused to identify the private investigation firm or the third party investigators who are suspected of doing the pretexting.

* WEAK APPEASEMENT: Recent announcement of Board changes are weak.
1. Dunn remains chair for 4 MONTHS.
2. She remains on the Board.
3. She will be replaced by Mark Hurd, who is also CEO and President.
4. The Board will backtracking on its new rule, that the Chair and CEO would be different people. This weakens HP's Corporate Governance.

If the Board had any integrity, it would have acted...
* immediately, upon learning of wrong doing
* without coverup, without excuses
* without compromise to the offenders

The Board must demand Dunn's resignation from the Board. (There will be more legal fallout for HP if she remains, than if she leaves and HP cooperates fully with the California State, Federal, Congressional, SEC and FBI investigations).

The Board needs to have a non-executive Chair. There needs to be a check on the CEO.

The Board must make a public statement, repudiating in the strongest terms, the tactics used by its private investigators, and reiterating its stand on corporate integrity.

The Board must take ACTION to convince the business and investment community that it is determined to regain the mantle of integrity and excellence it once had under Hewlett and Packard.
Posted by Hardrada (359 comments )
Reply Link Flag
Dunn Needs to LEAVE...
now it's confirmed that two other HP employees were used as a "test"....

She should not be on the board at all...Dunn needs to do the right thing and resign NOW...
at least it will give her some credibility!
Posted by oceanview_1 (14 comments )
Link Flag
 

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