September 12, 2006 6:54 AM PDT
Leak scandal costs HP's Dunn her chairman's job
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HP's boardroom dramaMay 8, 2007
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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, 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."
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.
"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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