Dunn departs HP over media leak scandal
Published: 12 Sep 2006 16:20 BST
HP chairman Patricia Dunn, who launched an investigation into media leaks that resulted in a firestorm of controversy, has agreed to resign her post following a meeting of the company's board of directors.
The board has appointed chief executive and president Mark Hurd to take over for Dunn, who will continue to serve as chairman through the company's 18 January, 2007 scheduled meeting, the company announced early on Tuesday. After that point, Dunn will remain on the board as a director.
In a statement, Hurd said, "I am taking action to ensure that inappropriate investigative techniques will not be employed again. They have no place in HP."
Hurd will continue to hold his positions of president and chief executive. In addition, HP said Richard Hackborn was named lead independent director, effective in January.
Dunn's departure caps a tumultuous episode for HP, one of the country's largest companies and a Silicon Valley icon that just a little over a week ago had been basking in the glow of an economic turnaround. The computer maker now finds itself mired in a scandal sparked by an investigation into media leaks emanating from its boardroom.
Last Tuesday, several media outlets reported that an internal HP investigation into its own directors was behind one director's angry resignation this spring.
During the course of last week, it was learned that the investigation to find the source of media leaks involved possibly illegal access to phone records of the company's directors, at least nine journalists and potentially many other people. As a result, federal and California state prosecutors have launched investigations, and civil lawsuits and criminal charges are possible. A House committee is also seeking records related to the case.
Dunn, who ranked seventeenth on Forbes magazine's "100 Most Powerful Women" list in 2005, replaced Carly Fiorina as the chairman of the computing giant last year. Dunn had been a director with HP since 1998 and was the co-chairman, chairman and chief executive officer of Barclays Global Investors from 1995 through 2002. According to a biography of Dunn on HP's Web site, she "also serves on the advisory board of the UC Berkeley Haas School of Business, as well as the conference board's Center for Corporate Governance".
Dunn had been frustrated by media leaks dating back to articles in early 2005 about the relationship between then-chief executive Fiorina and the board. A 23 January, 2006 report by ZDNet UK's sister site, CNET News.com, that quoted an unnamed source describing a strategy-planning meeting of the board apparently so angered Dunn that she authorised an investigation of her fellow directors to find the leak.
In a statement, Dunn said she was proud of her accomplishments at HP but regretted the use of "inappropriate techniques" in the investigation.
"These leaks had the potential to affect not only the stock price of HP but also that of other publicly traded companies. Unfortunately, the investigation, which was conducted with third parties, included certain inappropriate techniques. These went beyond what we understood them to be, and I apologise that they were employed," she said.
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 that the company had when the investigation was disclosed to the board on 18 May, and another who is not being renominated to the position.
Tom Perkins, the famed Silicon Valley venture capitalist (the Perkins in Kleiner Perkins Caufield & Byers) protested the Dunn-led investigation when it was disclosed to the board in May. At the heated meeting, Dunn pointed to fellow board member George 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 18 May, 2006, with immediate effect. The board has 10 members following his resignation." Noting that Perkins had been with HP for 50 years, chief executive Mark Hurd was quoted as thanking him "for his service and dedication to our company".
A filing with the SEC was similarly brief: "On 18 May, 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 email 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 into 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".
Last Wednesday, a day after CNET News.com and other publications reported on 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 31 August, the directors decided that Keyworth "should not be nominated for another term".
It was also on Wednesday that Dunn 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 contributed to this story.
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