H-P investigates own Board Members for leaks
By Steve | September 06, 2006
In a story breaking today, but sure to reverberate in corporate boardrooms for months to come, Hewlett Packard acknowledged in a filing to the SEC today that California’s Attorney General is investigating the firm for the way it conducted an investigation into its own Board members. The preliminary story is available at Newsweek online. (http://www.msnbc.msn.com/id/14687677/site/newsweek/)
Essentially, Patricia Dunn, non-executive Chairwoman of the Board, retained electronic security experts to investigate calls and emails by H-P’s board members to find out who was leaking information to the press. These experts obtained information about board member’s home phone calls by calling up phone service providers and pretending to be the board member’s themselves. The FTC says this is illegal, although experts argue about whether it is a violation of criminal law.
Analyzing the home phone records of the board members did reveal the leaker, George A. Keyworth II, who admitted his role but did not accept the Board’s request that he resign, saying that shareholders should make that decision. However another long time board member, Tom Perkins, outraged by what he considered an “illegal and unethical” action, resigned. His resignation is what brings this episode to light.
SEC rules enacted post-Enron require companies to disclose reasons for the resignations of Board members. Perkins believed (and believes) that HP needed to disclose why he resigned. HP says he did not give the investigation as a formal reason for resignation, therefore it was under no such obligation.
As I mentioned in the outset, this will be a classic case of ethics, governance and investigations for years. I will certainly be using it in the Board training that I have done with more than a dozen Fortune 200 firms thus far. Interestingly, the central feature of this training is case studies. In one type of case study, board members are put in a situation where they have a concern, and we review the variety of different options available. We have done, for example, what to do when you find out that your CEO is having an affair with a VP, what to do when you learn your CEO has falsified his resume, and what to do when you suspect a senior executive has a conflict of interest. Debating the right thing to do when the situation is hypothetical makes doing the right thing more likely when the pressure is on.
Stay tuned on this one. We are just reading the first chapter.