Hewlett-Packard Chairman Steps Down Amid Media Leaks Scandal

Chris Hoofnagle is a specialist in privacy law at the University of California's Boalt Hall School of Law.

CHRIS HOOFNAGLE, Privacy Law Specialist, U.C. Berkeley Boalt Hall School Of Law: Pretexting is much like an identity theft. In identity theft, someone uses your personal information to steal your money or access to your accounts.

Pretexting is similar, but, instead of stealing money, what they're doing is, they're stealing information about you: where you live, the people with whom you talk on the telephone, etcetera.

SPENCER MICHELS: He says the H.P. case is an important one.

CHRIS HOOFNAGLE: This is a case that involves extremely powerful people having their telephone records essentially stolen by private investigators as part of an inquiry into their activities. And, if you think about it, your phone records reveal a lot about you. They reveal who your friends are, your political contacts.

SPENCER MICHELS: Attorney General Lockyer says the H.P. case reveals a potentially larger problem.

BILL LOCKYER: How often does this occur? We don't know that. Is it a common business practice? We all worry, in this electronic age, that privacy is routinely abridged.

The company itself has had a rough couple of years. Its merger with Compaq didn't produce good results at first, and, partly as a consequence, its CEO and chair, Carly Fiorina, one of the most visible and successful women in business, was fired in early 2005.

After her departure, with a $21 million severance package, the company then made a remarkable rebound with an array of products, including computers and printers.

BusinessWeek reporter Peter Burrows, who wrote a book about H.P. and Fiorina, credits the new CEO and soon-to-become board chairman, Mark Hurd, for the turnaround.

PETER BURROWS, BusinessWeek: The company has come storming back. The company has done incredibly well. Investors are thrilled. The stock is up 70 percent. Employees are completely thrilled, feeling like they're working for that same old H.P. again. And, you know, now, suddenly, we get this major issue with the board. And I think there's a lot of concerns that maybe this really isn't that old H.P.

SPENCER MICHELS: Hours before he learned that he was one of nine reporters whose phone records were spied on, Burrows, in his blog, called on H.P. to come clean. He said he was dissatisfied with the extent of H.P.'s response, but said that, now he's involved in the case, he can't comment on the investigation.

Burrows believes that what precipitated the company known for integrity into hiring investigators to spy on its own board members was a fundamental dispute on the board.

And then you have got other people who say, well, you know what, that's not the best use of our time. The best use of a board's time is to help the CEO run the company and make smart decisions.

And I think that rift has been there for a while, and this is how it happened to be exposed.

SPENCER MICHELS: The scandal came to light when venture capitalist Thomas Perkins, who is regarded as one of the founders of Silicon Valley, resigned from H.P.'s board of directors. He complained about questionable ethics and dubious legality used by H.P. to identify Perkins' friend and longtime board member George Keyworth II as the source of the leak. Keyworth resigned from the board today.

Business and academic leaders, including Stanford law and business professor Joseph Grundfest, were intrigued by the scandal.

JOSEPH GRUNDFEST, Law and Business Professor, Stanford University: This is a hugely important case. This is a case that directors are going to be studying for years, in order to figure out what to do and what not to do. This is a fascinating situation, because it rings the corporate bell on so many different dimensions. You have got all of the soap opera involved, in terms of internal corporate politics.

SPENCER MICHELS: Attorney General Lockyer, who is running for state treasurer in November, says he's trying to determine what type of understanding H.P. had with private contractors.

A key question in the case is whether a company that hired another firm or vendor to do the investigation is liable if the second firm does something illegal.

BILL LOCKYER: Yes, a little suspicious -- just the fact that you have people subcontracting all around the country, multiple vendors, starting from Silicon Valley in California, and then bouncing all around the country. And you kind of wonder why people are doing that, except to kind of cover their tracks.

CHRIS HOOFNAGLE: Well, it depends on whether or not the people who hired the investigators knew or should have known that these illegal methods would be used.

And that's going to be a very difficult thing to determine. One is going to have to look at the communications of the Hewlett-Packard employees and their directors, and at the communications of the investigators who were hired and subcontracted in this case. So, it might be many months before it can be determined who actually broke the law here.