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Hewlett-Packard Chairwoman Resigns Amid Investigation Scandal

September 22, 2006 at 6:08 PM EDT
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MARGARET WARNER: On September 6th, computer and printer giant Hewlett-Packard made a stunning admission: Company management had hired private investigators to find out which directors were leaking boardroom information to reporters. In two probes beginning in 2005, investigators had impersonated HP directors and journalists to acquire their private phone records.

Public attention this month initially focused on HP Chairman Patricia Dunn, who acknowledged that she had authorized the internal investigations. Dunn announced last week she would step down from her management post next January but would remain on the board.

The scandal took a new turn yesterday when reports surfaced that HP CEO Mark Hurd may have had a bigger role than previously acknowledged. HP stock slid 5 percent yesterday on the news. So there was great anticipation when Hurd broke a two-week silence today with an off-camera press briefing at HP headquarters. There he announced that Dunn would resign immediately from both management and the board.

MARK HURD, CEO, Hewlett-Packard: On behalf of Hewlett-Packard, I extend my sincere apologies to those journalists who were investigated and to everyone who was impacted. We believe that these were isolated instances of impropriety and not indicative of how we conduct business at Hewlett-Packard.

As we said from the start, the intent of the investigation was absolutely proper and appropriate. The fact that we had leaks on the board needed to be resolved, but the inappropriate techniques that were applied do not reflect the values of HP.

MARGARET WARNER: Meanwhile, California Attorney General Bill Lockyer, the Justice Department, and the Securities and Exchange Commission are investigating whether HP’s tactics broke the law. A House subcommittee plans to hold hearings on the matter next week.

As for his own role, Hurd said today that he had been briefed on the leaks investigations at various times. He also said he approved one technique, in which investigators sent a fake e-mail to a reporter. But Hurd indicated that he never approved anything he thought was illegal.

And for more, I’m joined by David Kirkpatrick. He’s been covering the story for Fortune magazine and was at today’s press briefing, and he joins us now from Palo Alto, California.

And, David, welcome.

DAVID KIRKPATRICK, Senior Editor, Fortune Magazine: Hi.

Moving beyond the controversy

MARGARET WARNER: Patricia Dunn is out, and Mark Hurd actually has an enhanced role. Now he's CEO and chairman. Why is the company taking these steps? And why today?

DAVID KIRKPATRICK: Well, the company is trying to take steps that demonstrate that it's moving beyond this controversy, although I don't think it has yet successfully done so. But one thing that I don't think was entirely clear in today's press conference, but that my reporting indicates, is that Dunn's resignation really indicates that she and CEO Mark Hurd are increasingly at loggerheads and that she may be potentially scapegoated by him, or at least said to be responsible for many of the improprieties.

The word that I'm getting, in explaining the internal HP attitude, is that it was really the board that supervised the improper investigation, not the company. And any HP employees who were behaving unethically or possibly illegally very possibly were doing it at the behest of the board, not at the behest of Hurd or with his knowledge.

Also, I've learned that two of the top HP employees who did approve of the unethical and possibly illegal techniques are about to be fired from the company.

MARGARET WARNER: All right, so other heads will roll. Well, what new was revealed today about the tactics that these investigators used to try to get to the bottom of these leaks?

DAVID KIRKPATRICK: Well, the most interesting new event, new incident that I think was confirmed today was that, as you mentioned in your report, that CEO Hurd did know that an e-mail was prepared from a fictitious individual that had completely fabricated information, which was sent to a reporter from the CNET News service, with the intent of trying to get her to forward the e-mail to the board member who was leaking, the idea being that there would be software in the e-mail that would send a message back to HP's investigators and identify the board member.

Now, there's no evidence that that was ever done or that it worked. Hurd claims that he didn't know that the e-mail was to include this tracing technology. However, he did know that a fabricated e-mail from a fictitious individual was to be sent, which raises, I think, very serious questions about his judgment.

Tactics

MARGARET WARNER: Now, the other tactics that were absolutely confirmed today was this thing called pre-texting, right, in which they...

DAVID KIRKPATRICK: Yes.

MARGARET WARNER: ... impersonated journalists or, I gather, some HP employees or directors to try to get their phone records, and also that they used people's Social Security numbers to gain access to records?

DAVID KIRKPATRICK: The company has confirmed, and they elaborated slightly on this today, that they impersonated individuals in order to get access to their phone records and that, in several cases, HP employees turned over Social Security numbers of both employees and, I believe, directors in order to facilitate the acquisition of those phone records through the unethical and possibly illegal pre-texting.

I just want to make clear, though, one breaking news item that has not been reported, which is that the head of HP's investigations, Anthony Gentilucci, and its chief ethics officer, Kevin Hunsaker, are about to leave the company. This has not been reported up to now.

MARGARET WARNER: Right. And Hurd and the lawyer said today -- I mean, every time they discussed who was running the investigation, those two gentlemen were very much front and center.

Now, you've been covering the computer industry for 15 years. And as this has unfolded, have your contacts and sources at other companies reacted with shock as if, oh, they couldn't believe HP would do this? Or have you gotten the indication that these may not be such unusual tactics?

DAVID KIRKPATRICK: No, I think these are very unusual tactics. In fact, I was saying to some of the other journalists at the press conference today, in 15 years of covering the largest technology companies, there has never been a story remotely like this, which is a wonderful thing. I hope there's never another one.

I think the other companies, many of whom compete aggressively with HP, have a certain sadness in witnessing this kind of degradation of ethics occurring at such a great company that has a wonderful, ethical and moral tradition. And we can only hope that HP will return to its great ethical practices of the past, and I think probably they will. But as yet, Hurd hasn't really proven that that's the case.

Investigation

MARGARET WARNER: Now, Hurd said today -- and he said it very early on -- that the actual investigation of these leaks, he thought, was entirely appropriate and proper. Is that a wildly held view at HP? What was so terrible about these leaks?

DAVID KIRKPATRICK: Oh, yes, I think it's wildly held both inside and outside HP the belief that it was proper to try to take aggressive measures in order to determine which directors were leaking. It's just a question of, does the cure -- is the cure worse than the disease, and did they go over a significant line, which clearly they did?

But I also find some fault with the company for continually emphasizing the legitimacy of the inquiry and trying to, in that way, deflect attention from the fact that the pursuit of the inquiry were done in ways that were very wrong by any measure, common sense, a sense of normal ethics, and probably the law.

MARGARET WARNER: Just one clarification, because there have been a lot of news stories about other tactics that were considered, planting bugs in the Wall Street Journal offices, other things. There were things that they did not, in fact, confirm; some of those stories they're saying are not true.

DAVID KIRKPATRICK: Well, the worst thing that apparently -- they've confirmed they contemplated doing, but they say, as far as they can tell, there's no evidence that they actually did it -- is planting spies as fake employees in the offices of the Wall Street Journal and CNET in San Francisco. To have done that would have been clearly illegal. And who knows what they thought they might achieve once they got in there?

MARGARET WARNER: But no evidence.

DAVID KIRKPATRICK: The presumption is that they would probably bug the computers of the reporters in those organizations that they suspected of getting information from the directors. But they claim they didn't actually do that; they just considered doing it. And, again, the person who sent the e-mail about that is about to be fired from HP.

MARGARET WARNER: All right. Mr. Kirkpatrick, thank you so much.

DAVID KIRKPATRICK: Thank you, Margaret.