By IR Web Report Staff
BIZARRE revelations that Hewlett-Packard’s chairwoman and “an internal group” within the company hired private investigators to spy on directors’ personal home and cellphone records has set tongues wagging across the Internet and in boardrooms everywhere.
The story, documented in extraordinary detail in a Newsweek article, raises questions about the legality of HP chair Patricia Dunn’s actions to find out who on her board was leaking information to the media. Subpoenas have been issued in California and a criminal investigation is underway.
The media coverage, including details of how private investigators impersonated directors to hack online phone records, gives the public a rare glimpse into the behind-closed-door antics of one of America’s most powerful boardrooms.
Cannot confirm actions were legal
In a filing with the Securities and Exchange Commission, HP admitted that it could not confirm that the methods used to spy on its directors were lawful.
The filing said that “counsel could not confirm that the techniques employed by the outside consulting firm and the party retained by that firm complied in all respects with applicable law. ”
The company also disclosed that it has been “informally contacted by the Attorney General of the State of California” about the spying and that the SEC has asked questions about the company’s disclosure of the affair.
According to news reports and a letter to HP’s board by former director Thomas Perkins, who resigned from the board in protest over the affair, Dunn and a group of HP managers launched an investigation in January 2006 to uncover the source of a story that Internet news website CNet.com published on January 23, 2006.
After hiring an outside investigation firm, which accessed private home and cellphone records of the 10 directors using a variety of methods, Dunn announced at a board meeting on May 18, 2006 that she had found the leaker — director George Keyworth, a 20-year HP board veteran.
Keyworth, who acknowledged speaking to the news site, was asked by the board to resign but refused on the grounds that he is elected by shareholders. HP’s board has since decided not to renominate him.
At the same meeting director Perkins, a well-known Silicon Valley venture capitalist, resigned in protest over how the investigation and censuring of Keyworth had been handled. His resignation was disclosed in an SEC filing several days later — late on a Friday.
However, the filing and a news release the company issued did not mention Perkins’ reasons for resigning. Perkins charges he was denied an opportunity to review the press release as required.
Subsequently, Perkins began asking questions about the methods the company had used to identify the leaker. He learned that the company had hired investigators who used confidential information about the directors to obtain records of their personal home and cell telephone activity.
Copies of correspondence between Perkins and the company and his phone company, AT&T, were provided to various media outlets on Tuesday. The company filed an 8-K report with the SEC on Wednesday revealing for the first time details of Perkins’ reasons for resigning and of the secret investigation into directors’ personal phone records.
Reaction to the revelations ranged from bemusement to outrage.
Venture capitalist Dr. Paul Kedrosky called for Dunn to resign her directorship at HP. In a blog post, he wrote: “This is less about board confidentiality than about executives’ board control: And what better way to control your board than the constant Kafka-esque threat of a possible investigation hanging over your head?”
Professor Stephen Bainbridge, a law professor at UCLA, said “it’s hard to imagine the big egos on most corporate boards taking this sort of privacy invasion lightly. Certainly, if I were on HP’s board, I’d want Dunn’s head on a platter.”
The Associated Press reported on Wednesday that California Attorney General Bill Lockyer had subpoenaed some HP officials but said his probe was in the “early fact-finding stage.”
“I don’t have a settled view on whether it was illegal yet, but it certainly was colossally stupid,” Lockyer told the news agency in a phone interview.