FAQ: The HP boardroom leak scandal
- 25 September, 2006 15:11
Who's involved, what happened and what it means.
I've been avoiding this thing. You've got one sentence. Fill me in.
Officials at Hewlett-Packard launched an investigation to track some leaks coming from the board of directors, and some of the methods used were ethically questionable, if not positively illegal; a lot of agencies are investigating, and HP investors are getting a bit jittery.
What was being leaked? Who and why?
The source of the leak was board member George Keyworth, who was speaking to various tech-industry publications, providing at least one with information on the goings-on at a closed board meeting. Keyworth admitted to the leaks in May and stepped down on Sept. 12 -- one day after Patricia Dunn first announced her resignation as chairman in January 2007. (On September 22, Dunn advanced her departure schedule from "January" to "immediately.") Keyworth says that he believes his statements were in the best interests of the company and that no confidential or damaging information was disclosed in his "leaky" conversations with the press.
How many people sit on the HP board of directors?
The HP biography page for its board of directors currently lists eight.
Did HP break the law?
There are plenty of investigators and lawyers figuring that out, but based on what we know now, it's possible that the company did not directly break the law. The outside firm retained by HP is on shakier ground, since they may have hired a subcontractor that did, in fact, break the law.
What did that subcontractor do?
It obtained phone call records by pretexting -- calling the phone company and claiming to be the people whose records it was after, using personal data to bolster their claims. The people targeted included HP board members and staff as well as nine journalists and their spouses. (Not the best tactic for keeping an embarrassing story out of the papers, by the way.)
Some legal observers feel that HP may just make new law on this -- providing a high-profile case that'll light a fire under legislators to crack down on the practice.
Did HP's legal department know this was happening?
Yes. Reports have stated that HP senior counsel Kevin Hunsaker planned an attack on at least one reporter and presented the details to Dunn in a PowerPoint presentation. (That attack involved placing a tracking bug in an e-mail on the reporter's computer; Hunsaker has not yet been linked to pretexting efforts.)
So one of those journalists found out and wrote about it?
Not quite. The investigation was revealed earlier this month in an SEC filing in which HP acknowledged hiring an outside investigator to run down leaks dating from 2005.
When did all this happen?
The two-part investigation began in March 2005 -- under the reign of previous CEO Carly Fiorina, by the way -- and ended in May 2006. An HP board member says the pretexting began in January 2006.
Is pretexting illegal?
Pretexting of bank records has been illegal in the U.S. since 1999 under the Gramm-Leach-Bliley Act. The Senate is currently looking at bills that would make phone-record pretexting illegal, and California -- where the journalist targeted by Hunsaker is based -- specifically forbids it, as does Maryland and a few other states. Illinois, Florida and Missouri are currently suing various online records brokers that engage in pretexting, and several mobile-phone-service providers have sued such companies as well.
No. Some companies charge as little as US$100 per phone number.
Page BreakWhich government agency decides who's crossed the investigative line?
The responsibility for delineating whether unfair or deceptive pretexting occurred falls to the U.S. Federal Trade Commission. The Federal Communications Commission is also evaluating pretexting.
Whose heads are those on the floor?
That would be Patricia Dunn, the company's now-former chairman, who'll be replaced as chairman by Hurd. (And you can add former board member Keyworth and the May departure of HP director Thomas Perkins to the tally, too. Perkins left after coming to the conclusion (PDF link) that his calls had been improperly accessed. Before he left, though, he called for Dunn's head.)
In Friday's press statement, Hurd was expected to tell us how the company intends to handle the allegations -- and, perhaps, address reports that he, too, was aware of the pretexting. Those rumors drove HP stock down 5% on Thursday, September 21.
You said the investors were "a bit jittery"?
Hurd, who took over as CEO on April 1, 2005, has been good for HP's stock price, soothing investor worries after the uncertainties of the 2001 Compaq purchase. On the day he started as CEO, HP's stock opened at US$21.95 a share; the company made a laborious crawl in the past 17 months to the mid-US$30 range. Turmoil and ethical concerns make for market unrest, and that 5% drop on Thursday didn't do favors for anyone's nerves.
Will Hurd take over for Dunn?
Not allowed according to HP's corporate governance guidelines (here's a cached version; the original started redirecting to an Investor Relations page sometime after 3:30pm ET on September 22), but according to the September 22 press statement, Hurd will in fact serve in a dual CEO-chair role.
Federal and state officials aren't simply going to take the word of HP's legal staff on this. At the federal level, Hurd and other HP bosses have been summoned to testify about the matter in a House Energy and Commerce investigative subcommittee hearing on Sept. 28. At the state level, California Attorney General Bill Lockyer says that his office's investigation is ongoing, but so far he's seen no evidence that Hurd (at least) was involved. There have, however, been questions as to HP's continued cooperation in the investigation. Expect more attention as events unfold.