HP: Hewlett Packard's Corporate Governance Woes - 2

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Page Two of Six Pages

2. Hewlett Packard Corporate Governance Problems - Patricia Dunn's Focus as Chairwoman


» Dunn's Focus as the New Chairwoman
» Dunn Sets Her Sights on Perkins and Keyworth
» Plugging the Leaks

Dunn's Focus as the New Chair - Plugging the Leaking of Board Discussions

Patricia Dunn, HP Chair, 2005-06

In her written testimony to US House Energy and Commerce Committee's Sub-Committee on Investigations, Patricia Dunn (who in 2005 ranked 17 on Forbes' list of the 100 Most Powerful Women) said that after Carly Fiorina's departure as Hewlett Packard's Chairperson and CEO on February 9, 2005 (and a process in which Dunn actively participated), Dunn "respected the board's decision to split the roles of chairman and CEO" and was "surprised" and "honoured" when she was offered the position of chairman. Carly Fiorina HP CEO & Chair 99-05

In her testimony to the House, Dunn went on to state that it was well reported that the board "was beset by considerable conflict among directors." There was also distrust between board members "driven by the fact that the board's most sensitive decisions kept ending up in the newspapers," and the matter came to a head when the most sensitive details of discussions at a board retreat ended up on the front page of the Wall Street Journal on January 24, 2005.

The leak to the Wall Street Journal on January 24, 2005 concerned the declining relationship between Carly Fiorina, HP's previous chairperson and CEO, and the board.

Putting an end to the leaks, exposing the sources (and thereby having them removed) became Dunn's top priority and by all accounts the focus of her tenure as chairperson.

Before Dunn became chairperson, Fiorina's convened a conference call after she became aware of the leak to the Wall Street Journal. She writes in her memoirs Tough Choices: "I convened a conference call for Saturday morning. I was as cold as ice during the call. I said the Board could not operate in this way and I would not. Pattie [Dunn] was on vacation in Bali and didn't yet know what had happened. Directors Jay Keyworth, Dick Hackborn and former Director Tom Perkins all acknowledged that the reporter had contacted them. They all denied they had spoken with her (Pui-Wing Tam, a reporter at The Wall Street Journal). Jay, in particular, launched into a detailed defence of why the leak couldn't possibly have come from him.

"Other directors expressed shock and outrage. ... I suggested that we ask the Nominating and Governance Committee to launch an investigation to be conducted by outside counsel. The committee was convened by telephone ten minutes later. The members agreed that outside counsel Larry Sonsini would interview each Board member. Director Bob Knowling requested that Larry use the interviews to conduct not only an investigation, but also an objective assessment of the Board. I didn't expect anyone to resign over this, nor did I intend to ask. I thought this could be a useful wake-up call to several Board members who were not as smart as they thought they were."

"...attorney Larry Sonsini had reported on his investigation into the leak and his assessment of the Board's dynamics. He informed us that two, possibly three, Board members had leaked confidential Board conversations. His report named only one member, because only Tom Perkins was honest enough to admit that he'd spoken to the press, although he was adamant that he had been a 'second source'." (Tom Perkins apparently disclosed that he had spoken to Pui-Wing Tam, a reporter at The Wall Street Journal, but that the reporter already had details of the going-on at the HP board retreat. However, in documents submitted Congress' sub-committee hearings on the HP scandal, Sonsini said he did not find the leaker.)

On taking office as chairperson, Dunn launched another investigation to find and expose the source of the leaks. During the course of the investigation Dunn "was told that phone records were one of the key techniques being used in the investigation, along with 'relationship mapping'..." "I did not find it objectionable that suspected leakers might be followed to see if they were meeting with reporters." The significant words here are "suspected leakers".

Dunn Sets Her Sights on Perkins and Keyworth

Reports quoting her supporters say that Dunn felt that two long serving directors Tom Perkins and Dr. George Keyworth were the cause of the board's dysfunction. Perkins and Keyworth were were fairly influential since they had connections with HP's founders, Bill Hewlett and Dave Packard. Dunn describes them as close friends and allies. Perkins also held the position of Chairman of the Nominating and Governance Committee. Patricia Dunn was a power house in her own right and was ranked 17th on Forbes' list of the 100 Most Powerful Women.

In her book Tough Choices, Carly Fiorina says George Keyworth "had been derisive of Pattie Dunn's capabilities ever since I had known him... . He routinely complained that she (Dunn) didn't understand the company and relied on process as a crutch." Keyworth had encouraged Fiorina to replace Dunn on the board.

The relationship between Dunn and Perkins was acrimonious. In a August 17 email to other board members, Dunn wrote "Tom's (Perkin's) behaviour to me in our one-on-one interactions was often so over the top that the simple facts would have seemed like exaggeration. I won't indulge in a chronology of the intimidation, pressure, rudeness and criticism that Tom directed at me, but will simply say that I have never had remotely similar experiences with anyone."

Plugging the Leaks

HP later said that the leaks to the Wall Street Journal and later to the internet tech news organization, CNET, over the preceding years had hurt the company's reputation and had violated board members' confidentiality agreements. It also claimed the leaks had the potential to influence the markets. Therefore, they said, it was necessary to investigate the leaks, find their source and stop the leaks. That was the rationale for the methods they used to uncover the leaks - methods that found their chairwoman, employees and contractors facing the possibility of criminal wrong-doing.

According to the 8-K report filed with the SEC, HP stated that the leak investigations were initiated by chairperson Patricia Dunn. Dunn, however, denies knowledge of the methods used in the investigation.

One of the investigation methods used to find the source of the leaks, is a controversial method called pretexting, became the subject of a U.S. House Energy and Commerce Committee's Subcommittee on Investigations hearing.