HP Filing Reveals Board Infighting, Leaks

All’s still not well in the higher echelons of Hewlett-Packard, as revealed in a filing the company made to the U.S. Securities and Exchange Commission (SEC).

The brouhaha relates to the sudden and unexpected resignation of Silicon Valley venture capitalist Thomas Perkins from HP’s board of directors in May. The cofounder of leading IT investment firm Kleiner Perkins Caufield and Byers, Perkins has strong ties to HP dating back to the 1960s, when he ran the company’s research department, and including a previous stint on HP’s board of directors from 2002 to 2004.

Back in May, HP provided no reason for Perkins’ resignation, but according to an 8-K filing HP made to the SEC Wednesday, he quit over concerns about the HP board’s handling of investigations into leaks of confidential information.

In the filing, HP confirms that the company has suffered “multiple leaks of confidential HP information,” including information relating to the closed-door deliberations of its board, dating back to at least 2005.

To try and stem the leaks and identify the culprit, HP turned to an external legal counsel who interviewed the board’s directors in early 2005 and got each of them to recommit to their duty of confidentiality. The interviews didn’t turn up the party responsible, and the leaks continued.

So, HP brought in an external specialized investigations firm that revealed George Keyworth, an HP director since 1986, had been disclosing board deliberations and other confidential information to the media without authorization. Keyworth acknowledged at a board meeting on May 18 that he had leaked information, and the board asked him to resign.

Keyworth refused to do so, and at that point Perkins announced his own resignation, citing “personal frustration” with the chairman of the board in how the whole leaks investigation had been handled, the filing said. Perkins didn’t like the matter being aired before the entire board and had believed he and HP Nonexecutive Chairman Patricia Dunn would handle the matter privately.

On June 19, Perkins sought information from HP about the methods used to conduct the investigations into the leaks. According to the filing, he “asserted that phone and e-mail communications had been improperly recorded as part of the investigation.” HP responded that there had been no recording or eavesdropping, but admitted “that some form of ‘pretexting’ for phone record information, a technique used by investigators to obtain information by disguising their identity, had been used.” In pretexting, investigators call a phone company and use personal information to pretend to be someone else so as to gain access to that individual’s phone records.

After receiving the HP response, Perkins asked HP’s nominating and governance committee to carry out an inquiry into whether the techniques used to conduct the investigation were appropriate. The vendor went ahead and engaged outside counsel, not previously involved in the earlier inquiries, to conduct such an investigation. The counsel discovered that a third party retained by the external consulting firm HP brought in to investigate the leaks “had in some cases employed pretexting.” Such a practice, at that time, was not generally illegal, the counsel reported, but added that it “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.”

As a result, the HP committee recommended that controls relating to investigations be strengthened and that HP management ensure that all aspects of HP’s investigations do comply with applicable laws and HP’s code of ethics. HP’s board and Chief Executive Officer Mark Hurd have accepted the committee’s conclusions.

The U.S. attorney general of the state of California has asked HP to supply information about the processes used in the leak investigation. “HP intends to cooperate fully with that inquiry,” the vendor said in the filing. The SEC has also been in touch over the 8-K filing HP made when Perkins resigned, but the vendor has responded that it believes its disclosures back in May were “accurate and complete.”

In an Aug. 31 meeting, HP’s board of directors determined that Keyworth shouldn’t be nominated for another term on the board.

According to a report in The Wall Street Journal, former HP Chief Executive Officer Carly Fiorina was deeply angered by the leaks since they revealed a gulf between her position and that of some of the company’s board. She was later ousted from HP in early 2005 and plans to tell her side of the story in a book titled Tough Choices, due out in October.

-China Martens, IDG News Service (Boston Bureau)

Related Link:

• Snooping, by Hook or by Crook 

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