Monday, September 11, 2006

Why Didn't She Just Ask?

Hewlett-Packard (HPQ) has been making headlines recently, but not because of its outstanding financial results. Instead, the company is being accused of breaking the law. It hired private investigators to find out who on its board of directors leaked information to the media about a strategy meeting the board held with CEO Mark Hurd. Apparently, these investigators faked their identity in order to obtain telephone records. This practice, known as "pretexting," is illegal.

While it isn't yet clear if the company or Chairman of the Board Patricia Dunn were aware of the methods the investigators employed, it is clear that a director was indeed talking to the press. That director is believed to be George (Jay) Keyworth. He was asked to resign but refused to do so.

Dr. Keyworth has a stellar reputation. He has a Ph.D. is physics, worked at Los Alamos National Laboratory for many years, and served as Science Advisor to the Reagan administration. But none of that gives him a free pass. A company has the right to expect its directors to keep certain things confidential. After all, directors have a primary obligation to the stockholders. A company with a leaky board could lose its competitive advantages.

However, what is really odd about all this is Ms. Dunn's determination to unearth the culprit surreptitiously. Why didn't she simply ask the board members which one of them talked to the press. Chances are Dr. Keyworth would have admitted his indiscretion and apologized.

What Dr. Keyworth did was wrong, but it wasn't illegal. It was simply an exercise in poor judgment. Furthermore, it doesn't appear his discussions with the media did any harm to HPQ. It doesn't seem to have given HPQ's competitors any advantage.

What the investigators did was illegal. Even if Ms. Dunn didn't know what they were up to, chances are her days on the board are numbered. Indeed, it looks like we'll be seeing many new faces on HPQ's board in the very near future.