HP Pretexting Scandal the Hewlett-Packard

HP Pretexting Scandal

The Hewlett-Packard Ethical Dilemma

ETHICAL SCANDAL UPDATE

When looking into how a big corporation should properly conduct its business behind its own brick and mortar walls a good place to begin would be to examine what mistakes have been made by big corporate players. And no better place to begin than by studying and investigating the drama that continues to unfold at the Hewlett-Packard Company.

Indeed, the ongoing power and legal struggles associated with the Hewlett-Packard scandal in Silicon Valley has had ripple effects at Hewlett-Packard and around the corporate world - and some of those ripples are having a positive consequences, according to an article in CNET News.COM (www.news.com).The well-known and star-crossed 2005-2006 investigation into boardroom leaks has turned out to be a "wake-up call" that has "prompted a shakeup in the company's operations" (Broache 2007). The current ethics and compliance officer for Hewlett-Packard, Jonathan Hoak, said there is a "silver lining" to the PR nightmare that this scandal has become. Hoak was quoted by journalist Anne Broache as saying that a host of "tighter processes and controls" are now in place" at Hewlett-Packard (HP).

Moreover, HP has a policy now of more carefully screening outside investigative firms prior to hiring them to launch inquiries "into allegations of misconduct by employees or board members," according to Broache's article. One of the key changes that HP has adopted is that investigating professionals will not be allowed to use "pretexting" - which is the act of pretending to be someone else - posing as someone besides who you really are - in order to obtain phone records. In this case, there was indeed pretexting at HP, and the use of this unethical, illegal procedure allowed certain persons to obtain phone records of reporters and board members who were possible suspects in the leading of inside HP information to the media.

Subsequent to the disclosure that investigators were basically spying on executives and board members by snooping in their private mail ("pretexting"), the U.S. Congress has passed legislation - and its been signed by the president - that makes the use of pretexting a criminal act. It is called the Telephone Records and Privacy Protection Act of 2006; persons convicted of using fraudulent tactics to persuade phone companies to turn over confidential phone records can be sent to prison for up to ten years.

HP had, prior to the embarrassing scandal, achieved a reputation for "high ethical standards," according to HP's Chief Privacy Officer Scott Taylor. This pretexting strategy was "not consistent with decades of ethical behavior," Taylor told CNET's reporter, Broache. And so now that the word is out about HP and pretexting, will that special new scrutiny prevent future leaks, investigations, and scandals? "In the end, you can't always prevent someone from being a cowboy," said Hoak. "You're always going to have people who are trying to cut corners," he continued, and hence, vigilance is the watchword at HP.

Meanwhile, in a March 1, 2007 article (Fried 2007) in the online technology news service CNET News.com, evidence of just how dirty this morass of ethical missteps has become continues to unfold. A former HP employee, Karl Kamb, who was sued by HP in 2005 for allegedly stealing trade secrets, claims HP improperly obtained his phone records through pretexting. Moreover, Kamb alleges that he had been instructed by HP to spy on DELL, a computer company rival to HP. The company continues to deny that it pretexted Kamb, but admits that it did indeed attempt to obtain "the phone records of more than a dozen people including current and former directors, employees and journalists, including three CNET News.com reporters," Fried reported. So what is now coming out of the scandal, more than just charges and counter-charges, are the slow but steady revelations that will shape how HP and other corporations conduct their ethical business in the future.

Pretexting has by now emerged as an infamous concept; so much so that now that the Federal Trade Commission (FTC) has gotten into the act. The FTC has asked a U.S. district court (for the Middle District of Florida) to "permanently halt operations that engage in telephone record pretexting" (Sandoval 2007). The principals named in the FTC complaint, who are implicated in the HP scandal, are data brokers Matthew DePante and Bryan Wagner; the two were allegedly part of HP's attempt to find out who leaked key information

THE NEW YORKER ARTICLE: HP BEHAVIORS DURING THIS MESS:

The true background of this confusing and twisted tale of corporate ethical lapses is becoming a must-read for students in Ethics classes around the country. Indeed, when David Packard and Bill Hewlett launched HP in a Palo Alto garage in 1957, little did either of those men realize what a giant and powerful technology corporation HP would turn out to be - with revenues in excess of $90 billion annually.

Nor did they, or could they, have known that corporate leaks from power-hungry insiders would lead to an embarrassing and very public scandal in 2005 and 2006. Certainly they couldn't know that the corruption inside HP would be so serious and have such enormous implications for the company (and the technology world) that it would require congressional hearings to delve into its mysterious and evil plots and subplots, along with the willing and innocent participants.

An article in the New Yorker magazine recently went into great detail as to all the actions leading up to, contributing to, and following the scandal. "A serious of damaging leaks" let to stories published about the then-CEO, and indeed, those leaks put an end to the "tumultuous stewardship" of Carly Fiorina, formerly the CEO of HP, according to journalist James B. Stewart. That incident was the first in an ongoing series of deviant acts of behavior that go against all company policies; to wit, employees all sign a pledge when they are hired to not share with the outside world any of what is said or done inside the walls of the corporate structure.

To begin with, Fiorina, who was at the time said to be the most visible CEO of an American corporation - partly because she was a woman in what had been primarily a man's world - was fired after "unauthorized disclosures to the press" raised serious questions about the company. Soon thereafter former board member Mark Hurd was appointed CEO and Patricia Dunn was appointed as chairman of the HP board. Both, it was hoped, would right the ship and stave off any future embarrassment.

But that was not to be, Steward writes. An email to Dunn's computer in January 2006 brought the emerging reality of bad news - it was an article from CNET titled "HP Outlines Long-Term Strategy." The article was ripe with insider information that someone from HP had obviously leaked to the media. It was about deviance, too, because someone had given over to CNET information that was shared in-house at a retreat HP had held. In the leaked corporate material, readers of CNET now knew what HP's strategies were about Intel chips, future sales campaigns, "and possible acquisitions," Steward continues. "Clearly, someone at the retreat had leaked proprietary information," and the new board chair, Dunn, "was determined to get to the bottom of the problem."

As a start to her investigation, Dunn emailed the CNET article to the board of directors, including Tom Perkins, the 74-year-old venture capitalist who was the most powerful individual on the board. Perkins' resume as a venture capitalist is very impressive; he funded technology start-ups like Sun Microsystems, AOL, and Amazon.com, so he obviously is a heavy-hitter in this sector of the technology industry. He is fabulously wealthy, and arrogant, to go along with the enormous power he exerts whenever he needs to. He owns mansions and expensive / rare sports cars, and writes novels that include trashy sexually graphic scenes, a strange way for a power broker in a corporation the size of HP to express himself on a public level.

While Perkins didn't see the article in the same negative light as Dunn (who believed it was very harmful to the company), the need was there to try to find out who was leaking this information.

At this point in his article Stewart of the New Yorker delves into some background, to help the reader gain a grasp into the power brokers, the corporate structure and the heavyweights within that structure, and the special relationships that existed at HP at the time of these extraordinary events. Stewart described Fiorina as having been a rising star in the corporate world, and when she was hired at CEO, her "good looks and her stylish attire drew attention," along with her attendance at high-visibility events such as the opening of "Mission: Space" at Disney World and the Academy Awards show. But after she talked her corporate colleagues into purchasing Compaq computers in 2001 - which wasn't an easy sell in the company, and caused friction inside the company - Fiorina later was blamed for the fact that HP stock fell from around $60 a share to less than $17 a share.

Perkins - who had retired at the age of 70 but was coming back on the board - had by this time muscled his way into a powerful position within the HP community; he and his powerful board ally, George Keyworth, held special "technology committee" meetings with key HP people the day before each board meeting. Stewart writes that Perkins' little group actually became a "board within a board," and Perkins' power grew. His disenchantment with Fiorina also grew. Fiorina was apparently losing the confidence of the board, and Perkins was the central figure in that movement away from Fiorina. Prior to the retreat, which was alluded to earlier in this paper, there was a board meeting scheduled, and before that meeting, Keyworth and Dunn approached Fiorina and urged her to "express concerns about Hewlett-Packard's performance, stock price, unfavorable press, and need to reorganize," Stewart continues.

Although Fiorina showed resistance to Keyworth's pushy agenda, she did change the agenda for the retreat. And several days after the retreat, Stewart writes, a reporter from the Wall Street Journal (Pui-Wing Tam) approached Fiorina to confirm some details that Tam had been given regarding the retreat. Those details included the fact that the board was losing confidence in Fiorina, that Perkins had returned to the board and that Perkins had participated in the retreat.

It is hard to convey how violated I felt," Fiorina acknowledged some months later in her autobiography, Tough Choices. All board deliberations are presumed to be confidential, so Fiorina of course was taken aback by having a Wall Street Journal (WSJ) reporter call her to verify what should by rights have been private information. "Trust is a business imperative," she wrote in her book, quoted by Stewart in the article. So the following day (after the call from the WSJ reporter), Fiorina set up a conference call with all board members (except Dunn, who was on vacation) and "demanded a confession from any director who had spoken with the WSJ reporter..." Or any other member of the media.

When Perkins admitted talking to the WSJ journalist, but told Fiorina that Tam already knew much of what the board had discussed. Fiorina then ordered an investigation, Stewart explained. The HP attorney (outside counsel) Lawrence Sonsini was put in charge of hiring professionals to find who leaked the information. Albeit Sonsini's report back to Fiorina was inconclusive, Fiorina told Stewart in his interview with her "she never had any doubt that the leakers were Keyworth and Perkins."

Meanwhile, Stewart's article continues tracing the steps that lead up to today's ongoing HP battles; in 2001, Dunn was found to have breast cancer, later diagnosed with melanoma, and eventually was diagnosed with "advanced ovarian cancer." She kept her seat on the HP board, and was given the chairmanship of the "audit committee." Dunn's relationship with Keyworth and Perkins strengthened, and the board's power was more and more consolidated into Perkins' little cadre of colleagues including Dunn and Keyworth, a trio that orchestrated Fiorina's firing. Perkins was by now the chair of the nominating and governance committee - among the most powerful positions outside of board chair - and Dunn was board chair. More and more Perkins was trying to call all the shots at HP; "He evidently believed that Dunn would defer to him," Stewart writes. Part of the strength of Stewart's article is that Dunn opened up to him and helped him trace the power shifts and relationship building that went on.

Perkins' view of running a board was that "a few people - he and Jay [Keyworth] - should make the decisions and everyone else is a spear-carrier," Dunn explained to Stewart. That statement is a key to understanding why the scandal at HP has done such extensive damage not only to the reputation of a gigantic corporation like HP, but to the individuals who have given their most excellent professional lives to the betterment of HP, and instead got tangled up in the morass. From Stewart's article, it is clear that Perkins was at best a power-hungry egocentric personality, and at worst a back stabbing, rule-breaking obsessive controlling manipulator. The fact that Perkins was allowed to run roughshod on the rules of corporate behavior (he deliberately stuck his nose up in the air when corporate decorum was called for) and basically help throw mud on HP's reputation is part of the climate of deviance that led to this public relations disaster.

Updated note: Perkins' bizarre power-focused behavior during 2005 and 2006 is lately the subject of "he said" and "she said" allegations that are part of the legal process in California; indeed while the attorney general for the state has filed charges against Dunn, asserting that Dunn is responsible for illegally obtaining those phone records discussed earlier in the paper, Perkins is a big player in this part of the legal process. Dunn and Perkins, once allies, are now bitterly attacking one another in the media, which in effect is providing legs and shelf life to a story that should have been brought under control and guided to a settlement months ago. Because the organizational structure was allowed to be manipulated to the point of bloodletting and re-invented according to the whim of the moment, any vestige of cooperation has been fully thwarted, and the vitriol and paranoia continues as though it will never end. The fact that Dunn attempted to follow corporate rules of engagement and diplomacy back then is being thrown in her face today.

To wit, a March 1 story in CNET (Kanellos 2007) reports that former chairman Dunn has called Perkins "a self-serving bully" and Perkins has responded (through his attorney James Brosnahan) by saying "Dunn's obsession with procedures hampered HP's ability to compete with Dell and IBM," according to Kanellos' story. Perkins also says now that Dunn's investigation into boardroom leaks "was really part of an overall plan by Dunn to control the board by eliminating the technology committee," Kanellos writes. Perkins was quoted Tuesday, February 27, saying that "...this embarrassing public mess" is a "culmination of a war over control over the board of the company."]

Meanwhile, on January 18, 2006, Keyworth had lunch with reporter Dawn Kawamoto in Berkeley; they had been friends in previous years but had never met. While Keyworth claims he thought their lunch was a casual social meeting, in fact Kawamoto published a story a few days later that detailed some of the insider information Keyworth had shared with the reporter. HP executives were appalled that another apparent leak had occurred, and launched yet another investigation, called Kona II (Kona I was the investigation into who leaked to the WSJ reporter). After the investigators (using pretexting strategies) identified Keyworth as the HP person who was contacting Kawamoto - yet still not knowing what those conversations entailed - Hurd, Baskins and Dunn tried to get Keyworth to simply confess that he had leaked information, but he didn't budge. Page after page of the lengthy Stewart article reflect the petty back-room accusations and paranoia over these leaks. It actually reads like a soap opera, maybe "Days of Our Lives" or "General Hospital"; eventually, Keyworth did indeed admit in front of the board that he had talked with Kawamoto, and in effect, spilled company secrets.