Diane Francis on Business Issues

Wednesday, September 13, 2006

Hewlett Packard and Patricia Dunn

Hewlett-Packard's stock recovered yesterday after its board announced the resignation of its Chair following a scandal involving dirty tricks against certain directors.

But the board's actions, before and after the scandal became public, is in itself scandalous.

The woman at the center of it all, Chairwoman Patricia Dunn, apologized yesterday. But the board said she will remain Chair until January and a director after that despite all the embarrassment she has caused shareholders as well as the fact that the story as known thus far certainly reveals poor judgment on her part.

Ms. Dunne certainly knows her way around boards. She is a high-profile player who oversaw the removal of Carly Fiorina as HP's CEO and helped find a replacement.

Apparently, it all began when she became angry after a media outlet quoted an anonymous HP source who reported that a meeting of directors was held at a posh spa in Southern California.

She hired private detectives to find out who was talking to the press.

It's not a good idea for directors to talk to the press about company business but it's not illegal unless it involves confidential, fiduciary board discussions or knowledge.

That certainly wasn't the case here.

By telling the press the board met at a posh spa, the director was disclosing to shareholders that perhaps board venues should be less expensive
.
So what did the Chair do?

She went out and spent more shareholder money hiring detectives to find the director who told shareholders their money was being wasted on fancy meeting venues.

What happened next was not her fault, however, the buck always stops at the top.
The detectives used questionable, possibly illegal, means to unearth her director-culprit.

And they found him: George Keyworth II, a highly respected former science advisor to President Ronald Reagan and director of the physics division at the Los Alamos National Laboratory.

In the spring, she confronted him in front of the board and demanded his resignation but he refused. Then the board banned his re-election as a director.

Another director, famous venture capitalist Tim Perkins, resigned in disgust.

So now what's left is a queen-sized mess.

The FBI yesterday told newspapers that it was looking at whether Ms. Dunn's detectives illegally wiretapped individuals and illegally hacked into their computers.

Ms. Dunn said that the investigators she hired impersonated board members and journalists from the Wall Street Journal, New York Times and other prominent outlets, to acquire their phone records. Ironically, she's a former freelance journalist herself.

Yesterday, she issued a statement to distance herself from the detectives.

"Unfortunately, the investigation, which was conducted with third parties, included certain inappropriate techniques. These went beyond what we understood them to be and I apologize that they were employed," read her statement.
She also tried to defend the need for the investigation.

"These leaks had the potential to affect not only the stock price of HP but also that of other publicly traded companies," she was quoted as saying.

I find that a stretch.

In fact, I think it behooves Ms. Dunn and her board pals to answer some of the following questions raised by all of this.
How much did the posh spa cost shareholders? How many posh spas, jet flights and other perquisites has this board been enjoying?

More importantly, how much has all this damage control as a result of her foolish requisition of detectives cost shareholders?
The private detectives charges?

The crisis management costs?

The legal advice bills as a result of this scandal?

The cost of attorneys going forward now that the police are involved?

What's the damage to the brand Hewlett-Packard as a result of all this unnecessary upheaval?

What's been the reduction in market capitalization?

Who's responsibility was to oversee the efforts of these investigators, along with Ms. Dunn, and how can the board justify keeping either her or others employed?

Lastly, why should any shareholders vote for this board of directors next year?

4 Comments:

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