Hewlett-Packard snooping scandal brings rift into open

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The Independent Online

We knew there were snakes in the Hewlett-Packard boardroom, but we thought the poison surrounding the ousting of the computer maker's former chief executive, Carly Fiorina, had been sucked out long ago.

It seems, however, that executives past and present still have plenty of venom to unleash, in what is becoming one of the most protracted and embarrassing examples of dysfunctional corporate governance, complete with accusations of underhand and perhaps even criminal snooping on fellow directors.

A string of leaks over the past two years has poisoned the atmosphere in the boardroom, but the inquiry that found a culprit has only made matters doubly worse. Now California's attorney-general has launched a criminal investigation into whether H-P improperly obtained personal phone records by impersonating board members. And another director who quit in disgust is waging a high-profile campaign against the board and its new chairman, Patricia Dunn.

As if that wasn't enough, all these damaging new revelations come as Ms Fiorina - once the most powerful woman in corporate America - puts the finishing touches to her book and promises to set out her version of the coup that unseated her in February last year. The unseemly spectacle threatens to distract attention from the trading renaissance currently being enjoyed under Ms Fiorina's successor, a much less flamboyant nuts-and-bolts man, Mark Hurd.

Ms Fiorina, the first woman to hold the top three titles of chairman, chief executive and president of a major US company, was forced out in the aftermath of H-P's troubled 2002 acquisition of Compaq, itself the cause of much boardroom strife at the time. Two years later, the deal had been dubbed a failure and there were growing grumblings over Ms Fiorina's arrogant leadership style. Boardroom discussion of her future leaked to the press, hastening her departure but also ushering in a culture of mutual suspicion among the board members. Who was doing the leaking?

At the centre of the latest flare-up is George Keyworth, an H-P board member of 20 years' standing. He was outed in May as the source for a second major leak , this time after a strategic brainstorming "away weekend" for directors, after private investigators hired by the H-P leak detection team obtained private phone records. California's attorney-general is investigating whether they impersonated board members, including Mr Keyworth and his friend Tom Perkins, using personal details such as social security numbers to get online access to call lists. This practice - which private eyes call "pretexting" - is in a legal grey area, although H-P's home state of California has tougher laws than most. The company said this week that it will explicitly bar its contractors from using pretexting in any future investigations.

Ms Dunn says she had been assured no illegal activity took place, and she told the Wall Street Journal that the leak investigation and its fallout were "part of the board's progression from one that was more personality driven to one that is process driven and capable of upholding today's highest governance standards. Progression can be painful, we've seen that in changes within H-P, but it's necessary and healthy".

The painful but healthy situation as it now stands is that Mr Keyworth remains on the board, despite a request that he resign. The rest of the board still wants him out, and won't nominate him for re-election next year.

Meanwhile, Mr Perkins has quit in anger at the way his friend has been treated and, by taking his complaints to Wall Street's regulator, the SEC, has finally forced H-P into explaining publicly the reasons for his walkout in May. His letter to fellow board members has also been made public. "My history with the Hewlett-Packard company is long and I have been privileged to count both founders as close friends," he writes. It "is a very sad duty", he says, to disclose "probable unlawful conduct, improper board procedures, and breakdowns in corporate governance".

Having previously extended an invitation to board members to join him for the maiden voyage of his 290ft yacht, he called Ms Dunn's office to rescind the invitation.

The leaks that accelerated Ms Fiorina's departure may have propelled Ms Dunn into the chairman's job, and she now faces the consequences of the vigour with which she has pursued the leak inquiry.

Silicon Valley lawyers will decide on the legality of the "pretexting" in this case, but it will be company directors across the US who will have to judge the ethics and, indeed, the politics of using such methods for rooting out the source of leaks to the press.

George Terwilliger, head of the corporate defence practice for the legal firm White & Case in Washington, said: "Commencing an investigation can be an indication that things have gotten pretty bad, so it is among the steps to be considered a last resort. Once you commence an investigation, you are letting loose an arrow that can't be called back. It may exacerbate the internal tension that led to the leaking in the first place.

"It can, however, be a useful prophylactic device, a good way of telling whoever it is to knock it off."

Directors talk to financial journalists all the time, much to the good for investors' understanding of the workings of their companies, but H-P's torment may change the dynamics of such exchanges.

Mr Terwilliger says there is a fine line that should not be crossed. "It depends what you are talking about when you are talking to the press. Venturing your views in general is different to reporting internal controversy and discussions in the boardroom. If you are telling reporters, 'he said, then she said', then I think that could violate the confidence of the group."