HP Is Deep In A Mess Of Its Own Making

Hewlett-Packard took its strongest steps yet to quell the widening controversy about its year-and-a-half-long investigation of employees, board members, and journalists, last week accepting the resignation of chairwoman Patricia Dunn and disclosing that CEO Mark Hurd had met with outside investigators and approved some of the techniques they used. Also, HP senior counsel Kevin Hunsaker and global investigations manager Anthony Gentilucci are leaving the company, according to sources familiar with the matter.

Pausing frequently to draw his breath and compose himself, Hurd said at a press conference at HP's Palo Alto, Calif., headquarters on Friday that he approved parts of a company investigation into media leaks from within HP, including sending phony e-mails to a journalist. Hurd takes over as HP's chairman immediately, accelerating a transition originally planned for January. This week, Hurd travels to Washington to testify before a congressional committee looking into the inquiry. "What began as an investigation with the best intentions," Hurd said, "has ended up turning in a direction we could not have possibly anticipated."

Hurd added that he didn't have all the facts--and didn't know if he ever would. "This is a complicated situation, and the more I look into it, the more complicated it becomes," he said. Mike Holston, a partner in the law firm Morgan, Lewis & Bockius--retained by Hurd on behalf of HP--said HP had turned over the Social Security number of an employee to outside investigators for the purpose of pretexting, or obtaining phone records under false pretenses. Investigators may have also scavenged through people's trash. Hurd called the findings "very disturbing."

Internal e-mails revealed last week showed that Hurd wasn't a mere bystander in the growing mess. The messages indicate that Hurd was kept apprised of the investigation, approved a sting operation that involved passing phony tips to a reporter, and suggested which board members he thought should be targeted for spying. Hurd said he attended meetings in July 2005 and March 2006 about the investigation.

After HP fired CEO Carly Fiorina in February 2005, its board, led by Dunn, launched the probe into information leaks to the media. Dunn hired a Massachusetts private investigation company that then contracted with another company to solicit the phone records of HP employees, board members, and journalists by posing as those people. Investigators also followed board members and journalists, conducted background checks on their spouses, and even tried to plant spyware on a reporter's computer. On Sept. 12, George Keyworth, identified as a source of the leaks, resigned from HP's board.

Hurd, who took over as CEO in April of last year, has to deal with the widening legal investigation. Dunn and HP general counsel Ann Baskins are also due to testify before Congress this week, as is Larry Sonsini, chairman of HP's Silicon Valley law firm, Wilson Sonsini Goodrich & Rosati. California Attorney General Bill Lockyer, the Department of Justice, FCC, and SEC are all on the case, too (see "HP Investigation: Two-Ring Circus").

HP named Richard Hackborn, a former employee and current director, as independent lead director on its board. The company also named Bart M. Schwartz, a former U.S. prosecutor, as counsel to review HP's business conduct and write guidelines for future conduct.