Reference no: EM131197288

Dubious Methods Used to Investigate Leaks by Hewlett-Packard Board Members

On September 5, 2006, Newsweek published a story revealing that Hewlett-Packard (HP) chairman Patricia Dunn authorized an internal investigation of HP board members beginning sometime in 2005. Dunn suspected one or more board members of leaking information about HP's long-term strategy to the news media. One such article appeared on the technology Web site CNET in January 2006.2 Making such confidential information public could have a significant impact on the competitiveness of the company and impact its share price. Three private detectives involved in the investigation allegedly engaged in pretexting-the use of false pretenses-to gain access to the telephone records of HP directors, certain employees, and nine journalists. The detectives allegedly obtained and used the targeted individuals' Social Security numbers to impersonate those individuals in calls to the phone company, with the goal of obtaining private phone records. The California state attorney general filed criminal charges against Dunn, Kevin Hunsaker-senior legal counsel and director of ethics and standards of business conduct-and the three outside investigators.3 Dunn admitted that she oversaw the investigation but said she never had any knowledge that illegal methods were used. All charges were eventually dropped against Dunn. Hunsaker and two of the detectives involved pleaded no contest to fraudulent wire communications, a misdemeanor. The judge agreed to drop the charges if they completed 96 hours of community service. The third detective charged in the case agreed to act as a witness for the prosecution and thus escaped criminal proceedings.4 Eventually, the state settled a separate civil complaint against the company. HP agreed to pay $14.5 million to cover fines and legal costs, and also agreed to strengthen its corporate governance practices. The settlement did not involve any admission or conclusion of guilt on the part of HP.5 When the scandal broke, one HP board member, Tom Perkins, resigned to protest the methods Dunn used in the investigation. In the aftermath, Dunn and Hunsaker also resigned from the board. George Keyworth, a 21-year member of the HP board of directors, was identified by Dunn as being the one who leaked the information, and he also resigned. Throughout the scandal, investors continued to show faith in HP, and the price of the stock rose steadily from a level of $32 per share in July 2006 to over $43 per share in early January 2007.

Questions to Consider

1. Which issue is more disconcerting-the fact that a board member leaked confidential information about the firm or the tactics used to investigate the leak? Defend your position.

2. Can the use of pretexting to gain information ever be justified? Is it considered legal under any circumstances?