HP's Dunn, Keyworth to step down

In a day of executive shakeups intended to put its boardroom scandal in the past, Hewlett-Packard (HP) Tuesday announced that Chief Executive Officer and President Mark Hurd will replace Patricia Dunn as chairman, and that board member George Keyworth has resigned, effective immediately.

Hurd will take on the chairman's job after a Jan. 18 board meeting. In addition, Richard Hackborn, who has been on the board since 1992, has been chosen as the lead independent director as of January.

The announcements came after meetings of the board over the weekend and Monday, called to discuss how to handle recent revelations that the board investigated its own members and reporters in efforts to determine the source of leaks of company information.

In another executive departure announced Tuesday though not linked by the company to the board scandal, HP's executive vice president of global operations, Gilles Bouchard, will leave the company at the end of October.

Although HP executives said they hope the shakeup puts the boardroom infighting behind them, federal, state and Congressional investigations may provide more embarrassments. A House committee has asked HP to identify the private investigative firm that probed the board leaks to news media and the subcontractor also hired, which used controversial methods known as "pretexting" to check the phone records of directors and journalists who cover HP.

HP declined Tuesday to identify the contractors.

"When and how we provide information is between us and the regulatory agencies," said Ryan Donovan, an HP spokesman.

But eventually the names will come out, said Chris Hoofnagle, senior counsel at the Samuelson Law Technology and Public Policy Clinic at the University of California at Berkeley.

"It will come out and it will result in another round of news stories and embarrassment for the company," said Hoofnagle, an advocate for privacy rights.

Estimates are that anywhere from 40 to 50 companies engage in "pretexting" as an investigative tool and maybe up to 100 that resell such information, he said.

"It's too easy to get away with pretexting because in many cases the victims are unwilling to reveal that their rights have been violated, because they're engaged in marital infidelity or they're a board leaker," Hoofnagle said.

The U.S. Federal Communications Commission, the Federal Trade Commission and the House Energy and Commerce Committee are among the institutions investigating pretexting on a national level, he said.

Dunn has been under intense pressure to step down as chairman after it came to light last week that the board of directors carried out an investigation to determine who among the board leaked confidential information to journalists. The board admitted in a filing with the U.S. Securities and Exchange Commission (SEC) that the internal probe involved "pretexting," where employees of an investigative firm hired by the company pretended to be reporters to gain access to their telephone records.

The investigation identified Keyworth as a leaker of the information. When Keyworth was asked to resign, in May, he declined. However, fellow board member Tom Perkins quit in protest over the way the investigation was being handled, and has been outspoken in calling for Dunn to resign.

Federal authorities, including the U.S. Department of Justice and a congressional committee, are questioning the board's conduct in the probe and the California attorney general has said that charges are likely to be filed.

"The recent events that have taken place follow an important investigation that was required after the board sought to resolve the persistent disclosure of confidential information from within its ranks. These leaks had the potential to affect not only the stock price of HP but also that of other publicly traded companies," Dunn said in a written statement released by HP. "Unfortunately, the investigation, which was conducted by third parties, included certain inappropriate techniques. These went beyond what we understood them to be, and I apologize that they were employed."

In a statement, Hurd pledged to take action to make sure that such "inappropriate investigative techniques" do not happen again. "They have no place in HP," he said in the statement.

For his part, Keyworth acknowledged Tuesday that he had leaked information. But he said that he had been asked by HP to talk to reporters on the record and on background.

In a sign that HP is marshalling efforts to make peace among current and former directors on its board, Perkins issued a statement in an HP press release, saying "I believe in HP. I believe in Mark Hurd. I applaud Jay Keyworth for his courage in stepping down today and thank Patricia Dunn for her grace in letting HP move on. This too shall pass."

The board scandal comes at a time when Hurd's reorganization efforts at HP seem to be paying off. Mainly as a result of strong PC sales, the company reported a third fiscal-quarter profit, excluding one-time charges, of US$1.7 billion or US$0.52 per share, beating expectations of analysts polled by Thomson Financial of US$0.47.

Ironically, one of the leaks that was the subject of the investigation concerned board discussions that led to the firing of ex-CEO Carly Fiorina, who engineered the acquisition of Compaq. Under Hurd, that controversial strategy appears to be starting to pay off.

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