HP-Gate, What’s the Damage?

What’s next?

While HP  was struggling to regain its edge, pushing
CEO Carly Fiorina out the door and transitioning to a new
, the chairman of the company’s board, Patricia Dunn, was obsessed
with apparent leaks to press.

Her decision to launch an independent investigation into who on HP’s
board was leaking confidential information has blown up into a full-scale scandal
that threatens to rock the recent resurgence of the computer, printer and services giant.

Analysts and observers close to the scene suggest accountability and
damage control should be at the top of HP’s priority list to minimize the
scandal’s impact.

“At the corporate governance level, everything flows from the tone at the
top,” said Jon Masters, partner and a founder with Masters, Rudnick &
Associates, a New York firm specializing in corporate governance consulting.
“And at the moment, it’s pretty messy.

“So I think the board’s first thing to do is to establish the right tone
at the top. ‘Who are we as a company? What actions can we take with respect
to our overall reputation?'”

HP has already contacted some of the nine journalists to apologize for
having their phone records hacked, with Dunn personally apologizing to a few
of them.

The nine reporters who had their phone records searched
write for the New York Times, Wall Street Journal, Businessweek and CNET.

Dunn told Reuters she never told the law firm, which in turn hired an
investigator, to do anything illegal and would not have approved the use of
“pretexting”, the dubious method used to obtain the reporter’s phone records. Dunn also said she’s not
resigning unless the board asks her to.

HP’s directors are slated to have an emergency meeting by phone this
Sunday to plot their next move.

At this point, the HP boardroom drama, while interesting theater, may not
have a real impact on customers if the company can addresses the issues
transparently and there are no further revelations.

“It was very surprising to me that HP would put itself in a position to
not know what the investigators were doing, especially with all the privacy
concerns out there,” Dawn Sawyer, an HP customer and operations manager for
Guidestone Financial Resources, told internetnews.com.

“It kind of reminds me of the book The Five
Dysfunctions of a Team
, which talks about how high-powered teams can be
dysfunctional with no trust and no honest communications. There can be a
false sense of harmony on the surface, but underneath there’s a lot of
questioning about what’s going on.”

Sawyer, who also serves on the board of directors of AFCOM’s Data Center
Institute, said the revelations won’t affect her purchase decisions with HP.

“If HP did anything that compromised customer records or impacted my
business, then I’d be concerned,” said Sawyer.

In fact, if there is a silver lining to HP’s boardroom imbroglio, it’s
that it doesn’t have to do with products or customers. But damage to
HP’s reputation is another issue.

Masters said HP has to do something to reassure customers.

“People are concerned. If information was used in this fashion by HP, it
sends up a warning signal for others” that do business with HP, or whose
personal information is provided by HP, he said.

Just what else HP may do to reassure the outside world and get the matter
off the front page isn’t clear. With the California Attorney General
planning to investigate the matter, there’s sure to be more bad publicity
for HP.

Dunn could have to take the fall and resign to help HP put the
matter behind it. But analyst Tim Bajarin thinks that would be a mistake.

“What’s lost in all this is that Patricia Dunn was trying to stop leaks
in the board room,” Bajarin, president of Creative Strategies, told

“Her goal was correct. Any other board in the world with fiduciary
responsibility would take the same actions to stop the leaks. You can’t
approve the methodology, and while she did put the investigation in motion,
it’s not at all clear you can lay the blame with her on how it was carried

Stan Tims, a former executive of a software and services
company specializing in Sarbanes-Oxley  compliance, agrees that action needed to be taken if an HP board member was
leaking confidential information.

It’s not clear what preliminary steps Dunn might have taken before
initiating the private investigation, but Tims said she should have declared
her concern to the Board.

“Then she could have each board member meet with HP’s general counsel to
determine if the leaks were inadvertent and clarify the concern,” Tims said
in an e-mail to internetnews.com.

The more transparency, the better, said Tims.

“It only takes one bad apple on a Board and all the other Board members
have to pay the price of having their privacy invaded, integrity questioned
and be subject to extra oversight.”

George Keyworth has been identified as the Board member leaking
information to reporters. HP said it will not ask him to be re-nominated;
for now, he has refused the company’s request to resign.

Charles H. King, head of global board services at executive search
and recruitment firm Korn Ferry International, said potential damage of a
boardroom leak can’t be underestimated.

“The impact of sharing board information with whomever, the public,
media, or to a select group of shareholders and analysts — can range from negligible to catastrophic. It can effect the financial future of the
company, for example, if news leaked of a potential acquisition.”

Steve Ruddock, a former public relations executive for HP, said he’s sure nothing
like this would have happened when HP’s founders Bill Hewlett and David
Packard were running the company.

“I’m not sure I can conceive of it happening at any ethically run
company,” Ruddock told internetnews.com.

But he applauds Dunn’s readiness to apologize and expects HP to do
whatever it takes win back the trust of investors and customers.

“A year from now, I’m sure the story will be more about HP’s continued
rise, not the shenanigan’s in the board room,” said Ruddock.

Erin Joyce contributed to this article

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