Video: Dunn done as HP chairman

msnbc.com news services
updated 9/12/2006 9:32:15 PM ET 2006-09-13T01:32:15

Hewlett-Packard Co. said Tuesday that Patricia Dunn will step down as chairwoman of the computer and printer maker in January amid a widening scandal involving a possibly illegal probe into media leaks. She will be succeeded by CEO Mark Hurd.

Hurd will retain his existing positions as chief executive and president and Dunn will remain as a director after she relinquishes the chair on Jan. 18.

“I am taking action to ensure that inappropriate investigative techniques will not be employed again. They have no place in HP,” Hurd said in a statement.

Dunn apologized for the techniques used in the company’s probe, which included “pretexting,” in which private investigators impersonated board members and journalists to acquire their phone records.

“Unfortunately, the investigation, which was conducted with third parties, included certain inappropriate techniques. These went beyond what we understood them to be, and I apologize that they were employed,” Dunn said in a statement.

Also Tuesday, George Keyworth II, the HP director singled out for leaking information to the press, resigned from the company’s board effective immediately.

The pressure on Dunn to step down began rising sharply Monday when Congress and federal investigators entered the fray surrounding HP’s possibly illegal probe of media leaks. The FBI, the U.S. Attorney for Northern California and the House Energy and Commerce Committee all joined the California attorney general and Securities and Exchange Commission in probing the scandal swirling around HP’s Board of Directors.

California Attorney General Bill Lockyer said his office has enough evidence to obtain indictments of people within Hewlett-Packard Co. and of hired contractors, after the company disclosed questionable tactics in a boardroom leak investigation.

“We currently have sufficient evidence to indict people both within HP as well as contractors on the outside,” Lockyer said in an interview aired Tuesday on the Public Broadcasting Service’s NewsHour with Jim Lehrer.

“Crimes have been committed,” Lockyer said. “People’s identities being taken falsely is a crime. People gaining access to computer records that have personal information, in California, that’s a crime.”

Dunn, a former freelance journalist, was angry about the media leaks and commissioned an unnamed outside firm to identify their source. They used Social Security numbers and other personal information to get phone companies to turn over detailed logs of home phone calls of reporters and board members.

Although frequently used by private investigators, the tactic tests the bounds of state and federal law.

HP’s board met for a second time Monday night to discuss whether Dunn should remain chairwoman of the Silicon Valley giant.

Richard Hackborn, who has served on the board since 1992, will become lead independent director in January.

Dunn’s entanglement in the pretexting scandal marks a rare stumble for one of the most powerful women in corporate America.

Dunn, then CEO of Barclays Global Investors, joined HP’s board in 1998 and became chairwoman in 2005, taking an active role in running the 11th largest company on the Fortune 500.

She oversaw the ouster of former HP CEO and Chairwoman Carleton Fiorina in February 2005, and two months later introduced Hurd as Fiorina’s successor.

Video: Crisis at HP Hurd wasn’t well known on Wall Street or in the financial media before taking the reins of HP. But he enjoyed a solid a reputation among business experts as a no-nonsense cost cutter familiar with nearly every facet of management. HP shares surged 10 percent the day his appointment was announced.

He was previously chief executive at Dayton, Ohio-based NCR Corp., a computer services company best known for its ATM machines.

At HP he orchestrated a cost-cutting campaign that, when it winds down later this quarter, will have resulted in as many as 15,000 layoffs. But morale had been noticeably higher under Hurd than Fiorina — until details of the company’s leak investigation were disclosed last week.

Although it marks a dark chapter in the company’s history, HP could benefit from having Hurd consolidate his power, said Roger Kay, president of the market research firm Endpoint Technologies Associates.

“It makes perfect sense to give (Hurd) the chairmanship,” he said. “He has the character, personality and chops to do it. I can’t think of anyone else you would want to run the company at this point.”

The leak investigation at HP began with a January article on CNET Network Inc.’s News.com that included a quotation from an anonymous HP source who described a gathering of HP directors at a posh spa in Southern California.

At a board meeting in May, Dunn identified director George Keyworth II as CNET’s source, as well as the source of other leaks dating to early 2005. The board asked Keyworth, 66, to resign, but he refused. HP then barred him from seeking re-election.

His ouster riled another board member, longtime Silicon Valley venture capitalist Tom Perkins, 74, who resigned and stormed out of the May 18 meeting.

Perkins’ attorney later discovered that private investigators had obtained the last four digits of his client’s social security number. They used that information to open an online account with AT&T, then called the telephone company and impersonated Perkins, asking for a record of phone calls to and from his house.

HP’s investigators also obtained the phone records of several journalists, including those who work at The Wall Street Journal, BusinessWeek, The New York Times and News.com.

Keyworth, who has acknowledged talking to the media, was the former science adviser to President Reagan and director of the Physics Division at Los Alamos National Laboratory.

On Tuesday, Dunn defended the need for the investigation.

“These leaks had the potential to affect not only the stock price of HP but also that of other publicly traded companies,” she said.

California’s attorney general has already said HP’s probe broke two California laws governing identity theft illegal access to computer records. It’s still unclear, however, whether the company or anyone acting on its behalf will face civil or criminal charges.

FBI Deputy Director John Pistole said in an interview Monday with The Associated Press that the bureau opened its probe Monday and was investigating two possible crimes: illegal computer intrusion and wiretapping.

“When allegations of a federal crime are brought to the FBI’s attention we have to make a determination whether we’ll initiate an investigation,” Pistole said. “Obviously if the U.S. Attorney has reviewed information and believes there is something for the FBI to investigate, we’ll work closely (together).”

He did not give a timetable for when the inquiry would be completed.

The U.S. Attorney’s Office issued a statement saying it was “investigating the processes employed in an investigation into possible sources of leaks.”

The Congressional committee gave HP a week to name the private firm it hired to investigate the leaks and to turn over all “records and information related to the company’s reported effort to obtain private phone records.” The request was made as part of the panel’s ongoing investigation into pretexting.

The federal investigation further complicates the situation for HP, experts said.

“It opens the company to more scrutiny on a broader and more powerful level,” said Ken Sukhia, a former U.S. Attorney in Tallahassee, Fla.

Still, investors have largely ignored the scandal. HP shares were trading this week near the top end of its 52-week range of $25.53 to $36.73.

“It’s certainly embarrassing,” said Martin Reynolds, vice president of the research firm Gartner Inc. “And it’s obviously not the best press, but the good news is this is pretty much divorced from the day-to-day operations of HP.”

Associated Press and Reuters contributed to this report.

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