updated 9/17/2006 6:38:29 PM ET 2006-09-17T22:38:29

Things go right in corporate America, and companies are quick to tout how differentiation gives them the competitive edge. Things go wrong, and suddenly they say they are just following the pack.

That’s how Hewlett-Packard Co.’s outside counsel initially tried to frame the board’s snooping of confidential phone records through questionable means. The methods used were common practice among investigators, he said.

The same defense has been heard before, in the stock-options backdating scandal, the soaring pay packages for executives and more.

They all seem to miss the point: Even if everyone else is doing it, that doesn’t necessarily make it right.

Parents have long been telling their kids that they can’t stay out late just because their friends do. Some corporate leaders apparently missed that life lesson — and now must face the consequences.

Such behavior caught up with the leaders of HP this week after the company was prodded into disclosing to federal securities regulators that chairwoman Patricia Dunn had hired private investigators to look into leaks of board discussions.

The inquiry included the use of “pretexting” in which private investigators impersonated directors and journalists to acquire their phone records using Social Security numbers and other personal information. Although a common tactic among private investigators, pretexting tests the bounds of California law and caused a brouhaha in corporate circles over its ethics.

State and federal investigators along with Congress have launched probes into HP’s actions. California’s attorney general said company insiders are likely to face criminal charges.

Much of this has become known because Silicon Valley venture capitalist Tom Perkins quit the board last spring in protest over such practices and then questioned the legality of the private investigators’ tactics.

Perkins raised his concerns to HP’s outside counsel in June, but they were largely dismissed by Larry Sonsini, one of the most powerful lawyers in corporate America with a huge roster of technology companies as clients. Sonsini said that the process was “well done and within legal limits,” according to an e-mail exchange between the two obtained by The Associated Press.

But that wasn’t all. In brushing off Perkins’ worries three months ago, Sonsini noted in his e-mail that pretexting was “apparently a common investigatory method, which was confirmed with experts.”

“It’s an argument that’s really disturbing,” said Charles Elson, director of the Weinberg Center for Corporate Governance at University of Delaware. “It undermines investor confidence in the system ... if they think that companies are immune to standard corporate ethics.”

HP has since acknowledged that its investigators should not have used pretexting — even if it went on elsewhere. The mistake cost Dunn her chairwoman’s spot at the company, though she will remain a director when she steps down in January.

The “others do it” excuse has backfired elsewhere, too. Just look at the more than 125 companies that are now facing questions from regulators or prosecutors and those holding their own reviews about how they granted options and whether proper disclosures were made about what resulted in outsized and potentially illegal profits for many executives.

It’s not mere coincidence that so many companies are wrapped up in this mess. Executives no doubt heard how others were cashing in big by manipulating grant data of options, and then wanted to do the same for themselves even though such practices were dangerously close to the legal line when they failed to tell shareholders about it.

There is also the case of executive compensation, which has come under intense scrutiny in recent years since big money has been shelled out to some corporate leaders who hardly earned it.

It’s a form of competition run amok: Those leading the nation’s largest companies often keep close tabs on what their peers are getting paid, and then use that as the floor for what they deserve. So if one gets a big pay boost, others demand the same or more.

One can only hope that the pressure now put on companies to rethink their ethics and policies — an outgrowth of the rash of recent corporate scandals — ends such behavior.

“This is a transitional environment. We are trying to determine what are acceptable practices and new ways of doing business,” said Gary Lutin, an investment banker who advises shareholders on corporate control issues.

As he points out, there are still plenty of “hustlers and speculators” out there in the business world, but there are also “bright engineers” who are anxious to pave a new direction.

Their message seems clear: Following the herd mentality won’t get anyone ahead for long.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


Discussion comments


Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 3.79%
$30K home equity loan FICO 4.99%
$75K home equity loan FICO 4.69%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.83%
Cash Back Cards 17.80%
Rewards Cards 17.18%