Chairman, Director Resign In HP Scandal

Patricia C. Dunn will remain on HP's board of directors after leaving her post as chairman in January. Mark V. Hurd will take over as chairman.
Patricia C. Dunn will remain on HP's board of directors after leaving her post as chairman in January. Mark V. Hurd will take over as chairman. (By Paul Sakuma -- Associated Press)
By Yuki Noguchi and Ellen Nakashima
Washington Post Staff Writers
Wednesday, September 13, 2006

The chairman of Hewlett-Packard Co. and one of its directors agreed yesterday to resign over a spying scandal that the California attorney general said could lead to charges against company employees, the latest shake-up for a board plagued by internal strife.

Chairman Patricia C. Dunn, who led the company's controversial efforts to identify the source of media leaks, will step down on Jan. 18, handing over the reins to Mark V. Hurd, currently the firm's president and chief executive. Dunn, who joined HP's board in 1998, will remain a director.

George A. Keyworth II, a longtime director whose phone records identified him as a source of the leaks, also resigned, effective immediately. But in a tersely worded statement, Keyworth defended his actions, saying his statements to the news media "did not involve the disclosure of confidential or damaging information."

It's unclear how soon charges in the scandal could be filed, but on last night's "NewsHour With Jim Lehrer" on public television, California Attorney General Bill Lockyer said, "We currently have sufficient evidence to indict people both within Hewlett-Packard, as well as contractors on the outside."

The management turmoil follows the resignation of Thomas J. Perkins, who stepped down from the board in protest in May when he learned that the outside investigators looking for the leak posed as company directors and journalists in an attempt to obtain private phone records, an act known as pretexting.

The HP board has been divided for years, stemming to Carly Fiorina's bid to acquire Compaq Computer Corp. when she was chief executive, a move that the company's founding family members and their allies opposed. When Fiorina was ousted in early 2005, Dunn was named chairman and soon after authorized an investigation into the leaks.

This week's resignations are unlikely to restore harmony to the board -- mostly, because the lineup of directors doesn't include any newcomers, said Charles M. Elson, director of the Center for Corporate Governance at the University of Delaware.

The company designated current director Richard Hackborn, a 33-year veteran and former executive at HP, as the lead independent director. Dunn, who will remain on the board, said in a statement that she hopes to expand it.

"Ideally, you go outside" to fill such positions, Elson said, "but it's very hard to find someone to fill that spot."

Few people would have the industry experience and willingness to join a board under such intense scrutiny, he said.

Paul Hodgson, a senior researcher at the Corporate Library, a corporate-governance watchdog group, said HP's moves are only stopgap measures that won't address underlying issues, including that board members don't appear to trust one another.

"It is a dysfunctional board" that will need to fully replace at least three of its slots, Hodgson said, but at the moment, trying to attract qualified board members would be a tough sell. Consolidating board leadership under the chief executive, however, is not a step forward, he said.

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