washingtonpost.com
Chairman Out at HP; CEO Takes Position

By Ellen Nakashima and Yuki Noguchi
Washington Post Staff Writers
Saturday, September 23, 2006

Hewlett-Packard Co. chairman Patricia C. Dunn resigned yesterday and was replaced by chief executive Mark V. Hurd, who apologized for what he called "very disturbing" improprieties in an internal media leak probe that has prompted criminal and congressional investigations.

In an eight-minute statement, Hurd for the first time tried to explain his role in the scandal while taking responsibility to "set it right." He offered few details of his personal knowledge of the internal investigation .

Hurd said nothing about the use of false pretenses to obtain personal phone records. He said he was aware of a bogus e-mail sent to a reporter, but did not recall approving the use of software to trace where that message was sent subsequently.

Hurd, whose voice cracked several times, acknowledged that a report summarizing the probe was addressed to him, but said he did not read it. "I could have, and I should have," he said at a news conference at HP's Palo Alto, Calif., headquarters.

Hurd said he had hired a law firm to conduct "a more comprehensive investigation" and report directly to him on what occurred in the HP probe that started in 2005 and focused on identifying who was leaking company secrets to the news media.

Hurd, who took no questions, said he would voluntarily join Dunn in testifying about the leak probe before the House Energy and Commerce investigative subcommittee on Thursday. The panel is looking into HP's investigative tactics, which documents have shown included plans to plant spies in newsrooms, trail reporters and board members, and obtain personal phone records using the Social Security numbers of journalists and directors. Company e-mails obtained by The Washington Post this week showed that Hurd was aware of and approved elements of a plan to give phony information to a reporter to try to identify her anonymous source for articles about HP.

The revelations have tarnished the Silicon Valley computer company's reputation and worried analysts who monitor its business prospects. California's attorney general has said he has enough evidence to file criminal complaints on people inside and outside Hewlett-Packard. The FBI also is investigating the case.

Dunn said earlier this month that she would resign as chairman in January and would remain on the board of directors. But yesterday she was forced out and left the board entirely. "I continue to have the best interests of HP at heart and thus I have accepted the board's request to resign," Dunn said in a written statement.

Analysts said Hurd's challenge in the face of the widening scandal was to reassure the business community that he could remain an effective leader even as the company cooperates with two criminal investigations and a congressional probe. Analysts were divided on whether he pulled it off at the news conference.

"The overall tenor of the discussion was, 'I am in charge,' " said Tim Bajarin, president of Creative Strategies Inc. Hurd will likely face stiff questioning next week by the congressional subcommittee, which is eager to learn how much Hurd knew of the leak probe and when he knew it, analysts said.

Hurd said he "understood there was an investigation into leaks from the board" and that in July 2005, he attended "a brief portion of a meeting" at which results from the first phase of the leak probe were discussed. In January 2006, Hurd said Dunn asked "to use HP resources to investigate the leaks."

"In, I believe, February 2006, I was informed by the investigation team that they intended to send an e-mail containing false information in an effort to identify the source of the leaks," he said. "I was asked to, and did approve the naming convention that was used in the content of that e-mail."

He continued: "I do not recall seeing, nor do I recall approving, the use of tracer technology," he said, referring to the plan by HP's investigators to embed tracing technology in the e-mail to track where the reporter subsequently sent the message.

A lawyer retained by HP to review the leak probe also mentioned the e-mail tracer. "The concept of sending the misinformation to the reporter and the content of the misinformation to be contained in the message . . . was approved by Mark Hurd," said Michael J. Holston of the San Francisco law firm Morgan, Lewis & Bockius LLP, who also attended the news conference. "We have found no evidence that he was asked to approve the use of the tracer."

Computer crime law has not caught up with technology, legal experts said, and it is unclear whether embedding tracer technology in an e-mail message is a crime.

"As of today, we still do not have all the facts," Hurd said. "I also cannot guarantee that we will ever be able to obtain all of the information . . . due to its complexity and number of people involved."

He said that the probe in 2005 yielded no results. HP started another leak investigation in January.

"While many of the right processes were in place, they unfortunately broke down and no one in the management chain, including me, caught them," Hurd said.

Hurd, 49, was brought on in April 2005 after another HP imbroglio involving then-chairman Carly Fiorina, who clashed with the board after HP's tumultuous merger with Compaq Computer Corp., resulting in her ouster. Hurd, the former chief executive at NCR Corp., moved quickly to establish himself as a leader, slashing expenses and eliminating more than 15,000 jobs.

On Sept. 8, Hurd hired Morgan, Lewis & Bockius to review the HP leak probe. Morgan Lewis lawyer Holston said yesterday that he has collected more than 1 million pages of documents.

Holston said those involved in HP's leak probe had "provided assurances" to HP senior investigators early this year that the investigative techniques being used were legal. He said those providing assurances included Kevin Hunsaker, HP's senior counsel and ethics director, and a Boston firm hired by HP.

He said in February, outside investigators "may have conducted a search of individuals' trash." But at this time, he said, "we do not know who the targets of these efforts were."

Dawn Kawamoto, the CNet.com reporter who was sent the e-mail with tracer technology, expressed anger at the firm. "At first I was stunned," she said, when she was alerted by California investigators that her phone records may have been obtained by subterfuge. "When it was confirmed, I was furious."

"It's like the golden rule," she said. "Had we journalists in general done the same thing to the executives, the directors of HP, I'm sure they would have gone ballistic."

At the news conference, Hurd addressed all the targets of HP's surveillance. "On behalf of HP, I extend my sincere apologies to those journalists who were investigated and everyone who was impacted."

Special correspondent Catherine Ho in Palo Alto, Calif. contributed to this report.

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