New Role Raises Eyebrows

Hewlett-Packard chief executive Mark V. Hurd at the news conference.
Hewlett-Packard chief executive Mark V. Hurd at the news conference. (By John Lee -- Getty Images)
By Carrie Johnson
Washington Post Staff Writer
Saturday, September 23, 2006

Disclosures by Hewlett-Packard Co. chief executive Mark V. Hurd that he failed to read a report addressed to him about the company's spying investigation are prompting governance experts to ask why the company board yesterday handed Hurd more responsibility.

Hurd, praised for helping the Palo Alto, Calif., technology company rebound after he took over in April 2005, picked up the title of board chairman yesterday, after Patricia C. Dunn resigned during widening investigations by California's attorney general, federal prosecutors, and the House Energy and Commerce Committee.

In his first public remarks since news of the leak probe broke two weeks ago, Hurd sought to clarify his role. He said he was told in February by company investigators that they would send an e-mail "containing false information" to a reporter to uncover the source of press leaks. A month later, Hurd said, he attended a meeting at which employees provided a "verbal summary" of the probe. He said there was a written report addressed to him summarizing the investigation, but he did not read it.

"I could have, and I should have," Hurd said. He took no questions at the news conference yesterday.

Hurd's description of his actions is "not exactly a glowing endorsement" for giving him additional duties as HP's board chairman, said Patrick S. McGurn, an executive vice president at Rockville proxy advisory firm Institutional Shareholder Services Inc.

Charles M. Elson, leader of the corporate governance center at the University of Delaware, said HP's culture "needs to be seriously reexamined and completely reworked."

"It is inconceivable to me that top management could have been aware of this kind of activity and not taken steps to separate the company from it," Elson said. "Large organizations are based on ethics and integrity, and the tone comes right from the top."

Hurd, though, has long been popular with Wall Street analysts and respected in the technology sector. A lawyer for prominent venture capitalist and former board member Thomas J. Perkins, who quit in protest over the intrusive tactics employed by investigators hired by HP, said in a written statement that Hurd "deserves the benefit of the doubt" and that he "is the right person to lead HP."

Moreover, McGurn said, the privacy issues raised by the HP revelations have nothing to do with the company's financial statements -- actions that ultimately doomed the leaders of other companies.

John W. Sidgmore stepped aside at WorldCom Inc. after only six months as chief executive, after questions were raised about what he may have known about financial problems at the Ashburn telecommunications company under his predecessor, Bernard J. Ebbers. Sidgmore, who was never accused of wrongdoing, has died.

Fannie Mae chief executive Franklin D. Raines kept his job for months after regulators began an investigation into its accounting practices. But after a Securities and Exchange Commission official ruled that the District mortgage company had improperly handled complex financial contracts called derivatives, Raines announced his early retirement in December 2004. Federal prosecutors recently said that they would not charge the company with a crime. Raines may still face civil charges by housing regulators and the SEC.

Last year, Maurice R. "Hank" Greenberg, the chief executive of insurance provider American International Group Inc., gave up his post during federal and state investigations of the company's accounting practices, and resigned under pressure as chairman weeks later. Greenberg is fighting civil charges lodged by New York Attorney General Eliot L. Spitzer.

On the other hand, Daniel H. Mudd, the former Fannie Mae operations chief who took over as chief executive from Raines, continues to lead the company despite a report by federal regulators that said he was aware of allegations of accounting problems. The report by the Office of Federal Housing Enterprise Oversight was inconclusive about what Mudd knew. He said he never attended "any meeting where there was any discussion of shifting or falsifying income."

Each of those companies was ensnared in questions about its finances. But in recent years, a few boards have yanked top executives over broader questions of personal judgment.

For example, directors at aerospace giant Boeing Co. sought the resignation of chief executive Harry C. Stonecipher in March 2005 after disclosures that Stonecipher had a personal relationship with a female subordinate, a violation of the company's code of conduct. "The board concluded that the facts reflected poorly on Harry's judgment," the board's chairman, Lew Platt, said at the time.

RadioShack Corp. chief executive David J. Edmondson left the Dallas company in February after news reports questioned the accuracy of his résumé. The company's board initially supported Edmonson, but after a week of protest, he and RadioShack directors agreed he should resign.

Nell Minow, editor of the Corporate Library, a corporate governance research firm, said that Hurd is on the brink: "This is a critically important document, and if he overlooked it, that says as much about it as if he approved it."

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