Hewlett-Packard Under Inquiry In Media Leak Scandal
The information came to light in an HP document filed with the SEC on Wednesday. HP stated that it is fully cooperating with the inquiry and that its latest filing was a voluntary attempt at transparency.
The HP document indicated that HP Chairwoman Patricia Dunn had hired investigators who used "pretexting", or fraudulently gaining access to records of personal calls, made to and from board members' homes and personal cell phones. The Federal Trade Commission says pretexting is illegal.
The HP document also explained the recent resignation of another HP board member, Thomas J. Perkins. He resigned from HP's board on May 18 after Dunn identified Keyworth as the one who had leaked company information to the media. HP claims in Wednesday's filing that Perkins had not provided an explanation for leaving until after the company filed an initial report announcing his departure. Federal laws require companies to report the departure of board members and reveal details if an officer left because of disagreements over operations, policies or practices.
"Mr. Perkins notified HP that he had concerns with the HP Board's handling of investigations that had been conducted into leaks of confidential HP information from meetings of the HP Board of Directors," Charles N. Charnas, vice president, deputy general counsel and assistant secretary said in the SEC filing.
The company explained that it filed the new report Wednesday to add information about the circumstances surrounding Perkins' departure, to report the findings of its leak investigations and to report "other related events that have occurred subsequent to the completion of those investigations and Mr. Perkins' resignation."
HP said it believes someone leaked information from its board meetings since 2005, before the departure of former CEO Cara "Carly" Fiorina, maybe longer. Outside lawyers interviewed directors in early 2005 to determine the source of the leaks and to obtain each director's reaffirmation of his or her duty of confidentiality, according to the company filing. The interviews did not expose the source and the leaks continued, according to HP.
HP said Dunn and an internal group within the company hired licensed investigators, who fingered Keyworth as the person who had revealed confidential information from board meetings. Before the investigations began, news outlets published private details from board meetings. Those details included innocuous facts like when board members retired to their rooms on a company gathering and more serious information about strategy plans, such as using Advanced Micro Devices like a cattle prod for Intel, an AMD competitor and HP partner. HP claims that, on May 18, Keyworth acknowledged responsibility for the leaks and the board asked him to resign. Keyworth refused.
That's when Perkins objected to the way Dunn handled the situation and he resigned.
According to HP, Perkins stated that he did not have any disagreement with HP's operations, policies or practices. Dunn said she was following the advice of outside lawyers. HP claims that Perkins waited nearly a month before asking how Dunn uncovered the source of the leak, claiming that communications had been recorded illegally and stating that he had spoken to an attorney about the matter. "In response to Mr. Perkins' request, HP informed Mr. Perkins that no recording or eavesdropping had occurred, but that some form of "pretexting" for phone record information, a technique used by investigators to obtain information by disguising their identity, had been used," Charnas wrote in the filing. "Mr. Perkins, although no longer a director, then requested that HP conduct an inquiry into the propriety of the techniques used to conduct the investigation."
Pretexting occurs when someone pretends to be an account holder in order to gain records otherwise protected from third-party viewing. One of the most common forms of pretexting, according to privacy groups, occurs when someone pretends to be the owner of a phone number in order to gain phone records containing the numbers dialed, calls received, duration and frequency.
HP claims its Nominating and Governance Committee hired independent lawyers to review the conduct used in the investigation and those lawyers concluded that the company had hired an experienced firm. The firm retained another party, which obtained information about calls to and from HP directors, the company stated in the filing.
HP claims that Dunn told the committee that she had instructed investigators to follow the law and had received assurances that the firm's methods were legal.
"After its review, the Committee determined that the third party retained by HP's outside consulting firm had in some cases employed pretexting," Charnas wrote in the filing.
Outside counsel informed the committee that pretexting "was not generally unlawful (except with respect to financial institutions), but such counsel could not confirm that the techniques employed by the outside consulting firm and the party retained by that firm complied in all respects with applicable law," Charnas wrote.
Charnas said the Nominating and Governance Committee recommended strengthened controls for future investigations to ensure that all aspects of HP's investigations comply with applicable laws and HP's code of ethics, and the board accepted the recommendations.
Ryan Donovan, spokesman for HP, declined to comment on whether any related litigation is pending or to say whether any HP employees or directors have been fired for leaking information. However, he did defend HP's decision to look into the leaks.
"Fundamentally, this is about accountability, ensuring that confidential information created and discussed at HP stays at HP," Donovan said during an interview Wednesday. "HP business and technology information is company property and it's vital to our business success. All recipients of the information have a duty to keep that information confidential. So, when that information is disclosed, it is our responsibility to act."
Donovan said that, after the governance committee's investigation, HP "concluded it should have monitored more closely the actions of its outside agency and the actions of the subcontractors that agency retained. HP has determined that pretexting will not be used in any future investigations."
HP stated that it is fully cooperating with the Attorney General of the State of California, who is investigating the matter. The company also stated that it plans to inform the SEC that it believed its original filing of information about Perkins' departure was accurate and complete at the time.
Last week, the board decided not to renew Keyworth's term on the board.
The news about the investigations came the same day HP Chief Executive Officer and President Mark Hurd was scheduled to speak at a Citigroup's Global Technology Conference. Hurd did not mention the situation during an audio Web cast of his keynote address nor during a question and answer period that followed. Keyworth and Perkins could not be reached for comment Wednesday.
(NOTE: This article has been updated to include material from the HP spokesman, who was not available prior to the article's initial publication.)