Hurd apologizes for leak scandal; Dunn out

Mark Hurd, Hewlett-Packard's CEO, apologized Friday for "instances of impropriety" over how his company conducted an investigation of boardroom leaks, while attempting to distance himself from its seamy investigative practices. He also announced that Board Chairman Patricia Dunn is stepping down from the board, effective immediately.

Faced with a deepening scandal over potentially criminal methods used to root out boardroom leaks, Hurd explained his role in the matter and said he first learned of the effort in July 2005. "This is a complicated situation and the more I look into it, the more complicated it becomes," he said at an afternoon news conference at HP's headquarters. "As of today, we still do not have all of the facts."

While some facts may be missing, there was another corporate casualty: Dunn, who led the board during the leak investigation. Although Dunn had earlier announced plans to step down as chairman in January -- while remaining on the board after that -- she has now left the board entirely. Hurd has replaced her as chairman, even though HP corporate governance guidelines say that one person should not serve as both CEO and chairman.

A link to those guidelines on HP's Web site was changed this afternoon, but a cached version of the rules are explicit: "The positions of Chairman and CEO are held by different persons."

It was not immediately clear how Hurd can hold both positions.

Hurd did not take questions Friday, but an HP spokesman said company officials would answer questions next Thursday when the CEO and other officials are slated to appear before a U.S. House subcommittee investigating the issues surrounding this scandal.

HP worked with private investigators who obtained telephone records of board members, reporters and possibly others through a practice known as "pretexting" -- essentially pretending to be someone else. This was disclosed in a filing with the U.S. Securities and Exchange Commission earlier this month.

The company now faces a whirlwind of trouble over its efforts to squash leaks. Among the list of problems facing it is an investigation by the California attorney general. While the state has no specific law that addresses pretexting, criminal charges are possible over unauthorized access of computer data, ID theft and using false pretenses to obtain utility records, said Tom Dresslar, a spokesman for California Attorney General Bill Lockyer.

Civil as well criminal charges are possible, said Dresslar. "We're not ruling out civil liability."

He also said there's no timetable for legal action. "We're not confining ourselves to any particular schedule."

The extent of Hurd's involvement in the fight to plug boardroom leaks has been a question mark in recent days. Hurd said he attended "a brief portion" of a meeting in July 2005 where the leak issue was discussed, and noted that the matter came up again in January 2006 and again in February. At the latter meeting, Hurd said, "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."

It's been reported that an e-mail was sent to a CNet reporter with tracer technology. Hurd did not mention any news organization in his remarks. "I was asked and did approve the naming convention that was used in the content of the e-mail -- I do not recall seeing or do I recall approving the use of tracer technology." He did not explain what he meant by "naming convention" or why it was important to mention this.

Hurd also said he didn't read a report, sent to him in March 2006, that he should have because of its particular importance. Based on the apparent regret expressed by Hurd Friday, the memo -- details about which were not made public -- evidently was a key piece of information.

"I understand there is also written report of the investigation addressed to me and others, but I did not read it. I could have, and I should have," said Hurd.

Hurd defended the right of the board to investigate any leaks, but said he will take "full accountability to drive the actions to set it right."

Hurd said the company has appointed Bart M. Schwartz, a former U.S. prosecutor, as counsel to review the company's investigative methods and conduct standards. "What began as an investigation with the best intentions has ended up turning in a direction we could not have possibly anticipated. The people of HP don't deserve this nor do any of the people who were impacted," Hurd said.

Hurd nonetheless said the company has collected enough facts to be to be confident that it has a "good understanding" of what happened. He also said noted that some of those facts -- discovered by an outside law firm, Morgan, Lewis & Bockius -- "are very distrubing to me.

"On behalf of HP, I extend my sincere apologies to those journalists who were investigated and everyone who was impacted."

HP has been cooperating with state investigators, although there some reports Friday indicating that HP was cutting back on its help. "They had reduced their cooperation," said Dresslar, when asked about those reports. But the company has contacted Lockyer's office and "things have been worked out."

Lockyer's office has not issued any subpoenas, said Dresslar. "We don't have to issue subpoenas if people are cooperating," he said.

The probe of pretexting at HP is part of a broader investigation by the Lockyer's office into pretexting by other companies, and is "totally separate" from the HP case. "HP is one case of a broader investigation," said Dresslar.

Charles King, an independent analyst in California, said the scandal's impact could reach into the company, affecting things like money on hand for new product development. If large institutional investors pull back on their investments, it "does create a boomerang effect that does effect some of its larger customers."

Gordon Haff, an analyst at Illuminata listened in to the call and said the key question is whether "facts as now known are indeed the substantial body of facts. If that is indeed true, HP does have an opportunity to put this behind it without serious business impact. If not, all bets are off. At the end of the day, that's the critical question -- not whether apologies were worded sincerely enough.

"What's been so damaging the past week is the daily revelations about yet more and more unethical and possibly illegal actions. It was ugly, but if there isn't more they should be able to get beyond this," said Haff.

Computerworld's Angela Gunn, Todd R. Weiss and Ken Mingis contributed to this report.

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