As HP scandal unfolds, Hurd's power grows

Hewlett Packard's boardroom scandal has turned into opportunity for CEO and President Mark Hurd who, with his appointment Friday as board chairman, gained more power in his efforts to set HP's strategic direction.

Hurd now joins the ranks of other big company CEOs who are also board chairmen, including Samuel Palmisano at IBM, Howard Stringer at Sony and Jeffrey Immelt at General Electric.

But it may be some time before Hurd, who was named CEO in March 2005, can focus fully on the business. He still must run a gantlet of state, federal and congressional investigations over revelations that HP, or the third-party investigators it hired, acquired telephone records under false pretenses while trying to ferret out boardroom leaks.

First up is a hearing on Thursday before the U.S. House Energy and Commerce Committee's Oversight and Investigations Subcommittee over "the use of deceptive measures to obtain personal information -- a practice called 'pretexting' -- and on the safety and security of consumers' personal data." Hurd plans to testify, and the committee today said it has issued subpoenas to two HP executives, senior counsel Kevin Hunsaker and global security manager Anthony Gentilucci.

A subpoena was also issued to Ron DeLia, operator of Security Outsourcing Solutions in Boston.

Martin Reynolds, an analyst at Gartner, said that by combining the CEO and chairman positions, a company "makes sure that [it] has a very clear focus on its strategic direction. It's a license to proceed even more aggressively with what he is doing."

Hurd has set a clear growth strategy by focusing on HP's existing business and not breaking into new markets, said Reynolds. "You can expect HP to continue to focus on the needs of its current customers."

But on Hurd's immediate horizon is the hearing in Washington. It remains to be seen who exactly will join Hurd to testify, although the committee has invited a long list of others, including Patricia Dunn, who resigned as HP's board chairman on Friday, ushering in Hurd's appointment. Also on the witness list are HP's in-house and external counsels, its security managers and the private investigative firms it hired.

A second hearing, set for Friday, will focus on the telecommunications aspect of this issue. Among those asked to testify is Dennis Strigl, president and CEO of Verizon Wireless; Stanley Sigman, president and CEO of Cingular Wireless; and officials from the Federal Trade Commission and the Federal Communications Commission.

At a news conference Friday at HP headquarters, Hurd expressed regret over the boardroom leak probe while detailing his own involvement in the matter. The picture he painted was that he had knowledge about the overall investigation but a lacked awareness regarding its questionable practices.

C. Hunter Wiggins, a partner at Sonnenschein Nath & Rosenthal and a former member of the investigative staff of the U.S. Securities Exchange Commission, said that Hurd "successfully walked the very fine line between taking overall responsibility as the head of the company while not admitting any illegal personal conduct."

Hurd's statement won't influence the various investigations, said Wiggins. But it does offer an early indication of HP management's perspective on the events, which was that improper actions were taken by outside contractors or HP employees but not knowingly by Hurd, he said. Keith Bishop, a partner at Buchalter Nemer in Los Angeles and former commissioner of corporations in California, said that in giving Hurd both roles HP is "running against the trend" in corporate governance. More companies generally favor separating the powers with the idea that "having an independent chairman would strengthen the authority of the board over management."

But while it strengthens board oversight, separating the roles diffuses power within an organization, said Bishop. And diminishing the power of individuals can weaken overall direction. Bishop said the jury is still out about whether one management model works well for all companies.

HP had posted corporate governance guidelines on its Web site that expressly prohibited its CEO from also serving as board chairman. Those rules were removed from the site Friday afternoon.

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