Last updated: September 13, 2006 12:33 am

Hewlett-Packard

The Hewlett-Packard board has opted for an unsatisfactory fudge. Following the controversy over Patricia Dunn’s handling of an internal investigation into board leaks, she will step down as chairman. But only in January. And she will remain a board director.

It is a practical way for everybody to save face and for HP to try sweeping the episode, which included potentially illegal methods of accessing directors’ phone records, under the carpet. It is not satisfactory. If the incident is important enough for Ms Dunn to step down, it requires a full internal inquiry. She cannot lead that. More importantly, she is not the right person to clean up the mess from an external perspective. There are external investigations under way that could yet gather pace.

Meanwhile, the HP board needs to be rebuilt. It has lost George Keyworth, whose leaks triggered the original inquiry, and Tom Perkins. The key person for that rebuilding is the new head of the nominating and governance committee. All that leaves Ms Dunn as a lame-duck chairman.

Admittedly the board did face tough choices. It probably did not want Mark Hurd, chief executive, to be diverted from his successful running of the business by becoming chairman immediately, while there are so many distractions. And there was probably a feeling Ms Dunn had sensible motives in her original decision to investigate the leaks.

But its botched execution meant she had to take responsibility. The board should have engineered a cleaner solution – perhaps by announcing that it would appoint a heavy-hitting external chairman with Richard Hackborn, now lead independent director, taking over the role in the interim.

For now, unanswered questions remain about the role of HP’s legal advisers, internal and external, and exactly what board members actually knew about the leak investigation. When Mr Hurd becomes chairman in January, there is no guarantee that the scandal will have disappeared. After all, it was not just HP directors whose records were spied on.

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