Last updated: September 12, 2006 5:29 pm

Dunn steps down as HP chairman

Hewlett-Packard’s attempts to put a quick end to the controversy over its boardroom leak investigation was dealt an immediate blow late on Tuesday by Bill Lockyer, California’s attorney general, who said his office already has “sufficient evidence to indict people both within HP as well as contractors on the outside.”

His comments came shortly after HP announced the January departure of chairman Patricia Dunn as it moved to restore the reputation of the venerable Silicon Valley company.

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Ms Dunn has maintained that she did not know in advance of the tactics used in the investigation that she had authorised into HP’s own directors, but had delegated the job to the company’s legal department. HP said its board had accepted that assurance in allowing her to remain as chairman until January, and to continue as a director after that.

Mark Hurd, chief executive officer, is to replace Ms Dunn as chairman in January, while Richard Hackborn, a company veteran, was named lead independent director, a new position designed to help restore confidence in the conduct of the board.

HP has been damaged by subterfuge ordered by Ms Dunn as she sought to uncover a boardroom mole. Private investigators impersonated company directors and journalists to gain access to phone records and identify the source of leaks showing dramatic rifts at the top of one of the world’s most powerful companies.

News of Mr Hurd’s appointment followed two days of emergency meetings by the HP board. It will allay fears that the spying scandal could put Mr Hurd’s role as chief executive in jeopardy.

He has led a resurgence at the world’s second-biggest computer maker since he took over following the removal of Carly Fiorina as chief executive last year. The leaks included details of discussions to oust her.

California’s attorney general last week declared the practice of “pretexting” – assuming a person’s identity to access personal information – as illegal. Federal prosecutors, the Federal Bureau of Investigation and the US Congress have since launched their own investigations.

In an HP statement on Tuesday, Ms Dunn continued to defend the investigation into the leaks, which she said “had the potential to affect not only the stock price of HP but also that of other publicly traded companies.”

“Unfortunately, the investigation, which was conducted with third parties, included certain inappropriate techniques. These went beyond what we understood them to be, and I apologise that they were employed,” Ms Dunn said.

Mr Hurd said the techniques used by the board’s investigators “had no place at HP”.

“I am taking action to ensure that inappropriate investigative techniques will not be employed again. HP holds itself to the highest standards of business conduct and we are accountable to these standards for everything that we do.”

Nel Minow, a corporate governance expert at The Corporate Library, commented: “What I was hoping they would avoid is a Queen of Hearts chop-off-her-head response, which would have done no good to anyone.”

“The main thing they need to do right now is bring in someone to investigate and tell them what happened, and to bring in strong new directors.”

HP refused to comment on whether it had launched a new investigation into the matter. It also announced that George Keyworth, the director identified as the source of the leaks, had resigned.

An HP spokesman defended a decision that Ms Dunn would stay on as a director.

“She has brought a lot of valuable insights into the company. She is still beneficial to HP,”he said.

He added that she was remaining chairman till January “so that she can tie up some loose ends with the investigation”, but she had voluntarily decided to step down in order not to be “a distraction”.

Carly Fiorina had combined the roles of chairman and chief executive. They were split when Mr Hurd took control.

HP shares were bolstered by news of Ms Dunn’s resignation, rising 1.7 per cent to $36.97 in midday trading in New York.

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