Hewlett-Packard announced on Tuesday that Patricia Dunn, its chairman, would lose her leadership position in January, but will stay on the company board. To people who have followed the corporate spying scandal that engulfed Ms Dunn and HP in the US over the past 10 days, this resolution will look either too harsh or too lenient. For two years, the technology company suffered almost a dozen serious leaks of information from its board. Ms Dunn vowed to identify the leaker, and did. He was George Keyworth, a science adviser to former president Ronald Reagan, who had been on the board for two decades. His departure was announced on Tuesday, too.
The investigation spun out of Ms Dunn’s control. She put it in the hands of HP’s in-house counsel, which reportedly contacted the company’s investigative unit, based in Boston. At some point, a data-mining company used “pretexting” (that is, posing as someone you are not) to obtain the personal phone records of all board members, nine journalists (including those from The New York Times, The Wall Street Journal and the high-tech website CNet) and two employees. The scandal may be less serious than, say, Enron, but it is more accessible to common sense. We tend to adjust our traditional morality to the challenges of new technology by using metaphors from pre-high-tech morality. Metaphorically speaking, what HP’s investigators did was lie their way into a building with fake identity cards and break into people’s filing cabinets.
Metaphorically speaking, too, Ms Dunn appeared to the public as a combination of Dr Jekyll and Mr Hyde. She has the big executive virtues: hard work (she began her career as a temporary secretary at the Wells Fargo bank) and courage (she has been fighting ovarian and, more recently, liver cancer). What is more, as chief executive at Barclays, she was unusually attentive to ethics and acquired a “reputation for integrity and honesty” (USA Today) and for being “respectful of both corporate governance and private space” (The Washington Post). So why did she seem to excuse this ghastly incident by saying that “the more gentlemanly methods that were used in the past didn’t work”?
There are two problems revealed by the HP scandal and we must keep them wholly separate. The first is the matter of personal privacy in an age of electronic data storage. This is not particularly a business issue. Private investigators just as willingly use “pretexting” when their clients are jealous husbands or scurrilous politicians. Pretexting for financial records is illegal, but pretexting for phone records falls in a legal grey area. Nor is it clear whether pretexting can be prosecuted under laws against “wire fraud”. Guidance may come from investigations of HP that are underway by the Securities and Exchange Commission, the California attorney-general, the justice department, the Federal Communications Commission, the Federal Trade Commission, Congress and the Federal Bureau of Investigation. Without new legal and technological tools, outrageous violations of privacy such as occurred in this case will continue.
The second problem is that of corporate leaking. Most people’s attitudes towards leaking in general are ad hoc and amoral. If you think leaks do damage, you will see the leaker as a saboteur, a self-promoter, a violator of his responsibilities to shareholders, employers or the government. But American progressive mythology exalts the “whistleblower”, the person who only seems to be violating his fiduciary or patriotic duty but is actually obeying both his conscience and a higher morality. Mr Keyworth tried to wrap himself in this mantle when he said: “I have sought to conduct myself in a way that would make our co-founder and my friend and mentor, David Packard, proud.” The language of the HP press release that accompanied Mr Keyworth’s departure looks as if it was designed by lawyers to insulate him from possible future charges of violating his fiduciary trust, recognising that one of his leaks “was undertaken in an attempt to further HP’s interests”.
An HP spokesman told reporters last week: “We have never apologised for the intent of the investigation.” Nor should they have. Mr Keyworth’s leaks were no joke. A CNet article in January, allegedly based on information from Mr Keyworth, revealed HP’s plans to increase its chip purchases from Advanced Micro Devices. That such revelations could damage the company financially is not the biggest problem. Some reports have claimed a big worry of the board as the leak problem grew was that of stock manipulation. In a post-Enron, post-Sarbanes-Oxley context, all leaks can look suspicious and loquacious boards face potential liabilities under securities and criminal law. Even to look at whether a boardroom leak “furthers” a company’s interests or not is to operate in a dangerously outdated context.
Confounding the predictions of many investment analysts after it acquired Compaq in 2002, HP is on a fantastic run of success. If current revenues hold, it will finish this year as the world’s largest computer company. Its stock price has risen 68 per cent since Ms Dunn hired Mark Hurd to take over as chief executive last year. Most curiously, on Tuesday, in the thick of the scandal, share prices shot to their highest level since early 2001. What does it mean that the company kept its excellent recent performance going even through this rocky week? There are two ways to look at it: you could say that, since the leaks did not harm the share price, they did not mean that much. In calling for an investigation at all, Ms Dunn made a mountain out of a molehill. Or you could say HP’s buoyancy this week shows how potentially dangerous the leaks were – financially, ethically and legally. In this view, shareholders’ relief over the resolution of the leak problem exceeds their jitters over the bad press. What reassured them was Mr Keyworth’s departure – not Ms Dunn’s comeuppance.
The writer is a senior editor at The Weekly Standard