Spiraling Scandal Engulfs Tech Icon
One is the daughter of Las Vegas performers who entered the business world as a secretary and rose to the top of a major investment company.
Another is a legendary financier who was married briefly to the country’s best-selling novelist and who lately became a novelist himself, with markedly less success.
The third is a nuclear physicist and former White House science advisor who liked to tell people that he made earthquakes for a living.
All are at the center of a broadening criminal probe and corporate scandal that has Silicon Valley wondering what went wrong at Hewlett-Packard Co., the iconic company that for decades was considered such an upstanding corporate citizen that “the HP Way” became shorthand for honesty and fair dealing.
On Thursday, California Atty. Gen. Bill Lockyer said criminal charges would probably result from allegations that some members of HP’s board of directors hired private investigators to spy on other board members as well as on nine reporters. Phone records apparently were obtained by investigators using false pretenses and fake e-mail addresses.
“Somewhere along this chain of people that were involved in the spying, laws were broken,” Lockyer said.
Some analysts said Thursday that HP Chairwoman Patricia Dunn, who joined the company’s board in 1998, might lose her job.
“It’s probably likely that they will reshuffle,” even if board members escape liability for the actions of their outside investigators, said ThinkEquity analyst Eric Ross.
HP spokesman Ryan J. Donovan declined to disclose Thursday the names of the reporters whose records were obtained or the identities of the investigation companies. Lockyer also declined to name the companies, saying he wanted his agents to be able to conduct interviews of people involved “without TV cameras being in their office.”
The reporters whose records were accessed included Pui-Wing Tam of the Wall Street Journal, John Markoff of the New York Times, and Dawn Kawamoto and Tom Krazit of technology news website CNet, their respective news organizations reported.
Corporate boards have been much criticized in recent years as rubber stamps for the all-powerful chief executive. The HP board seems more akin to a group of squabbling children.
Here’s the story so far: Dunn, the board chairwoman, thought one of her fellow members was leaking secret deliberations to the press. Steamed, she arranged in January for private investigators to trace the source. George Keyworth, the physicist, was implicated but refused to resign.
Thomas Perkins, the financier, quit the board in May. The resignation was portrayed at the time as routine, but Perkins was upset about what he called “the likely illegality” of the leak investigation. His records, he complained, were among those hacked.
To underline the irony, a fourth board member is Lawrence T. Babbio Jr., vice chairman and president of Verizon Communications Inc., the nation’s second-largest phone company. As Perkins noted in a letter to the HP board that became public this week, Verizon has filed fraud suits against people and companies who impersonate others to get phone records.
Silicon Valley, where the super-smart and the super-rich move in small circles, is watching the drama with amazement.
“I don’t think anybody would believe this if you cast it as fiction,” said Michael Perkins, author of the Silicon Valley novel “A Cool Billion.” “Fiction, as Mark Twain said, has to stick to possibilities.” (Perkins is not related to Tom Perkins.)
The furor is marring what should be a celebratory time at HP.
After recovering from a blistering proxy fight over its $19-billion acquisition of rival Compaq Computer Corp. and a subsequent performance slump that cost high-profile Chief Executive Carly Fiorina her job, HP has been on the mend.
Under new CEO Mark Hurd, HP has gained market share in many of its product lines. And the company’s stock is near its 52-week high, leaving some investors unworried about the boardroom fight.
“This is a very minor distraction to running the business,” said fund manager Chuck Jones at Stein Roe Investment Counsel in San Francisco.
The corporate comeback makes the scandal even less comprehensible.
Roger Kay, president of market research firm Endpoint Technologies, said the directors at the center of the controversy “are all stubborn. They’re all used to getting their own way, and they’ve got the money and power that tell them they always should get their own way. When was the last time someone said no to Tom Perkins and stuck a finger in his eye?”
Perkins, 74, is reportedly sailing the Mediterranean on the Maltese Falcon, at 289 feet the world’s longest clipper yacht.
A dominant force behind the 1972 establishment of Silicon Valley’s most famous venture capital firm, Kleiner Perkins Caufield & Byers, Perkins can claim credit for its first two big deals, early investments in Tandem Computer and Genentech Inc., both of which he served as a director.
Tandem was later bought by Compaq Computer, which was bought by HP under Fiorina. That deal led to Perkins’ returning as a director to HP, where he had been employed decades earlier operating a lathe and rose to oversee the company’s computer division before leaving for venture capital.
He married romance novelist Danielle Steel in San Francisco in 1999. She gave him a $400,000 Bentley as a wedding present, but the marriage, Steel’s fifth, fizzled after a year.
This year Perkins penned “Sex and the Single Zillionaire,” a novel about a wealthy man who modestly says he does something in computers.
The hero also gives off decidedly mixed feelings about being a corporate director, noting at one point, “A good board meeting should be very, very boring. An exciting board meeting meant something was out of control.”
Even among powerhouses like Perkins, George A. “Jay” Keyworth II, 66, can hold his own.
He was director of the physics lab at Los Alamos in the 1970s, then joined the Reagan White House as the president’s science advisor. He wrote key parts of the Strategic Defense Initiative, otherwise known as Star Wars.
He became a close associate to HP co-founder David Packard, who nominated him to the board of directors in 1986.
In 1993, he co-founded the Progress & Freedom Foundation and remains as chairman of the conservative, business-oriented think tank in Washington, He was a key influence on the conservative wing of the Republican party.
“You’re talking about a guy who was involved in the innermost workings of the U.S. nuclear program in the 1970s, who understands how to operate at the highest levels of political, corporate and scientific communities,” said Denver lawyer Raymond L. Gifford, a former president of the foundation.
Dunn, 53, never expected to be a corporate chieftain. She wanted to be a novelist or a journalist but took a job at Wells Fargo in 1976 as a secretary to support her widowed mother. She rose among the ranks in the investment division, which was acquired a decade ago by Barclays Global Investors, a unit of the British bank.
Based in San Francisco, BGI is a little-known but immense manager of mutual funds for corporate clients.
After developing breast cancer in 2002, Dunn stepped down as BGI chief executive. She later returned as nonexecutive vice chairwoman.
“Pattie Dunn is regarded as a paragon of virtue and good corporate governance, a director’s director,” said Greg Taxin, CEO of proxy advisory firm Glass, Lewis. “And BGI itself has a reputation for being very high integrity. This whole thing is a little strange.”
Dunn has at least one good chance to explain herself. The National Assn. of Corporate Directors sent out invitations this week to an event Sept. 28 in San Francisco. Dunn will give a presentation titled “Modern Governance: A Personal Perspective.”
james.granelli@latimes.com
joseph.menn@latimes.com
