Lockyer Has HP in His Sights
The boardroom intrigue at Hewlett-Packard Co. intensified Tuesday as California Atty. Gen. Bill Lockyer said he had “enough evidence to indict” people inside the Silicon Valley icon for snooping into confidential phone records.
Criminal charges could be filed as early as next week -- deepening a weeklong corporate spying scandal that has riveted the close-knit technology industry but has been largely ignored by Wall Street.
Lockyer’s comments came just hours after HP sought to wind down the drama by announcing that Chairwoman Patricia C. Dunn would surrender leadership of the company’s board and that another director, George A. Keyworth II, had resigned.
Chief Executive Mark V. Hurd will officially become chairman at the board’s next regular meeting Jan. 18, defying the growing sentiment among big corporations that CEOs should not also run the board charged with overseeing them.
Hurd is not expected to be accused of wrongdoing.
Dunn, 52, came under intense scrutiny last week after the revelation that she ordered a probe of media leaks that was conducted by private investigators who allegedly gained illegal access to the call logs of HP directors and reporters covering the company. Investigators allegedly impersonated the directors and reporters to access their records, a practice called pretexting.
Keyworth was identified by that probe as having talked to reporters about board matters and was asked to resign in May. He refused, but another director -- venture capitalist Thomas J. Perkins -- quit the board in protest that month and took his concerns to the attorney general’s office.
“Crimes have been committed,” Lockyer said Tuesday on PBS’ “The NewsHour With Jim Lehrer.” “People’s identities being taken falsely is a crime. People gaining access to computer records that have personal information -- in California, that’s a crime.”
HP spokesman Ryan J. Donovan said: “HP declines comment on this, except to say that we reinforce what we said: that we are cooperating fully with the AG’s investigation.”
Criminal charges against HP employees would rachet up the pressure on the Palo Alto company and could threaten the turnaround engineered by Hurd, who was recruited last year from NCR Corp. to revive the maker of computers and printers.
It was unclear Tuesday whether Dunn was being targeted by Lockyer. Lockyer said in an interview that he also had sufficient evidence to indict contractors outside the company. Neither HP nor Lockyer has identified the firms that conducted the leak probe, which was carried out this year.
“Until the AG plays his cards, we’re going to be guessing for a while,” said Michael L. Mallow, a white-collar defense lawyer at the Los Angeles office of Loeb & Loeb.
HP is also under investigation by the FBI and the Securities and Exchange Commission, and a House committee has sought information from the company about its probe. HP could also face civil lawsuits by the reporters whose records were obtained.
Wall Street has greeted the controversy with yawns, focusing instead on Hurd’s performance and bottom-line results as well as inroads the company has made against archrival Dell Inc. HP shares rose 56 cents Tuesday to $36.92, their highest level since January 2001.
But Lockyer’s comments, which came after the close of U.S. financial markets, could change the situation, said Michael D. Cohen, research director at Pacific American Securities.
“It’s definitely going to impact the stock, but I think it will have minimal impact on operations,” Cohen said. “The worst-case scenario is if Mark Hurd is somehow implicated, but I highly doubt he was. One reason the board is promoting him to chairman is that everyone thinks he has no culpability, no exposure, to any of this.”
Lockyer said the actions in the case violated three state laws. One bars obtaining utility records illegally, another prohibits “unauthorized use of personal identifying information,” or identity theft, and the third covers “unauthorized use of data” -- a law more commonly applied to computer hackers.
HP’s legal division, headed by general counsel Ann O. Baskins, probably figures prominently in Lockyer’s investigation, said industry analyst Rob Enderle of Enderle Group in San Jose.
“The interface between Dunn and the outside investigators appears to be legal side,” Enderle said. “The question is how high up it goes.”
If true it would be ironic, he said, because the legal arm is usually the most conservative part of an overly cautious company.
“This is the group that is supposed to be protecting executives from any mistakes,” Enderle said.
Less clear is the role of HP’s outside lawyer, Thomas Sonsini, Enderle said. Sonsini, a prominent Silicon Valley attorney, could not be reached for comment Tuesday, but e-mail records included in a federal regulatory filing suggest he knew details about the probe.
After Perkins demanded a review of how investigators obtained phone records, Sonsini assured him in a June e-mail that the investigation was “well done and within legal limits.” But after further review, he couldn’t confirm that the investigation complied “in all respects” with the law, according to the filing.
Dunn said she planned to remain a director after stepping down as chairwoman. The board will also add new directors and promote Richard Hackborn to lead independent director. His role will be to represent the independent directors and help Hurd set the board’s agenda.
Amid the furor over Dunn’s actions, Keyworth’s leaks have become something of an afterthought. But ethics experts had harsh words for Keyworth’s actions and his initial refusal to leave the board once exposed.
“What could he do by staying on the board that would be advantageous to the company?” said James Post, a management professor at Boston University. “There was no sign that he was doing anything to atone for having leaked the information.”
But the investigation was “much more damaging,” said Charles Elson, chairman of the Center for Corporate Governance at the University of Delaware. “Leaks should be dealt with in the boardroom itself.”
Said criminal defense lawyer Jan Handzlik of the Los Angeles office of Howrey: “To swat a fly, they used a sledgehammer.”
Keyworth resigned after he was assured that the company accounted for what it did and “characterized his actions for what they were and put them in context,” said a close friend who has been advising Keyworth.
In a statement, Keyworth said that as a longtime director, he was frequently asked by HP executives to speak with reporters both on and off the record.
HP said directors didn’t believe that his contacts with the media were “vetted through appropriate channels” but recognized that they were “undertaken in an attempt to further HP’s interests.”
The company said Dunn regretted the “intrusion into his privacy.”
“This probably ends the first act,” said Charles Jones, portfolio manager at Stein Roe Investment Counsel. “There’s probably further acts because of the potential charges.”
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charles.piller@latimes.com
