HP Spied on More Than Phone Calls
What Hewlett-Packard Co. Chief Executive Mark Hurd knew -- and when -- was called into question Wednesday as details emerged that the company’s spying included far more than prying into confidential phone records.
Private investigators working for the company tailed HP’s own directors, set up phony news sources and even tried installing spyware on the computer of one, according to an internal Feb. 10 report obtained by The Times.
That scope exceeds previous acknowledgments by HP that its investigators used subterfuge to look at the phone records of reporters and employees as part of a probe to find the source of boardroom leaks.
And as the far-reaching nature of HP’s probe becomes known, many observers of the iconic Silicon Valley company are beginning to doubt that Hurd was kept in the dark.
“In a real sense, he’s the captain of the ship,” said James Post, a management professor at Boston University. “There are a set of questions that do need to be answered: What did he know and when did he know it, what guidance did he give and how active was his direction or oversight.”
It is not yet clear how fully informed Hurd was about the investigation -- or how diligent he was in pursuing information.
“He may have asked the question, ‘Is there anything else I should know?’ and gotten the answer ‘no,’ or he may not have asked the question,” Post said. “Either way, the fingers have to be pointing at Hurd in terms of what did he know and when did he know it?”
Hurd, who came to HP last year with a mandate to turn around the flagging company, has remained largely above the two-week-old scandal. Instead, criticism has focused primarily on the actions of Chairwoman Patricia C. Dunn, who ordered the investigation.
Implicating Hurd could cause problems for HP beyond the existing criminal probes, congressional investigation and public relations nightmare. Such a turn could put pressure on HP’s stock, which has remained flat throughout the controversy.
HP shares rose 43 cents to $36.78 -- 32 cents above the stock’s closing price Sept. 5, the day the scandal broke.
“Wall Street would consider it a disaster if Hurd would have to be taken out of that role,” said Tim Bajarin, president of consulting firm Creative Strategies. “I can’t believe that would happen. He has done so much to resurrect the company’s fortunes and put it back on track.”
Hurd, who has remained silent on the matter, set a news conference for Friday. He declined to comment Wednesday.
“Hurd has been able to operate without any taint in this whole story so far,” Post said. “But the more we know about the investigation being a normal part of business at HP, the more likely it is that he did know about it and was briefed on it.”
It was getting the phone records under false pretenses that sparked the upheaval and prompted criminal investigations by the California attorney general’s office and the FBI, as well as a U.S. House committee, which has set up a hearing next week at which Dunn, HP General Counsel Ann O. Baskins and three other HP employees have been asked to testify.
Such “pretexting,” the practice of impersonating people to access their personal information, has been a bane of telephone companies, which have sued data brokers and others to halt the practice. State and federal legislation is pending to outlaw the practice specifically.
HP’s boardroom drama has resulted in the resignations of two directors. Dunn has agreed to step down as chairwoman in January, though she intends to remain on the board.
But the extensive information becoming public suggests the changes may not be over.
“I think Dunn is done,” said analyst Roger L. Kay, president of Endpoint Technologies Associates Inc. “If there were one more incremental decision to be made, it would be to ask Dunn to leave not only the chair but the board as well. That would show that HP is serious about this.”
For Hurd, the situation is dicier.
His ability to revive HP and put it on a solid growth path has kept the stock price up and analysts and investors pleased. Although Dunn has said she oversaw the probe, Post said, the legal department reports directly to Hurd.
It’s possible that Hurd wasn’t aware of the legal and ethical issues, said Stephen Diamond, a Santa Clara University law professor who specializes in corporate governance issues.
“But that doesn’t mean it was right that he didn’t know,” he said.
He likened HP’s situation to the case of Anthony Pellicano, a Hollywood private eye accused of wiretapping and other alleged snooping. Pellicano often worked for high-powered lawyers who contend they didn’t know about alleged illegal acts.
“Perhaps you can forgive the investigators because they’re rabid dogs -- you hire them to do certain things and they go after them,” Diamond said. “If you hire Pellicano and take the ‘see no evil, hear no evil’ approach, you’d better be ready to reap the consequences if the guy goes over the edge.”
Blame at HP lies not just with the company’s lawyers but with its leaders, including Hurd, who let the investigation get out of control, Diamond said.
“Having the kind of control system in place where red flags should have been raised is a CEO’s responsibility,” he said. “Now it’s beginning to look like there is a deeper governance problem at the company under Hurd. I think it’s fair to at least ask what led to this gap in the process and in control of the company.”
Because Hurd was a member of the board -- and thus a potential target -- his knowledge of the probe probably was and should have been limited, said Nell Minow, head of the Corporate Library governance research firm.
“Treating any board member differently and giving one more information than the others would have compromised the integrity of the investigation,” she said. “I think it was important for the board not to know too much about what was going on.”
But if it turns out that the investigation included illegal activity, Hurd could be held liable.
“Companies are built on systems of accountability,” Post said. “In a certain sense, all roads lead to the CEO.”
Bajarin, who has followed the company for more than 30 years, said Hurd had been too busy with operational issues to focus on the investigation before it became public.
“He’s the only one who can repair the outside image damage by keeping the operations going, keeping the confidence of Wall Street and bringing back the confidence of customers about HP’s ability to grow and serve their needs,” he said.
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kim.christensen@latimes.com
jim.puzzanghera@latimes.com
