Fortune Magazine
Fast Forward
Patricia Dunn should resign as chairman of HP
Snooping into private phone records ought to be taboo for any company that expects its customers' trust, especially one in the business of selling computers, says Fortune's David Kirkpatrick.
By David Kirkpatrick, Fortune senior editor

NEW YORK (Fortune) -- It's sad to say, but given the furor over how the HP board handled an internal leak to the press and her apparent egregious judgment, Patricia Dunn should resign as chair.

The basic facts are these: HP's general counsel, at the request of its board, hired an outside investigative agency to determine who on the board had been leaking information to the press earlier this year. When the agency reported back that the leaker had been director George Keyworth, a former science advisor to President Reagan, Keyworth admitted it and was asked by Dunn to resign. He refused.

There followed a long chain of events, including the resignation from the board of Keyworth's friend and fellow director Tom Perkins. Now, largely because of prodding by Perkins, it has emerged that in order to obtain those phone records, HP's agent used methods that are unethical at best (and probably illegal as well).

The company admitted in an SEC filing yesterday that its contractors had lied to the phone company - on how many occasions remains unclear - by pretending to be someone they were not. They then were granted access to personal phone records.

It's unclear exactly when HP's directors became aware its agents had used the practice, called "pretexting." But in a letter to the HP board the irate Perkins says that on June 28 an outside lawyer for the company informed him of the pretexting.

Probably there ought to have been earlier and more complete disclosures to the SEC. But in any case, Dunn, Hurd, and the entire board ought to have asked the source of the personal phone records in May when the evidence against Keyworth was first presented. How could they not wonder how this confidential and private information had been obtained?

There are many complexities to this story, but the bottom line is this - even if there might be some argument that Dunn could reasonably have thought the company was acting legally in obtaining the records, she behaved improperly in not insisting that she know for sure of their origin.

And even if the chairman of another large company in a similar situation might be able to argue that he or she ought to remain in office, this is a different kind of company. It is a computer company in a time when security and privacy are among the most urgent and pressing issues of concern to customers. Worries about them threaten even to slow down industry sales. It may have already started to happen.

HP (Charts) is a leading vendor of personal computers to consumers in the United States, and the second largest producer of all PCs worldwide. It cannot afford to suffer even for one more day the perception that it does not put the highest priority on protecting personal information. That is the perception one cannot avoid having at this moment.

HP needs to send a message that it will decisively put this controversy behind it and make a strong stand against any sort of unethical acquisition of personal information. One essential way to send that message is for Dunn to resign. Otherwise this will remain a mess that impugns the great reputation of HP.

But that is not all. By all accounts, HP's general counsel Ann Baskins showed extremely bad judgment during this affair. CEO Mark Hurd ought to fire her immediately, along with anyone else who is determined to have played a critical role in hiring or defending investigators who behaved improperly. If he does not, I expect that, too, will continue to vex the company and sully its reputation. And Hurd will certainly have to take other actions, probably extensive, to restore the company's reputation.

According to the Sept. 5 Wall Street Journal, in the course of the board discussions over Keyworth's guilt, one director asked Hurd how he would handle the situation were Keyworth to have been an employee. According to the Journal, quoting and unnamed director, Hurd replied "I would have no choice but to fire him."

I would hope that in such a situation Hurd would also feel he had no choice but to first determine the source of the data, and whether the company had acted improperly or unethically in obtaining it.

But the investigation was primarily Dunn's responsibility as board chair.

From the evidence, it seems to me that Hurd's position should be and is secure. It may of course emerge that he had a more direct role than has so far been apparent.

But another conclusion I draw from this chain of events is that the practice of separating the jobs of CEO and board chairman makes eminent sense. If Dunn in fact does the proper thing and resigns, at least HP will be able to keep functioning more or less smoothly.

The company has made major strides forward under Hurd's leadership. Dunn probably also deserves considerable credit for those strides, including for hiring Hurd. That's one of the reasons why this situation is so sad. But for the company's sake, and to insure the continuation of its progress, Dunn must go. Top of page