Hurd moves to solve who-Dunn-it scandal

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By  Published  September 15, 2006

Last week’s news that Patricia Dunn is to step down as chairman of HP is the most dramatic piece of gossip to hit the IT industry since, well, since the last HP chairman left. While new chairman Mark Hurd — who adds that job to his responsibilities as president and CEO of the firm — will hope that Dunn’s departure will not prove as taxing to the firm as Carly Fiorina’s exit, he was also well aware that both he and Dunn had little real choice.

Dunn is leaving over an issue that has already led to two directors of the board’s departure and could yet leave HP facing legal action. An internal investigation designed to uncover the source of a suspected leak from the board has blown up into a scandal, with the investigators employed by HP having possibly used illegal means to get their information. Specifically, an outside investigative firm hired by the company relied on a subcontractor who impersonated the identities of board members and journalists to access personal phone records. Called ‘pretexting’ this practice is of dubious legality and is certainly highly unorthodox behaviour for a firm such as HP.

In a statement last week, Dunn acknowledged as much, saying that she regretted the use of “inappropriate techniques” in the investigation, which, she said, “went beyond what we understood them to be, and I apologise that they were employed”.

Dunn, who was last year ranked 17th in Forbes magazine’s ‘100 Most Powerful Women’ list, will stay on HP’s board as a director, a position she has held since 1998. She took over as chairman last year, replacing Fiorina, who was replaced by Hurd as president and CEO. Dunn has also served as the co-chairman, chairman and chief executive officer of Barclays Global Investors.

Hurd had earlier in the month sent a memo to all HP employees saying that the firm would take the “necessary action” to resolve the issue, so Dunn’s departure has not exactly come as a surprise. However, for Hurd the entire saga has undoubtedly been an unwelcome sideshow, deflecting attention away from the successes HP has chalked up recently. Prior to the news of the investigation breaking, HP was gaining popularity with Wall Street again: sales and profitability have been steadily improving.

By acting swifly, he will hope to have kept that popularity with Wall Street but some analysts have already expressed concern at his taking on the role of chairman. While it is not unusual for the most senior executive at a US company to take all the lead roles, it raises questions of corporate governance: in the UK for instance, institutional investors prefer to see the roles of chairman and CEO kept separate. Certainly Hurd will need to show strong leadership in the next few weeks, whatever his title.

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