HP CEO says he approved email ruse in leak probe

[stu]

By Duncan Martell

Fri Sep 22, 8:19 PM ET

 

 

 

PALO ALTO, California (Reuters) - Hewlett-Packard Co. (NYSE:HPQ - news) Chief Executive Officer Mark Hurd said he had approved an e-mail ruse to track down boardroom leaks, admitting for the first time his involvement in a scandal that also on Friday forced out the company's chairman.

 

HP's board appointed Hurd as chairman after asking Patricia Dunn to resign for her role in a company probe into board leaks to the media. The company said Dunn's departure would remove a distraction and allow the company to move forward.

 

But analysts were not convinced these moves would end a controversy that has tarnished the reputation of a venerable Silicon Valley company, drawing the attention of California's attorney general, the U.S. Securities and Exchange Commission, the U.S. Justice Committee and a Congressional panel.

 

"It's tough to say that (Hurd) is definitely in the clear," said Shaw Wu, an analyst at American Technology Research. "I don't think we have all the answers. At minimum, this investigation is still a distraction for the company."

 

HP Chief Ethics Officer Kevin Hunsaker and Chief Security Officer Anthony Gentilucci also will leave their jobs and are "on their way out" of the company, a person familiar with the matter said.

 

Hurd, who has won investor support for leading a comeback at HP since taking over as chief executive in April 2005, told a news conference he approved the sending of e-mails from a fictitious source in an effort to root out the media leaks.

 

He apologized on behalf of the company and vowed to get to the bottom of the HP probe in which investigators used false identities to obtain the phone records of directors, employees and journalists.

 

"On behalf of HP I extend my sincere apologies to those journalists who were investigated and everyone who was impacted," said Hurd at the news conference which represented the company's most detailed account to date of the probe.

 

"We believe that these were isolated instances of impropriety and not indicative of how we conduct business at

 

HP."

 

HP shares rose 1 percent in extended trade following Dunn's resignation on Friday. The stock had been largely unaffected by the controversy, but fell about 5 percent on Thursday on speculation that Hurd might have been closer than thought to the investigation.

 

Deborah Rhode, a law professor and director of the Center on Ethics at Stanford University, said other top executives should lose their jobs in addition to Dunn but that it was too early to say whether Hurd would go as well.

 

Dunn, who had been scheduled to step down as chairman in January, will now leave the board altogether and immediately.

 

"She shouldn't be the only one to fall on her sword at this point," Rhode said. "There are a lot of questions whether Hurd can command the credibility and confidence the company badly needs at this point given the mismanagement of the investigation."

 

Hurd told reporters HP still did not have all the facts about its inquiry into leaks dating back to 2005, but some of the findings are "disturbing." He acknowledged there was a written report of the investigation that he did not read.

 

"In the second phase, while many of the right processes were in place, they unfortunately broke down and no one in the management chain, including me, caught them," Hurd said.

 

"I understand there is also a written report of the investigation (the second phase) addressed to me and others but I did not read it. I could have, and I should have."

 

Nevertheless, Hurd defended the investigation, saying it was important to discover the source of the leaks and that he believed Dunn had the company's best interests in mind.

 

"It was the responsibility of the HP chairman to pursue the leak situation," he said at a news conference where he declined to take questions. "This was an appropriate course of action."

 

Mike Holston, an outside attorney for HP, said the company's investigation ranged from the review of internal e-mails and instant messages, to the surveillance of an HP board member and at least one journalist. He said investigators may have also sifted through individuals' trash.

 

HP also said it appointed Bart Schwartz, a former U.S. prosecutor, to conduct an independent review of the methods the company used in its leaks investigation. Schwartz will report to Hurd and Chief Financial Officer Bob Wayman.

 

(Additional reporting by Michael Kahn in San Francisco, Lisa Baertlein in Los Angeles, Herb Lash and Chris Sanders in New York and Daisuke Wakabayashi in Seattle.)