Newsweek magazine revealed that Patricia Dunn, the chairperson of technology giant Hewlett-Packard, had arranged for electronic surveillance of board members and journalists to stop corporate leaks to the press. Through the use of pretexting, company investigators lied to illegally obtain telephone records. The resulting scandal led to a criminal case in California, a congressional investigation, federal criminal charges, and several company resignations.
Founded in 1939 by Stanford University classmates Bill Hewlett and Dave Packard, Hewlett-Packard Corporation (HP) became one of the most successful and admired of American businesses. It grew into a global company dealing in information technology infrastructure, personal computing, and information access. In 2004, HP had revenues of nearly $80 billion, and by 2006 it employed 150,000 people in 170 countries.
Patricia Dunn in a Santa Clara County courtroom in October, 2006.
Patricia Dunn assumed the chair of HP’s board on February 7, 2005, when
As a non-executive chairperson, Dunn presided over board meetings, recommended board committees and committee chairs, and made herself available for consultation with the interim chief executive officer. Dunn was told by other directors that her most important duties would be to preside over the choice of a new chief executive officer and to stop leaks of information from HP to the media. While leaks of information to the media are nearly impossible to halt, such unauthorized disclosures infuriate corporate leaders concerned about the images of their companies and the impact of such disclosures upon stock prices as well as other business dealings. A series of damaging leaks had preceded Fiorina’s departure and had nearly derailed the selection of Mark Hurd, the new chief executive officer who began working in his new position on April 1, 2005. As Fiorina stated when she learned about a leak of information from one board meeting, such disclosures are also a breach of trust—and no management team can operate without trust. Fiorina believed that Perkins and Keyworth had leaked corporate information during her tenure.
Dunn, too, was soon immersed in a leak investigation, in this case a disclosure to The Wall Street Journal. She turned to an HP security manager for help in proceeding, but he referred her to an outside investigator with the Boston-based company
Dunn code-named the investigation Project Kona. She advised the board of the investigation and obtained support from a majority of the directors, though she did not provide specific details of the inquiry because board members themselves were under investigation.
In the meantime, Dunn and Perkins began to clash over company control issues. Dunn opposed Perkins’s nominees to the board while Perkins resented Dunn’s focus on governance. Disagreements between the two became so frequent that Dunn coined the phrase “chairman abuse” to describe Perkins’s remarks. Supporting Dunn was the chief executive officer, Hurd, who had been informed of the leaks by Dunn. In response, he warned HP managers that they would be summarily terminated for leaking information.
On June 15, private investigator DeLia informed Dunn and Ann Baskins, HP’s attorney, that he had obtained the private phone records of reporters from Businessweek and The New York Times. DeLia said that his investigators had used “pretexting”; that is, they presented themselves, in this case, as board directors to obtain “their own” phone records. Baskins expressed concern over the legality of the tactic, but DeLia informed her that he was aware of no laws banning the practice.
In January, 2006, Keyworth had lunch with reporter
Kona II examined more than ten thousand articles published about HP in the preceding six years. The inquiry included pretexting to obtain telephone records and created a fictitious employee to leak news to Kawamoto. The Kona team also trailed Kawamoto and her daughter, staked out the homes of Kawamoto and Keyworth, and examined Kawamoto’s phone records. They discovered several calls from Kawamoto to Keyworth. In May, Keyworth admitted to the board that he was the source of the leak to CNET. He was asked by the board to resign, but he refused. However, Perkins resigned from the board in anger and then sought legal counsel.
In July, Perkins received a letter from AT&T about an online account that he had never established. On August 14, he informed the HP board that he had direct proof of illegal hacking of phone records. He demanded that HP notify the U.S.
Initially, the HP board strongly supported Dunn. The company ordered an independent investigation that concluded that she had acted properly. However, the board then asked Dunn to resign. Several resignations followed, including those of Keyworth, Baskins, and Hunsaker. Perkins charged that the entire investigation was an attempt by Dunn to eliminate the friends of Packard and Hewlett who remained on the board. The board reimbursed Perkins for $1.5 million in legal fees.
On October 4, the California attorney general charged Dunn with four felonies: fraudulent wire communication, wrongful use of computer data, identity theft, and conspiracy. She pleaded not guilty at her arraignment. Hunsaker, DeLia, and two private investigators also were charged. On January 12, 2007, one of the investigators pleaded guilty to federal charges of identity theft and conspiracy. The charges against Dunn were dropped in March, possibly in part because she was diagnosed with advanced ovarian cancer. Charges against Hunsaker, DeLia, and the second investigator were dropped after they completed community service. In December, 2006, HP had paid a $14.5 million civil settlement to the state of California, with most of the money slated to fund investigations into privacy rights and intellectual property violations.
On February 28, 2008, HP announced that it had settled for undisclosed sums the claims brought against the company by the BusinessWeek and New York Times journalists whose phone records were illegally obtained through HP pretexting. Other lawsuits were filed against HP, including one by
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Baer, Miriam. “Corporate Governance and Corporate Policing: What Can We Learn from the Hewlett-Packard Pretexting Scandal?” University of Cincinnati Law Review 77 (2009). Using the HP scandal and Dunn’s role in that scandal as a starting point, this article looks at the tension between a corporate board’s dual mandate to police its own and implement ethical corporate governance. -
Kaplan, David A. “The Boss Who Spied on Her Board.” Newsweek, September 18, 2006, 40-45. This cover article broke the story of the HP investigations, triggered a debate about pretexting, and led to Dunn’s resignation. -
Packard, David. The HP Way: How Bill Hewlett and I Built Our Company. New York: Collins Business, 2006. A history of Hewlett-Packard, recommended by the company as a thorough explanation of its approaches to business, people, and processes. -
Stewart, James B. “The Kona Files: How an Obsession with Leaks Brought Scandal to Hewlett-Packard.” The New Yorker, February 19, 2007, 152-170. A detailed account of the scandal and its aftermath.
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