HP-Gate, What's the Damage?

By David Needle

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What's next?

While HP was struggling to regain its edge, pushing CEO Carly Fiorina out the door and transitioning to a new CEO, the chairman of the company's board, Patricia Dunn, was obsessed with apparent leaks to press.

Her decision to launch an independent investigation into who on HP's board was leaking confidential information has blown up into a full-scale scandal that threatens to rock the recent resurgence of the computer, printer and services giant.

Analysts and observers close to the scene suggest accountability and damage control should be at the top of HP's priority list to minimize the scandal's impact.

"At the corporate governance level, everything flows from the tone at the top," said Jon Masters, partner and a founder with Masters, Rudnick & Associates, a New York firm specializing in corporate governance consulting. "And at the moment, it's pretty messy.

"So I think the board's first thing to do is to establish the right tone at the top. 'Who are we as a company? What actions can we take with respect to our overall reputation?'"

HP has already contacted some of the nine journalists to apologize for having their phone records hacked, with Dunn personally apologizing to a few of them.

The nine reporters who had their phone records searched write for the New York Times, Wall Street Journal, Businessweek and CNET.

Dunn told Reuters she never told the law firm, which in turn hired an investigator, to do anything illegal and would not have approved the use of "pretexting", the dubious method used to obtain the reporter's phone records. Dunn also said she's not resigning unless the board asks her to.

HP's directors are slated to have an emergency meeting by phone this Sunday to plot their next move.

At this point, the HP boardroom drama, while interesting theater, may not have a real impact on customers if the company can addresses the issues transparently and there are no further revelations.

"It was very surprising to me that HP would put itself in a position to not know what the investigators were doing, especially with all the privacy concerns out there," Dawn Sawyer, an HP customer and operations manager for Guidestone Financial Resources, told internetnews.com.

"It kind of reminds me of the book The Five Dysfunctions of a Team, which talks about how high-powered teams can be dysfunctional with no trust and no honest communications. There can be a false sense of harmony on the surface, but underneath there's a lot of questioning about what's going on."

Sawyer, who also serves on the board of directors of AFCOM's Data Center Institute, said the revelations won't affect her purchase decisions with HP.

"If HP did anything that compromised customer records or impacted my business, then I'd be concerned," said Sawyer.

In fact, if there is a silver lining to HP's boardroom imbroglio, it's that it doesn't have to do with products or customers. But damage to HP's reputation is another issue.

Masters said HP has to do something to reassure customers.

"People are concerned. If information was used in this fashion by HP, it sends up a warning signal for others" that do business with HP, or whose personal information is provided by HP, he said.

Just what else HP may do to reassure the outside world and get the matter off the front page isn't clear. With the California Attorney General planning to investigate the matter, there's sure to be more bad publicity for HP.

Dunn could have to take the fall and resign to help HP put the matter behind it. But analyst Tim Bajarin thinks that would be a mistake.

"What's lost in all this is that Patricia Dunn was trying to stop leaks in the board room," Bajarin, president of Creative Strategies, told internetnews.com.

"Her goal was correct. Any other board in the world with fiduciary responsibility would take the same actions to stop the leaks. You can't approve the methodology, and while she did put the investigation in motion, it's not at all clear you can lay the blame with her on how it was carried out."

Stan Tims, a former executive of a software and services company specializing in Sarbanes-Oxley (define) compliance, agrees that action needed to be taken if an HP board member was leaking confidential information.

It's not clear what preliminary steps Dunn might have taken before initiating the private investigation, but Tims said she should have declared her concern to the Board.

"Then she could have each board member meet with HP's general counsel to determine if the leaks were inadvertent and clarify the concern," Tims said in an e-mail to internetnews.com.

The more transparency, the better, said Tims.

"It only takes one bad apple on a Board and all the other Board members have to pay the price of having their privacy invaded, integrity questioned and be subject to extra oversight."

This article was first published on InternetNews.com. To read the full article, click here.