HP: Baskins Resigns as General Counsel; Hurd, Dunn Statements to Congressional Panel Posted

Sep.28.06 | About: HP Inc. (HPQ)

The Hewlett-Packard (NYSE:HPQ) board leak probe claimed another victim this morning: Ann Baskins has resigned as the company’s general counsel effective immediately.

The brief statement announcing her resignation, which was part of an 8-K filing with the SEC, includes a comment from CEO Mark Hurd: “I want to thank Ann for 24 years of outstanding service and devotion to HP. She began her career here shortly after law school and worked her way up to serve as the company’s top lawyer, earning along the way a reputation for hard work and integrity. She has admirably supported our business needs across the globe and will be missed. Stepping down was a very hard decision for her, but by doing so she has put the interests of HP above her own and that is to be commended.”

Baskins is one of a number of HP executives that will testify this morning at a Congressional hearing on the scandal, which has already resulted in the resignation of former chairman Patricia Dunn. In remarks prepared for this morning’s hearing, Dunn yesterday asserted that Baskins was deeply involved in the leak probe.

In a filing with the SEC, HP released details of the terms of her resignation, which include a damage release waiver against any potential claims against HP, a non-disparagement clause preventing either party from making negative comments about the other in public, an agrement to cooperate with any investigations, and an agreement to cover her legal costs, among other things. Baskins will also get an exit package , which includes the $432, 761.71 in her 401(k) plan; $199, 646 in the HP retirement plan; $203,296 in the HP Deferred Profit Sharing Plan; $946,210 in HP’s Excess Benefit Plan; plus stock options with a market value of $3,658,807, which she can exercise until Nov. 22. She has options for 465,858 shares.

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Today's hearing on the Hewlett-Packard board leak investigation will no doubt make for fascinating television. You can get a sneak preview of what’s coming thanks to the web site for the House Energy and Commerce committee, which has posted the opening statements for both CEO Mark Hurd and former Chairman Patricia Dunn. (Caution: these are big fat PDF files, Dunn’s is especially long, and crashed my laptop at one point.)

Hurd’s statement is fairly straightforward, and in many ways sticks to the story he told last Friday in the press briefing at HP headquarters. (The full text of Friday’s statement from Hurd is HERE.)

Dunn’s statement is much more detailed, and sheds new light on how the investigation unfolded. The roles of several HP employees becomes clearer, including the parts played by General Counsel Ann Baskins and CFO Bob Wayman, who until now has not been considered a major player in the chronology of events, but now will receive more focus. Dunn is unrepentant about the importance of finding the source of the board leaks, and confirms that she resigned only when asked by the board - and refused to say that it was her own decision when asked to do so by the board.

Below are some key points from each statement; I would suggest reading the entire statements, they are worth the time:

Mark Hurd’s Statement:

  • Hurd’s statement is apologetic. “What began as a proper and serious inquiry into leaks of company information became a rogue investigation that violated our own principles and values,” he says in the statement to be delivered tomorrow. “There is no excuse for this aberration. It happened; it will never happen again.”
  • Hurd apologizes to the reporters, directors and HP employees who were pretexted. He says that the “victims” will be given details on what information was obtained, how it was obtained, when it was obtained, and who obtained it. “The ends came to justify the means,” Hurd says. “The investigation team became so focused on finding the source of the leaks that they lost sight of the values of this company. They lost sight of the values that this company has always represented.”
  • Hurd takes some blame: “I wish I had asked more questions. There are signs I wish I had caught.”
  • Hurd says that the first steps in the investigation came in early 2005. Larry Sonsini was hired to determine the source of the board leaks, and interviewed each director.
  • Hurd says that in the spring of 2005, Dunn hired Ron Delia of Security Outsourcing Solutions, who had worked for HP doing investigations for a number of years. He then goes on to describe the two parts of the investigation, the first part which never found the leaker, the second phase triggered by the now infamous CNET story after a January 2006 board meeting.
  • Hurd says that “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 it.”
  • Hurd details what he knew: He says he was told soon after he got to HP that there was a leak investigation going on. He repeats his previous comments about attending meetings on the investigations: one in July 2005, which discussed the first phase; one in March 2006 where a summary of the second phase was discussed.
  • Hurd again confirms that he knew about the scheme to send false information to a CNET reporter, but again says that he does not recall seeing or approving the use of tracer technology.
  • Hurd again says that he did not - but should have - read a March 2006 written report on the investigation.
  • Hurd confirms that in addition to Dunn, “other employees have left the company,” but he does not name them.
  • Says Hurd: “I pledge that I will dig harder and deeper and I will get to the bottom of this.”


Patricia Dunn’s Statement:

  • Dunn says the concerns about board leaks were “brought to a head” by a January 24, 2005 front page story in the Wall Street Journal which contained “the most sensitive details of discussions from its off-site strategy meeting the prior week - including aspects of those discussions that were only known to the board.”
  • She describes the leaks as a “breakdown of board sanctity.” She says that “even trivial information that finds its way from the boardroom to the press corrodes trust among directors.”
  • She says that there are no good board leaks: “Leaking ‘good’ information is as unacceptable as leading ‘bad’ information.”
  • Dunn says she sought counsel on how to deal with the leaks from HP CFO Bob Wayman, the acting CEO between the time that Carly Fiorina left and Mark Hurd arrived. Wayman, she said, referred her to Kevin Huska, who had responsibility for Global Security at HP.
  • Huska, she says, was the person who told her to talk to Ron Delia.
  • Dunn says that Delia seemed to be be operating as a “captive subsidiary” of HP, performing many investigations over 8 or 9 years, include background checks of new exceutive hires; among other things, he did the background check for Mark Hurd.
  • Dunn says that she did not hire Delia and his firm, but rather that “They were already under contract to HP when the leak investigation was initiated.”
  • She says that she did not consider herself the “supervisor” of the first phase of the investigation, and assumed that “an appropriate person such as Mr. Huska was directing the work as necessary.” She does say that she had intermittent contact with Mr. Delia during the first phase of the investigation, Kona 1.
  • Dunn says that at some point during the late spring of 2005, she “became aware from Mr. Delia that phone records were accessed as a standard component of such investigations by HP.” [Wow! This opens a big can of worms…if he was doing work for HP for at least eight years, and this was a standard way he did business, this could get even uglier than it already is.]
  • She says that “the clear impression I had from Mr. Delia was that such records could be obtained from publicly available sources in a legal and appropriate manner…I now believe that not only I, but all of the executives upon whom I relied at HP, whose integrity I have never questioned to this day, were similarly confident that these records were accessed under fully legal circumstances.”
  • Dunn says that as the first phase of the investigation progressed, “I wanted to obtain greater confidence that the best people at HP were overseeing the investigation.” She says that her notes indicate conversations on the subject with both Mark Hurd and Ann Baskins.
  • Dunn says the second phase of the investigation started up after the infamous CNET article.
  • In restarting the probe, Dunn says she had “the full support of the CEO…and the General Counsel in making this decision.”
  • Dunn says that she suggested turning to Kroll Associates to investigate the leak, but that Baskins suggested that instead the investigation be turned over to Kevin Hunsacker, an HP lawyer described to Dunn as having responsibility for investigations into standards of business conduct. Dunn says she did not know Hunsacker, but agreed to Baskins’ suggestion.
  • Dunn says that Hunsacker supervised the Kona 2 investigation, reporting to Ann Baskins. She says that Husacker contacted her several times, but that “almost all of these contacts included Ann Baskins.”
  • “I did not find it objectionable that suspected leakers might be followed to see if they were meeting with reporters,” Dunn says.
  • Again, Dunn says she did not think there were issues around obtaining phone records: “I was fully convinced that HP would never engage in anything illegal, and the privacy issues related to our directors were balanced in my mind against their eagerness to get to the bottom of the problem.”
  • On the scheme involving sending a falsified email to a reporter at CNET, Dunn says she was assured that it was legal, that Baskins was in the loop and that Hurd made “the final decision.” [She does not address what Hurd did or did not know about the attachment of tracing software to the email.]
  • Dunn says Hurd met with the board leaker George Keyworth to convince him to come forward, but that he declined; in fact, he says that Hurd and Keyworth held this conversation at a meeting in Los Angeles in March, in a hotel lobby where she and Baskins were also sitting, and that she could see “Mr Hurd was intensely engaged with Mr. Keyworth.”
  • Dunn says that board member Tom Perkins wanted the matter to be settled with Keyworth admitting privately what he did, but with full details held back from the full board.
  • Dunn reports that the now well-known story of Perkins’ angry resignation at a May board meeting reflected his unhappiness with the board decision to ask his friend Keyworth to resign - and not specifically with the investigation itself. “At no time during Mr. Perkins’ outburst did he make any statements whatsoever about the leak investigation - including its justification or its methods,” she says.
  • Dunn says that in a now-public email exchange between Perkins and Sonsini, Sonsini used the word pretexting in connection with the investigation. “That was the first time I began to comprehend what the word meant.”
  • And then she says: “I still do not understand whether it is or is not legal, as opinions vary.”
  • Dunn says she finally agreed to resign from the board “only…if it were clear they had asked me to do so…”
  • She then goes on to say that we need better rules on both pretexting and board disclosure. “The fact that so many lawyers who were involved in the HP matter could turn out to be either so mislead or so uncertain as to the legality of ‘pretexting’ speaks volumes as to the need for unambiguous legislation to protect individual privacy.”

    Dunn provides considerably more detail than I have included here on the board’s actions involving Perkins and Keyworth, and the end-game in which Dunn finally left. It’s going to make a great movie some day. Meanwhile, Dunn’s testimony is going to complicate the lives of quite a few people at HP, in particular Hurd, Wayman and Baskins.