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HP's boardroom witch hunt causes two directors to leave

Pretexting now part of the HP Way

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Put the cheery comeback stories on hold. HP has a boardroom scandal that deserves some attention.

Sweat started trickling down the foreheads of workers in HP's PR department late Tuesday as word broke of a boardroom spy debacle. According to various reports, two of HP's directors have severed ties with the company as a result of Chairman Patricia Dunn's decision to investigate board members. Dunn hoped to discover which board member leaked information about an HP planning session to the press and okayed the use of controversial surveillance techniques to track down the leaker.

Tom Perkins, HP veteran and founder of venture capital firm Kleiner, Perkins Caufield and Byers, resigned from HP's board in May after he learned of Dunn's surveillance operation. And today the Wall Street Journal reports that fellow board member George Keyworth will not be invited back to serve as a director after HP fingered him as the mole.

Dunn permitted a team of so-called security experts to dive into records of the directors' personal telephone calls made both at their homes and on their cell phones, according to the reports. The investigators then processed the data and figured out which director had been communicating with reporters. Dunn did not inform the directors of the investigation until is was completed.

The Chairman was said to be upset about a series of leaks that occurred before and after HP fired CEO Carly Fiorina. A CNET story by Dawn Kawamoto that outlined HP's long-term strategy pushed Dunn over the edge.

"On May 18, at HP headquarters in Palo Alto, Calif., Dunn sprung her bombshell on the board: she had found the leaker," Newsweek reports. "According to Tom Perkins, an HP director who was present, Dunn laid out the surveillance scheme and pointed out the offending director, who acknowledged being the CNET leaker.

"Close to 90 minutes of heated debate followed, but Perkins, the Silicon Valley venture capitalist, says he was the only director who rose to take Dunn on directly. Perkins says he was enraged at the surveillance, which he called illegal, unethical and a misplaced corporate priority on Dunn’s part. In an interview with NEWSWEEK, Perkins says he was particularly annoyed since he chaired the HP board’s Nominating and Governance Committee and had not been informed by Dunn of the surveillance, even though, he says, she had told him for months that she was attempting to discover the source of the leak."

On May 19, HP then announced Perkins' resignation in a brief statement. It provided no reason for his departure in the statement and seemed to portray Perkins as leaving on good terms.

"On behalf of HP, I wish to thank Tom for his service and dedication to our company," CEO Mark Hurd said in the statement. "I am particularly grateful for the support he has provided to me over the past year."

Perkins has expressed outrage that HP did not disclose his reasons for resigning. The company is now expected to release an SEC filing tomorrow that discloses the investigation and outs Keyworth as the leaker.

"The situation is regrettable," Ms. Dunn said in a statement provided to the Wall Street Journal. "But the bottom line is that the board has asserted its commitment to upholding the standards of confidentiality that are critical to its functioning. A board can't serve effectively if there isn't complete trust that what gets discussed stays in the room."

This corporate scandal comes at a time when HP has received mounds of favorable press for its recent financial performance. The company has managed to turn in a couple quarters of consistent results - quite the change from the yo-yo days of Fiorina. Hurd, who pitches himself as a no-nonsense pragmatist, cannot be happy about the exposure of the boardroom shenanigans at this time.

Fiorina, however, must be somewhat pleased. The well-groomed executive is about to ship her tell-all book and can use the extra press to boost sales.

Newsweek seems to have dug up the most gossip about the boardroom episode, although it has relied heavily on Perkin's account of the situation. The magazine stressed that HP's investigation did not rely on tapping phone lines or reading e-mails. Rather investigators grabbed phone records via a technique known as "pretexting" where a person misrepresents who they are to obtain the details of another individual from a phone company. It's basically a form of social engineering.

"Perkins himself was pretexted as part of Dunn’s leaker probe," the magazine reports. "In the materials he sent to the SEC, Perkins includes an August 11 letter from an attorney at AT&T spelling out to Perkins that he was a victim of pretexting in January 2006; Perkins had requested that AT&T examine whether he had been pretexted.

"The AT&T letter explains that the third-party pretexter who got details about Perkins’s local home-telephone usage was able to provide the last four digits of Perkins’s Social Security number and that was sufficient identification for AT&T. The impersonator then convinced an AT&T customer-service representative to send the details electronically to an e-mail account at yahoo.com that on its face had nothing to do with Perkins."

Pretexting is illegal according to the US Federal Trade Commission.

HP's move not to disclose Perkins' reason for resigning is also of note. Companies are required issue a filing with the SEC that outlines why a director resigned when there's a disagreement between the director and the company over "operations, policies and practices."

You can expect more on this story to unfold in the coming days, particularly when HP's SEC filing goes out tomorrow.

We've been digging through Dave Packard's The HP Way to find the chapter on pretexting but seem to have missed it. Any help is much appreciated.®

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