HP chairman to resign over leaks probe

SAN FRANCISCO - Hewlett-Packard chairman Patricia Dunn today agreed to step down in a boardroom shake-up, as the No 2 computer maker tried to defuse a scandal over its investigation into media leaks.

The source of the boardroom leaks, director George Keyworth, also agreed to resign, saying he hoped HP could put to rest the controversy, which has drawn inquiries from US federal and California state prosecutors.

Dunn will give up the chairmanship on January 18 to Chief Executive Mark Hurd, but she will remain on the board, HP said on Tuesday after its board had deliberated for hours on Sunday and Monday over how to handle the furor.

It began last week, when HP disclosed its board had commissioned outside investigators to root out the source of media leaks dating back to 2005. It said investigators used false identities to obtain telephone records of some directors and journalists.

The move prompted an inquiry by California's attorney general that may result in criminal liability for identity theft and illegally accessing database information. On Monday, federal prosecutors said they were looking into the issue.

While the controversy has not deterred investors from HP, it has raised questions over the board's integrity and unity, analysts said.

"They've taken some important steps today on the road to recovery, but they haven't cured the problem," said James Post, a Boston University professor who specializes in corporate governance issues. "They have to weather a whole series of investigations. Their credibility is going to be at stake with each and every one of those."

Hurd said in a statement the investigative tactics "have no place in HP. The company will work to put these matters behind us so that we fully resume our focus on the business."

It was not immediately clear what impact, if any, the board shake-up would have on the federal and state inquiries.

But the main players in the boardroom turmoil appear to want to put the matter behind them and rallied behind Hurd. HP said Dunn volunteered to step down to minimize the distraction to the company, while Keyworth said HP should "move beyond and above the current morass."

Thomas Perkins, an influential Silicon Valley venture capitalist, also applauded the moves. He had resigned from the HP board in protest over the leak inquiry in May and last week asked US prosecutors to investigate the issue.

"I applaud Jay Keyworth for his courage in stepping down today and thank Patricia Dunn for her grace in letting HP move on," Perkins said. "This too shall pass."

Hurd apologized to Perkins in the statement "for the intrusion into his privacy."

HP's shares, which have largely been unaffected by the turmoil, closed up 56 cents, or 1.54 per cent, at US$36.92.

Analysts said Dunn's move will help HP defuse the scandal.

"Somehow enough control was not exerted" during the investigation process, said Cowen & Co analyst Louis Miscioscia. "Someone has to be held responsible. The logical person would be the one who is in charge."

Some analysts noted the trend in corporate governance would have been to keep the chairman and CEO roles separate, but others saw no problems in Hurd assuming both roles.

"Obviously the board has shown an element of dysfunctionality," said Charles Wolf, analyst with Needham & Co. "Putting Mark Hurd in charge ... makes a lot of sense."

HP, of Palo Alto, California, also said Richard Hackborn, who has served on the board since 1992, has been designated lead independent director, effective in January.

Dunn, 53, defended her decision to root out the source of boardroom leaks, but she apologized for the tactics hired investigators had used.

"Unfortunately, the investigation, which was conducted with third parties, included certain inappropriate techniques," said Dunn in a statement. "These went beyond what we understood them to be, and I apologize that they were employed."

Keyworth admitted giving information to the press but said he had done so with the company's permission. HP acknowledged it had often asked Keyworth to contact the press, but said it did not believe a communication in January 2006 had been vetted through appropriate channels.

HP has given sparse details about the content of the media leaks, saying they dated back to at least 2005. Some of the early leaks concerned former Chairman and CEO Carly Fiorina, who was ousted in February 2005, HP said last week.

California Attorney General Bill Lockyer said last week he believed crimes were committed in HP's leak investigation, but his office had not yet determined who was liable.

- REUTERS