Business Ethics and Governance Issues at HP: The Pretexting Controversy

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"I'm sad for the company and shocked at the things that appear to have been done. My third reaction is that it lifts the veil on the dysfunction that existed in the boardroom at the end of my tenure." ¹

- Carly Fiorina, Former Chairperson and CEO, Hewlett Packard, in 2006.

"Fortunately, Hewlett-Packard is not Enron, I commend the firm for cooperating instead of stonewalling, for taking instead of shirking responsibility, and for working with my office to expeditiously craft a creative resolution." ²

- Bill Lockyer, Attorney General, California, in 2006.

"HP, which has built a reputation as an exemplar of ethical corporate behavior, may now find itself lumped with other rogue companies." ³

- Representative Tammy Baldwin,⁴ Congressional District #2 of Wisconsin, in 2006.

HP Settles Civil Lawsuit

On December 07, 2006, the Attorney General of California, Bill Lockyer (Lockyer) announced that the US-based Hewlett-Packard Company (HP) would pay US$ 14.5 million to settle civil claims. The claims arose after the company revealed that in order to find out how highly confidential information from the boardroom had been leaked to the press, HP had spied on its board members, journalists, and a few employees. About US$ 13.5 million from this payment was to be used by the Attorney General's office to create a 'Privacy and Piracy Fund' to fight violations of intellectual property rights and privacy. About US$ 650,000 was to be kept aside for the payment of civil penalties, and US$ 350,000 for investigation costs.

The settlement included an injunction and agreement according to which the Attorney General would not pursue any civil claims against HP, its directors, and employees. HP also agreed to strengthen its corporate governance practices to ensure compliance with legal and ethical standards (Refer to Table I for the reforms HP agreed to undertake). The trouble began in January 2005 when confidential matters discussed at HP's board meetings found their way into newspapers. The information, which was widely reported in the press, pertained to HP's strategic decisions, future plans, negotiation terms with suppliers, and important business transactions.

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1] Brad Stone, "Fiorina's 'Choices,'" Newsweek, October 16, 2006.

2] Greg Sandoval, Declan McCullagh, "Calif. AG Files Felony Charges in HP Probe," www.zdnet.com, October 04, 2006.

3] Mark Schoeff Jr., "CEO Hurd Tells Congress HP Way Can Be Restored," Workforce Management, October 09, 2006.

4] Tammy Baldwin is democratic members of United State House of Representatives from Wisconsin.

5] 'Pretexting' is the acquisition of customer records from telecommunications carriers by fraudulent means, most commonly by pretending to be the phone customer whose information is sought.