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September 28, 2006

Testimony from Dunn and Hurd

Posted by Gordon Smith

The Committee has posted the written testimonies of Patricia Dunn and Mark Hurd. Mark Hurd apologizes to those "whose privacy was infringed upon" and promises to supply to "the victims the details regarding the information obtained about them, the means by which it was obtained, when it was obtained and who obtained it." (emphasis in original)

As for his own responsibility in the affair, Hurd claims that he committed sins of omission: "I wish I had asked more questions. There are signs I wish I had caught." Much of the text of the written testimony is the same as the press conference from last Friday, and Hurd does not add any new information about the investigations.

Dunn's written testimony is longer and more interesting than Hurd's. Here are some tidbits:

"I Was Referred to the Investigator Who Was Under Contract to Hewlett-Packard's Global Security Group." This is one of the headings in Dunn's testimony, and it reflects the main theme of her testimony: that Dunn is the victim of HP's internal investigation unit. Later, she writes: "I did not 'hire' the private investigators who were involved in the Kona 1 (or Kona 2) investigations. They were already under contract to HP when the leak investigation was initiated." The implication of Dunn's testimony is that the investigative methods used in this case are business as usual for HP. It is hard to imagine that HP is an outlier in corporate America on this front.

"When the work that eventually was termed 'Project Kona' got under way, I did not at any point consider myself its 'supervisor.'" The email correspondence that has been revealed suggests that she was the contact on the board of directors for HP's internal investigation unit. Indeed, in her own testimony, she wrote: "I expected to be kept abreast of the progress of the investigations and to respond to inquiry by those in charge of the investigation as necessary for them to conduct the work." Ok, so she wasn't the "supervisor" of the investigation on the ground, she merely requested that HP's internal investigation unit do the dirty work and deliver the results. Of course, Dunn claims that she thought that all of the investigative techniques were "proper, legal and fully in compliance with HP's normal practices." She claims this, despite seeing evidence that the investigators had access telephone records:

At some point during the late spring of 2005, I became aware from Mr. Delia that phone records were accessed as a standard component of such investigations by HP. 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, and that this was just one of several methods that would be pursued in the investigation. 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.
Wow! Is this plausible?

Dunn has only nice things to say about Hurd:

Mark Hurd knew that boardroom leaks were a problem at HP, and he made it clear he was a "hawk" on the matter within his own executive team. He also made it clear to me that he found the idea of directors talking out of turn to the press to be reprehensible. At some point, apparently at least by April 20, 2005, I informed him there was an investigation underway that pre-dated his arrival on March 30. (I have found Mark Hurd to be among the most straightforward, clearthinking and honorable executives with whom I have ever come in contact. Time and again I have heard him refer to his conscience and his ethics as driving his priorities, and I have seen him behave accordingly.)
Despite saying nice things, Dunn claims that Hurd was "included in perhaps two or three meetings, to my knowledge, to review key milestones and provide his own input on the priority and motivations behind the investigation." That seems to be in substantial tension with Viet Dinh's assertion that Hurd's "knowledge was tangential and his involvement indirect."

Patricia Dunn relied on HP's lawyers to do the right thing:

Indeed, given that attorneys were unambiguously overseeing the investigation in Kona 2 and were following similar practices as in Kona 1 reinforced my understanding that the investigations had been and were being handled appropriately.
When in trouble, blame the lawyers.

Finally, Dunn agrees with those who view this as a SOX-induced scandal. But the problem isn't good governance. Rather, the problem is that some people are living in the past:

When the final story is written on what happened at HP, I believe that its roots will be understood as emanating from a clash between the old and the new cultures in the Boardroom, driven importantly by Sarbanes-Oxley and related regulatory changes. The clash is perhaps particularly poignant in Silicon Valley, where the culture of innovation, freedom of maneuver and creativity are seen as essential to value creation. The machinery required to implement SOX in the boardroom can be seen as cumbersome, time-wasting and a drag on directors' desires to focus on the truly interesting and valuable parts of their roles-for example, business and product strategy. I saw my role as Non-Executive Chairman as helping the Board transition from its roots as a "founder's board" to a modern, fully professional board that was driven by appropriate process as opposed to by personalities. The fact that the rules applied to everyone was not accepted by everyone on the HP Board. The fact that, in a modern board, every director is as important as every other director, was not accepted by everyone on the HP Board. I am proud of the work that I have done to improve the corporate governance at HP, including helping to bring in strong new directors who meet the test of independence in every sense. I do not agree with those who contend that a company cannot receive high marks for governance and still be innovative and successful.

Interesting stuff all around.

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Dunn's written testimony is longer and more interesting than Hurd's. Here are some tidbits:

"I Was Referred to the Investigator Who Was Under Contract to Hewlett-Packard's Global Security Group." This is one of the headings in Dunn's testimony, and it reflects the main theme of her testimony: that Dunn is the victim of HP's internal investigation unit. Later, she writes: "I did not 'hire' the private investigators who were involved in the Kona 1 (or Kona 2) investigations. They were already under contract to HP when the leak investigation was initiated." The implication of Dunn's testimony is that the investigative methods used in this case are business as usual for HP. It is hard to imagine that HP is an outlier in corporate America on this front.

"When the work that eventually was termed 'Project Kona' got under way, I did not at any point consider myself its 'supervisor.'" The email correspondence that has been revealed suggests that she was the contact on the board of directors for HP's internal investigation unit. Indeed, in her own testimony, she wrote: "I expected to be kept abreast of the progress of the investigations and to respond to inquiry by those in charge of the investigation as necessary for them to conduct the work." Ok, so she wasn't the "supervisor" of the investigation on the ground, she merely requested that HP's internal investigation unit do the dirty work and deliver the results. Of course, Dunn claims that she thought that all of the investigative techniques were "proper, legal and fully in compliance with HP's normal practices." She claims this, despite seeing evidence that the investigators had access telephone records:

At some point during the late spring of 2005, I became aware from Mr. Delia that phone records were accessed as a standard component of such investigations by HP. 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, and that this was just one of several methods that would be pursued in the investigation. 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.
Wow! Is this plausible?

Dunn has only nice things to say about Hurd:

Mark Hurd knew that boardroom leaks were a problem at HP, and he made it clear he was a "hawk" on the matter within his own executive team. He also made it clear to me that he found the idea of directors talking out of turn to the press to be reprehensible. At some point, apparently at least by April 20, 2005, I informed him there was an investigation underway that pre-dated his arrival on March 30. (I have found Mark Hurd to be among the most straightforward, clearthinking and honorable executives with whom I have ever come in contact. Time and again I have heard him refer to his conscience and his ethics as driving his priorities, and I have seen him behave accordingly.)
Despite saying nice things, Dunn claims that Hurd was "included in perhaps two or three meetings, to my knowledge, to review key milestones and provide his own input on the priority and motivations behind the investigation." That seems to be in substantial tension with Viet Dinh's assertion that Hurd's "knowledge was tangential and his involvement indirect."

Patricia Dunn relied on HP's lawyers to do the right thing:

Indeed, given that attorneys were unambiguously overseeing the investigation in Kona 2 and were following similar practices as in Kona 1 reinforced my understanding that the investigations had been and were being handled appropriately.
When in trouble, blame the lawyers.

Finally, Dunn agrees with those who view this as a SOX-induced scandal. But the problem isn't good governance. Rather, the problem is that some people are living in the past:

When the final story is written on what happened at HP, I believe that its roots will be understood as emanating from a clash between the old and the new cultures in the Boardroom, driven importantly by Sarbanes-Oxley and related regulatory changes. The clash is perhaps particularly poignant in Silicon Valley, where the culture of innovation, freedom of maneuver and creativity are seen as essential to value creation. The machinery required to implement SOX in the boardroom can be seen as cumbersome, time-wasting and a drag on directors' desires to focus on the truly interesting and valuable parts of their roles-for example, business and product strategy. I saw my role as Non-Executive Chairman as helping the Board transition from its roots as a "founder's board" to a modern, fully professional board that was driven by appropriate process as opposed to by personalities. The fact that the rules applied to everyone was not accepted by everyone on the HP Board. The fact that, in a modern board, every director is as important as every other director, was not accepted by everyone on the HP Board. I am proud of the work that I have done to improve the corporate governance at HP, including helping to bring in strong new directors who meet the test of independence in every sense. I do not agree with those who contend that a company cannot receive high marks for governance and still be innovative and successful.

Interesting stuff all around.

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