11 Questions About the HP Scandal

Congress tomorrow becomes the momentary center of the vortex swirling around Hewlett-Packard. Many of the major players in the now three-week-old corporate spying scandal are scheduled to appear before the House Energy and Commerce Committee. The hearing, which is expected to last two days, will not only give elected representatives the chance to grandstand and to weigh in on matters of personal privacy, corporate ethics and the responsibility of the telecom industry to better safeguard its records. It may also provide further details about the drama that has shaken one of Silicon Valley's—and America's—iconic corporations.

Let's review how HP got to the point where Congress is joining an investigation that already involves criminal probes by the California attorney general and at least two U.S. attorneys, as well as inquiries by the Securities and Exchange Commission, the FTC and FCC. The story, first reported Sept. 5 on NEWSWEEK.com, grew out of HP's long-held obsession with determining who, if anyone, on its board of directors was leaking confidential information to the media. Patricia Dunn, the board's chairwoman, spearheaded an investigation that was led by the general counsel's office of the company. That office in turn outsourced much of the leaks investigation to various security firms and private investigators. The investigation employed various tactics that ranged from the controversial to the not-necessarily-legal.

The tactics included using private investigators to impersonate board members and then to trick phone companies into handing over the calling records of those board members' personal phone accounts. The records of journalists were similarly hacked (or, "pretexted," as the telecom lexicon goes). With those records in hand, the investigators could quickly determine the identity of the likely HP leaker. Some directors and journalists were also followed by investigators, and at least one reporter was sent "tracer" software in order to try monitor e-mail communications.

The investigations, such as they were, bore fruit. Director George (Jay) Keyworth was identified at a May 2006 board meeting by Dunn as the alleged leaker. (Keyworth staunchly maintains he disclosed no confidential information, and the company has backed away from calling him a leaker in recent days.) But that step set in motion the current scandal. Director Tom Perkins, a prominent Silicon Valley venture capitalist, quit the board immediately in protest and agitated for the next 10 weeks for the company to disclose his reasons for resigning—and thereby bring to light the company's surveillance scheme. That finally happened Sept. 5. Thereafter, Dunn announced she would step down as chairwoman in January, to be succeeded by Mark Hurd, the current CEO (who would remain as CEO, as well). Keyworth, who had previously declined the board's demand that he resign, also agreed to step down. The California attorney general took the lead in announcing criminal probes, and for two weeks now, has hinted at imminent indictments—including, possibly, of HP itself.

Hurd was able to stay above the fray for only days, as e-mails became public—through leaks, of course—that showed he was more involved in the Dunn-orchestrated investigation that previously thought. Last Friday, at a press conference, Hurd offered bits and pieces about his contemporaneous knowledge and involvement, but declined to take questions because, HP said, it did not want to pre-empt any questions from Congress this week. Hurd also announced that he would become chairman immediately (staying on as CEO, as well) and that Dunn was out. Throughout it all, apart from a 5 percent decline in HP's stock price last Thursday when Hurd's involvement became known, HP's bottom line has not been affected by the scandal. Wall Street and Silicon Valley insiders attribute that to Hurd's reputation and the performance he's demonstrated since becoming CEO at HP in early 2005.

What to expect at the hearings Thursday and Friday (which will be Webcast from Congress, as well as available on one of the C-SPAN channels)? Herewith, a playbook for viewers:

Who's testifying?
Nine witnesses are scheduled, including Dunn and Hurd. They are the key players, as are Larry Sonsini and Ann Baskins. Sonsini is HP's outside counsel and Silicon Valley's heaviest-hitting corporate lawyer. Baskins is HP's general counsel—its main lawyer on staff; it was her office that had a central role in conducting the leak investigation. Congressional interrogators will want to ask those two traditional killer questions: what did you know and when did you know it? Or in a scandal where participants may claim not to have known what was going on, the questions may be: what didn't you know and why didn't you know it? That's a key inquiry, because if any participant willfully turned a blind eye-the better not to know-prosecutors could use that as a basis for indictment.


Who are the other five witnesses?
Representatives of some of the outside consulting firms retained by HP, along with former HP employees ("former" because their employment reportedly ceased this week). Congressional officials expect that three of these witnesses—Kevin Hunsaker, HP's former senior counsel and chief ethics officer; Anthony Gentilucci, HP's former security chief, and Ronald DeLia, one of the private investigators HP retained—are expected to plead the Fifth Amendment, which allows them not to answer on the grounds they may incriminated themselves.

What happens if any witnesses taking the Fifth are granted immunity?
It gets tricky, but the bottom line is that you have to answer questions if you're granted immunity. No one at this point is suggesting any grants if immunity are likely. But if they happen, a potential loser is any prosecutor, who might then be forced to show that he indicted someone based on information unrelated to the immunized testimony. (Generally, a prosecutor cannot use immunized testimony even indirectly to obtain incriminating evidence.) California's A.G. reportedly has been in contact with House staffers imploring that no grants of immunity be given that might impede his probe.

What should we listen for from reps of the consulting firms or subordinate HP employees?
The key question is whether they'll implicate higher-ups. Surely they will have been advised by counsel that Congress and prosecutors are most interested in landing the biggest fish in the pond. But by pointing the fingers at others, they may be implicating themselves in the process. It's a tightrope.

Where's Keyworth?
Good question. He wasn't asked to testify. Presumably, the House's inquiry is focused on HP's methods and not the underlying leaks that motivated Dunn. But don't think we've heard the last from Keyworth.

Are any fireworks expected?
It's anybody's guess, but several HP insiders have speculated that Dunn may go on the warpath in defending the goals of the leaks investigation. She had acknowledged that the means HP used—pretexting, spying, following people around—were excessive, but she has never stepped back from the ends she had in mind. And now that she has been rather unceremoniously dumped as chairman of the board—less than two weeks after the board agreed she would stay on until January—she may feel that she's a lone wolf whose siren cry against boardroom leaking needs to be heard.

Well, why she was shown the door?
She hasn't said. Nor has HP. It would be a good question for House members to ask at the hearings. The fact of her departure was slipped into the middle of Hurd's press conference last week. And since he took no questions at the event—it was less "press conference" and more "press transcription"—Hurd has not been forced to answer such unpleasant questions.

Care to speculate?
It may be that HP—or Dunn herself—concluded that she had become a distraction. Or it may be that her involvement in the leaks investigation may have been even more central than it now seems and that Hurd and the rest of the board lost confidence in her. Regardless, though, she may well feel abandoned by the board and may view her congressional testimony as her last, best chance to set the record straight.

What is Hurd's agenda at these hearings? After all, unlike Dunn, it was he who volunteered to come to Washington to testify.
Hurd faces the biggest challenge. He's no ex-chairman and no ex-employee. He's running the company ranked 11th in the Fortune 500. Wall Street desperately wants him to succeed. Almost nobody with any knowledge of HP's numbers, internal organization or strategic plan believes the company can thrive at this moment without Hurd's leadership. And yet, if Hurd's involvement in the scandal ever reached the point of leading to possible criminal culpability—which no prosecutor has even remotely intimated—then it's hard to see how he could continue on. For the moment, his mission before Congress is to appear open and forthcoming. Remember, at the press conference, he took no questions. He's yet to be subject to any interrogation. House members may well want to press him on so many of the details he left out at his press conference: Why wasn't he more interested in the leaks investigation that he knew Dunn was obsessed with? At what point did he learn that HP's outside consultants had obtained personal phone records of HP employees and how quickly did he ask just how could such personal records be obtained legally? At the May board meeting when Dunn announced to the board that it had been spied on—and Perkins quit in protest on the spot—what did Hurd have to say about the matter? If he said nothing, why? Has he now retained his own lawyer, separate and apart from HP counsel? Does he know if he himself had his phone records hacked? In short, the biggest moment of Hurd's HP career may be these hearings.

Congress is GOP controlled. Congress likes big business. Is there some irony in these hearings being spawned by Republican congressmen?
Sure. But never underestimate the need to grandstand taking precedence over political loyalty. That said, there are indeed many bills before Congress dealing with pretexting, confidentiality, privacy, and the sale of Social Security numbers to private investigators (which may have helped consultants pretext HP directors in this case). This is the kind of hearing that could spur House action.

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