HP chairman to go after media leak scandal

HP chairman Patricia Dunn, who launched an investigation into media leaks that resulted in a firestorm of controversy, has agreed to resign her post following a meeting of the company's board of directors.

The board has appointed CEO and president Mark Hurd to take over for Dunn, who will continue to serve as chairman until immediately after the company's 18 January, 2007, scheduled meeting, the company announced early on Tuesday. After that point, Dunn will remain on the board as a director.

In a statement, Hurd said: "I am taking action to ensure that inappropriate investigative techniques will not be employed again. They have no place in HP."

Hurd will continue to hold his positions of president and chief executive. In addition, HP said Richard Hackborn was named lead independent director, effective in January.

Dunn's departure caps a tumultuous episode for HP, one of the country's largest companies and a Silicon Valley icon that just over a week ago had been basking in the glow of an economic turnaround. The computer maker now finds itself mired in a scandal sparked by an investigation into media leaks emanating from its boardroom.

Last Tuesday, several media outlets reported that an internal HP investigation into its own directors was behind one director's angry resignation this spring.

During the course of last week, it came out that the investigation to find the source of media leaks involved possibly illegal access to phone records of the company's directors, at least nine journalists and potentially many other people. As a result, federal and California state prosecutors launched investigations, and civil lawsuits and criminal charges are possible. A US House of Representatives committee is also seeking records related to the case.

Dunn, who ranked 17 on Forbes magazine's "100 Most Powerful Women" list in 2005, replaced Carly Fiorina as the chairman of the computing giant last year. Dunn had been a director at HP since 1998. She was co-chairman, chairman and chief executive officer of Barclays Global Investors from 1995 through 2002. According to a biography of Dunn on HP's website, she "also serves on the advisory board of the [University of California at] Berkeley Haas School of Business, as well as the conference board's Center for Corporate Governance".

Dunn had been frustrated by media leaks dating back to articles in early 2005 about the relationship between then-CEO Fiorina and the board. A 23 January, 2006, report by silicon.com sister site CNET News.com that quoted an unnamed source describing a strategy-planning meeting of the board apparently so angered Dunn that she authorised an investigation of her fellow directors to find the leak.

In a statement, Dunn said she was proud of her accomplishments at HP but regretted the use of "inappropriate techniques" in the investigation.

She said: "These leaks had the potential to affect not only the stock price of HP but also that of other publicly traded companies. Unfortunately, the investigation, which was conducted with third parties, included certain inappropriate techniques. These went beyond what we understood them to be, and I apologise that they were employed."

Eric Ross, a financial analyst at ThinkEquity Partners, said replacing Dunn was a good move for the company, if only because the controversy may be demoralising and distracting employees.

But Hurd's accumulated power as president, CEO and soon chairman, does raise questions of corporate governance, Ross said. "Making Hurd chairman seems to be a lot of power for one person," he said. "It seems like the world's moving away from that model."

According to a Securities and Exchange Commission filing by HP, an outside investigative company hired by the company relied on a subcontractor who impersonated the identities of board members and journalists to access personal phone records, which were then used to help determine which board members were talking with the press. The disclosure of the practice, called pretexting, has led to the departure of two of the 11 directors that the company had when the investigation was disclosed to the board on 18 May, and another who is not being renominated to the position.

CNET News.com's Martin LaMonica contributed to this story

Scott Ard writes for CNET News.com