Investors Spooked by HP Emails Implicating CEO

By IR Web Report Staff

AFTER initially shrugging off the dirty tricks scandal at Hewlett-Packard Co., investors took fright this morning when they awoke to news articles suggesting CEO Mark Hurd was actively consulted throughout the firm’s spying campaigns.

Both the Washington Post and the New York Times quoted emails between HP managers, chairwoman Patricia Dunn and outside private investigators which clearly suggested that Hurd was consulted about HP’s secret spying operations against directors, journalists, legal counsel and their families.

Shares of HP fell 5%, their biggest drop in almost two years, as investors digested the news and contemplated the impact on the company. Hurd is largely credited with driving a revival of fortunes at HP and any indication that he might be implicated in the deepening crisis is likely to make investors nervous.

HP shares dropped at the open on news reports linking CEO Mark Hurd to the company’s sting operation on a reporter and to a probe of directors.

An internal HP email, quoted by The New York Times, suggested that Hurd actually provided a list of five directors he believed should be investigated as sources of possible leaks.

The email was sent by HP’s communications head Robert Sherbin to the firm’s global security chief Jim Fairbaugh. The email was sent after HP became aware that the CNET news.com website planned to run an article about a board-management strategy retreat in early January 2006.

Said the Times:

In a Jan. 20 message to Mr. Fairbaugh, Mr. Sherbin wrote that suspicion about the leaks was centering on five board members: George A. Keyworth II, Thomas J. Perkins, Lawrence T. Babbio Jr., Richard A. Hackborn and Lucille S. Salhany.

Mr. Sherbin wrote, apparently in reference to Mr. Hurd: “Mark believes the names worth looking at are Hackborn, Babbio, Salhany, Keyworth and Perkins.”

The Washington Post, quoting a February 9 email written by chairwoman Dunn to HP internal lawyers, said that Hurd had approved a “sting” operation on a CNET news.com reporter as part of the investigation into supposed leaks.

The Post quoted another email from February 23 from HP senior counsel Kevin Hunsaker to Dunn which said: “I spoke to Mark (Hurd) a few minutes ago and he’s fine with both the concept and the content,” of the sting.

Meanwhile, HP issued a news release saying that Hurd and outside lawyers would hold a press conference on Friday to “discuss the actions HP is taking to address issues regarding the investigation of leaks from its boardroom.”

In the release, issued before the market opened, Hurd was quoted as saying: “HP is working hard to determine exactly what took place and when, and without all the facts it has been difficult for us to respond to the questions that have been raised. We plan to give as much clarity as we can to these matters.”

The decision to hold the press conference may be an indication that the widening coverage of the scandal is threatening HP’s image among customers. HP has long traded on a reputation of integrity and on upholding the highest standards of privacy for its customers.

However, that is now being called into serious doubt by the apparent lack of regard for privacy and possibly even the law at the very highest levels of the corporation. The scandal is unlikely to end soon as several investigations are underway from regulators and lawmakers. These will provide the media with a constant stream of new information to write about.

Separately, HP said Hurd will appear next week at a House subcommittee hearing on HP’s possibly illegal investigation. This came after Reuters reported that Rep. Bart Stupak of Michigan, the senior Democrat on the House Energy and Commerce subcommittee on oversight and investigations, said he would consult with the panel’s Republican chairman about HP CEO Mark Hurd’s possible participation at a Sept. 28 hearing on the spying activities.

The HP board holds its regular meeting today.

Update: In a blog post, corporate and securities lawyer Alex Simpson suggested that HP’s board may not have been fully briefed on the scope and details of the spying operations before they approved an arrangement that will see Hurd assume both CEO and chairman titles and Dunn remain on the board as a director.

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