Sunday, May 18, 2008
Corporate Policing and Corporate Governance: What Can We Learn from Hewlett-Packard's Pretexting Scandal?, by MIRIAM H. BAER, New York University School of Law, was recently posted on SSRN. Here is the abstract:
When Hewlett Packard (HP) announced in September 2006 that its Board Chairman, Patricia Dunn, had authorized HP's security department to investigate a suspected Board-level press leak and that the investigation included tactics such as obtaining HP Board members' and reporters' telephone records through false pretenses (conduct known as "pretexting"), observers vehemently condemned the operation as illegal and outrageous. In congressional testimony, however, Dunn defended the investigation as "old fashioned detective work." Although Dunn would later claim that she was unaware of key aspects of the investigation, her description was not so far off. The police routinely rely on deception to investigate and apprehend wrongdoers. Although it is tempting to view HP's pretexting episode as a one-time scandal, the episode illuminates a more important, largely unexplored, conflict between corporate policing and corporate governance.
This Article analyzes the tension between the board's competing responsibilities of overseeing its internal corporate police and implementing the norms and structures that presumably create ethical (and therefore "good") corporate governance. As the HP scandal aptly demonstrates, law enforcement techniques that rely primarily on deception are likely to conflict with corporate governance norms such as trust and transparency. After outlining the problem, the Article considers its broader policy implications.