Friday, May 25, 2007

H-P Gets a Slap on the Wrist

The internal investigation of boardroom leaks at Hewlett-Packard turned into a major controversy in September 2006, garnering significant negative publicity for the company when it came out that private investigators engaged in pretexting to obtain private telephone records of employees and journalists.  All those negative headlines did not translate into any significant regulatory actions against the company, however.  In December 2006, H-P agreed to a civil settlement with the California Attorney General that involved a payment of $14.5 million to a law enforcement fund to fight privacy violations (press release here).  The SEC announced the issuance of a Cease-and-Desist Order (here) -- the lightest penalty the Commission can impose -- for the company's faulty disclosure of the reason why board member Tom Perkins resigned his position in May 2006.  Perkins objected strongly to H-P's internal investigation of a leak by another board member who was asked to resign.  The 8-K (here) filed by the company on May 22, 2006, disclosing the Perkins resignation did not discuss the reasons for it, a violation of the disclosure rules, as described in the Order:

HP concluded, with the advice of outside legal counsel and the General Counsel, that it need not disclose the reasons for Mr. Perkins’ resignation because he merely had a disagreement with the company’s Chairman, and not a disagreement with the company on a matter relating to its operations, policies, or practices. Contrary to HP’s conclusion, the disagreement and the reasons for Mr. Perkins’ resignation should have been disclosed, pursuant to Item 5.02(a), in the May 22 Form 8-K. Mr. Perkins resigned as a result of a disagreement with HP on the following matters: (1) the decision to present the leak investigation findings to the full Board; and (2) the decision by majority vote of the Board of Directors to ask the director identified in the leak investigation to resign. Mr. Perkins’ disagreement related to important corporate governance matters and HP policies regarding handling sensitive information, and thus constituted a disagreement over HP’s operations, policies or practices. (Italics added)

The outside counsel referred to in the Order is Larry Sonsini, the leading lawyer in Silicon Valley, and H-P's general counsel at the time was Ann Baskins, who resigned after the revelation of the details of the internal investigation overseen by her office.  Only the company is the subject of the Commission action, and it involves no penalty other than another small dose of bad publicity that dredges up headlines from 2006.  A quiet ending to a series of bad decisions that cost a number of officers and directors their reputations. (ph)

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