Corporate Governance at Hewlett Packard

Ayub, Nguyen & Dao

Corporate Governance at Hewlett Packard

I. Introduction

Hewlett Packard was founded by two Stanford University classmates, Bill Hewlett and Dave Packard in a single car garage in 1938 -and with no real plan or vision. In just a few years it was already growing and making strides towards a clearly defined vision and management philosophy -the HP Way. This entailed a system of core values such as mutual respect, integrity, a huge emphasis on teamwork, innovation, employee retention and contribution not just the customers -but to the community as a whole . HP from the get-go wanted to market itself not just as an innovator putting strong emphasis on management by objective (MBO), but also as a global corporate citizen in an increasingly competitive market.

The Board of Directors (BOD) at HP adopt and abide by sophisticated yet clearly defined corporate governance guidelines and processes which focus on everything from membership criteria, elections, the roles of the board, director compensation, business standards conduct, evaluations, stakeholder relations and other critical aspects of the business . HP takes pride in the fact that 30% of its directors are females, and that apart from the HP CEO all the members of the board are experts and professionals from outside of the company. Traditionally, the chairman of the board is an independent director whose company does not have a direct business relationship with HP, in the interests of avoiding any conflict of interest. HP's strategic business plans can be discussed with the BOD without the CEO being present. Like in other businesses however, it is unethical for insiders to leak confidential information to the public prior to board decisions being officially made on matters of strategic and sensitive nature.

II. The Issues

The events leading up and subsequent to Hewlett Packard's 1999 merger with Compaq would prove to be one of the most chaotic and tumultuous times in the history of company. It really boiled down to a clash of views, cultures and mindsets - "old thinking" versus "new." This was later compounded by deliberate disclosure of nonpublic information to the press, and subsequent "pre-texting" which was employed by the private investigators hired by HP.

Company information leaks led to a culture of monitoring and spying on management and the board - tactics short of torture and drugging suspects were used which would make one Cold War-era Senator McCarthy blush. Private investigators employed tactics not limited to just trailing board directors' wives to bingo parlors, rummaging through members' garbage, covert photography, bugging and monitoring e-mail interactions, mapping of personal and family connections and even planting spies in newsrooms .

It goes without saying - it is unacceptable that company information that should be privy to certain individuals be disseminated externally to media outlets like Wall Street Journal and even CNET. Any company is more than within its right to take action against individual(s) who do not act in accordance to strategic and other interests; those who perhaps may be working against the interests of the company as a whole for personal reasons or vendetta. On the other hand, a rational approach should be used to locate the source of such leaks. A "police-state" like approach causes an environment of paranoia and distrust which can have a detrimental impact on the company as whole and go against the very philosophy enacted by those who founded it. HP's board chairman, Patricia Dunn, would later become a casualty of her own 'design' once the Securities and Exchange Commission (SEC) as well as the Attorney General of California became fully involved in investigation over the techniques used in the pre-texting .

Ironically, the board of directors, whose many functions includes the promotion of sound business practices and ethics, failed to have a control process in place to deal with and address the legality and ethicalness encompassing the ongoing investigations. To their credit, they did hire private investigators rather than do an internal investigation; the latter could have possibly fueled an even more invasive environment. A private investigator would simply be paid to gather the facts in a neutral manner. However, in this particular case things did not seem to transpire that way. When push comes to shove, Patricia Dunn violated HP's own standards of business ethics and as the firings and resignations started taking place, the board itself would begin to disintegrate. Dr. Keyworth clearly violated the 'sanctity' of the company by disclosing information to the public which he was not authorized to in the first place. Such an action paints somebody as disloyal and capable of a future breach of trust. In the interests of financial performance and reputation, it is absolutely crucial HP's directors and upper management see to it that there is trust and confidentiality of information. This certainly applies to important