Perkins Goes Up Against HPAgain

The maverick ex-board member and sometime critic of HP is accusing its chairwoman of questionable ethics and dubious legal tactics

Thomas Perkins, a pioneering presence at Hewlett-Packard (HPQ) in the early 1970s and a board member until May, has accused the company in a recent letter of filing "defective" statements with the Securities & Exchange Commission and charges that the company's chairwoman hired investigators to "hack" the personal phone records of board members.

In letters and e-mails reviewed by BusinessWeek, Perkins lays out a string of events at HP that he says led to his resignation from the board on May 18. He claims HP failed to comply with securities regulations when it informed investors of his departure in an 8-K filing but did not allow him to review the filing or report the reason for his resignation. He also says that investigators hired by Chairwoman Patricia Dunn used false pretenses to obtain information about his personal phone calls from AT&T, a practice known as "pretexting" that Perkins says is illegal.

As it turns out, Perkins was not implicated in the press leaks under investigation. Rather, HP is expected to announce on Sept. 6 that director George "Jay" Keyworth will be bounced from the board for this reason. An HP spokesman confirmed that Keyworth is "not going to be on the slate that is put forward at the next shareholders' meeting."

In one of the letters reviewed by BusinessWeek, Perkins claims he "resigned solely to protest the questionable ethics and dubious legality of the chairman's methods." HP insiders say he quit when it became clear his fellow directors were going to kick Keyworth, a friend and ally, off the board. Perkins could not be reached for comment.


  HP is expected to file documents with the SEC related to Perkins’ charges on Sept. 6. Company spokespeople say that Perkins did know about the investigation, contrary to his assertions, and that he reviewed the SEC filing about his resignation. "It’s baseless [for him to claim he was in the dark]. He and every director knew an investigation was ongoing," says Dunn, who says she launched an investigation in late spring of 2005. Two sources say that she gave a status report of the investigation at all board meetings in the months that followed.

Dunn also says that the outside firms hired by HP to help with the investigation were urged to use only legal means. "The direction that the investigation was given at every step of the way was that it had to comply with all applicable law and HP policy," says Dunn. As to whether any of those outside investigators may have used illegal methods, she says, "I can’t comment on it. We’re now into the realm of potential litigation."

Perkins has hired Georgetown University Law Professor Viet Dinh, a former high-ranking Justice Dept. lawyer, to represent him. In a written statement, Dinh says Perkins resigned because of a "disagreement about HP's governance practices." Dinh and Perkins know each other because they both sit on the board of News Corp. (NWS). "The company for the past months has refused to disclose the substance of the disagreement, and Mr. Perkins is pursuing all appropriate remedies," Dinh says.


  Both sides say the dispute began at the May 18 board meeting when Dunn announced that an investigation had uncovered the source of statements made anonymously to reporter Dawn Kawamoto. In a Jan. 23 story, Kawamoto reported that the company was mulling plans to improve its sales technology and offered other tidbits about the company's long-term strategy. The story was pegged to an HP management retreat at Esmerelda Resort & Spa in Indian Wells, Calif. It quotes an unnamed HP source as saying, among other things, that the marathon meetings left little time for breaks, and after the retreat's lectures ended at 10 p.m., "we were pooped and went to bed."

But that's where Perkins' and HP's stories part ways. Rather than being part of the ongoing investigation, Perkins suggests in an Aug. 14 letter to HP that Dunn launched an investigation into the source of CNET's information—and did so without notifying members of the board's Nominating & Governance Committee, which Perkins chaired.

In an Aug. 11 letter obtained by Business Week, AT&T (T) General Attorney Travis Dodd confirms to Perkins that someone using his Social Security Number accessed his home phone account over the Internet and apparently reviewed his January phone bill. "My personal phone records were hacked," Perkins wrote the board on Aug. 14. Perkins doesn't provide proof that the hackers were related to the HP investigation, but that is the implication.


  Perkins says he tried to get HP to correct the record regarding his departure, sending e-mails to company secretary Ann Baskins and its chief outside legal counsel, Larry Sonsini of Wilson Sonsini Goodrich & Rosati. In those e-mails, he took exception to the draft minutes of the May 18 meeting at which he resigned. In a July 18 e-mail to Baskins, Sonsini, and HP CEO Mark Hurd, Perkins says that the minutes did not reflect that he had questioned the legality of the surveillance conducted by Dunn's investigators, or that he announced to the board that he was "betrayed" by the chairman.

In a July 28 e-mail to the entire HP board, Perkins claims Sonsini had confirmed to him that HP hired "consultants who engaged in 'pretexting.'" "This is a fraudulent practice," Perkins wrote. "That the illegal pretext was done by a consultant is no excuse or defense to HP, which authorized, induced and benefited from the illegal fraud." Sonsini did not respond to requests for comment. Baskins could not be reached for comment.

Leaks from HP's board to the press have long been a sensitive topic. Back in January of 2005, the board tried to convince former CEO Carleton "Carly" Fiorina to revamp her executive suite. When publications including BusinessWeek and the Wall Street Journal wrote about the meeting, Fiorina convened an emergency telephone board meeting, at which she angrily charged that one or more directors were leaking information to the press. "This is not the way boards behave," Fiorina yelled, according to someone familiar with the proceedings. "This is irresponsible, and we can't work together if this is the way it's going to be." The board agreed to have outside counsel Sonsini investigate the matter. That process involved only informal interviews by Sonsini and not the formal investigation that led to Keyworth’s ouster from the board.


  Perkins has a history of pushing boundaries. As a young marketing executive at HP in the early 1970s, he was a main catalyst for the company's move into the computer business, and out of its safety zone as a maker of electronic measuring equipment. He was a charismatic and flamboyant pioneer. One afternoon, recalls venture capitalist Joe Schoendorf, who worked with Perkins at the time, Perkins climbed up on his desk and demanded the team take some forced R&R. "I don't want to see anyone here 10 minutes from now," Perkins yelled. "Anyone who isn’t down at the Old Pro [a local tavern] in 10 minutes better have a good reason."

Frustrated with working for a big corporation, Perkins in 1972 co-founded Kleiner Perkins Caufield & Byers, which ranks among the world's most famous venture capital firms. His path crossed with HP again in 2001 when, as a director of Compaq Computer, he became a vocal proponent of a merger of the two companies.

In 2004, Perkins did not stand for re-election to the company's board, citing the mandatory retirement age of 72. But in late 2004, directors were growing concerned about Fiorina's performance, including, insiders say, her failure to recruit new heavyweight directors to HP's board, which had not a single big company CEO among its ranks. When Walt Disney (DIS) Chief Counsel Sandy Litvack announced his intention to step down, the board brought Perkins back in late 2005.

In short order, Perkins became one of Fiorina's most vocal critics. Although he wasn't officially named to the board until the February, 2005, meeting at which Fiorina was ousted, Perkins attended the mid-January board meeting and the emergency meeting days later to discuss the press leaks. At the time, Perkins—and Perkins alone—admitted to having spoken to a reporter, although he says he only confirmed information and didn't provide any new material.

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