HP's Hurd on the Hot Seat

A penchant for aggressively rooting out press leaks that got its start under Carly Fiorina only deepened under her successor

Hewlett-Packard (HPQ) Chief Executive Mark Hurd needs to turn in a bravura performance at a much-anticipated press conference on Sept. 22. It may be his only chance to quell the furor over the company's possibly illegal search for boardroom leaks. But to make the most of the opportunity, he should come clean on his involvement in efforts to stop leaks among HP employees.

That's because there's evidence that just after Hurd arrived in April, 2005—the same time Chairwoman Patricia Dunn was ramping up the search that ultimately identified George "Jay" Keyworth as the boardroom leaker—HP's corporate investigators were also intensifying efforts to root out leaks among HP's 150,000-person workforce. Hurd was so concerned about leaks that he promised to personally fire any employee caught talking to the press.

At least two HP employees were interrogated—and one of them fired—for speaking with the press around this time. To be sure, there is no evidence to suggest that either was subject to the practice of pretexting, or impersonation of someone else to obtain phone records; both were nabbed for making calls to a reporter from HP company phones. These employees are in addition to the two spokespeople who were pretexted in relation to Dunn's probe. And the episodes suggest that since Hurd took the helm in March, 2005, HP's crusade to aggressively sniff out disclosures was not limited to the boardroom. HP spokespeople didn't return calls seeking comment.


  One of the employees, a company veteran, was summarily fired in April, 2005, after internal corporate investigators at HP found that he had had a single 22-minute conversation with the author of this article. Soon after he was fired—but before he signed an agreement with HP that prevented him from discussing the incident—the employee told BusinessWeek details of his dismissal. He was questioned by three people—a member of HP's corporate investigations team, a human resources executive, and a manager, to explain the call with the author.

Less than two hours later, he was escorted off HP premises. He was also told he would lose any rights to a $100,000 voluntary severance package he had previously accepted in relation to an unrelated company downsizing. He was never offered proof that he had revealed trade secrets or sensitive information. Still, he agreed to go quietly after the company relented some days later and gave him his early retirement package. The source, contacted again for this story, says he has since checked phone records for evidence of pretexting and found none. He also declined to revisit the dismissal.

The other former HP manager, who also requested anonymity, said he was interrogated some time later by an outside investigator. The employee was accused of leaking information. He went into the interview prepared to disclose the nature of his dealings with the press and give advice on how the company could prevent damaging leaks while still maintaining healthy connections with the Fourth Estate. But the interview didn't get to that point. "It seemed as if they were assuming guilt," he says.


  No doubt, HP was within its rights to check calls made by employees on company phones. But both staffers argue that just speaking with a reporter does not necessarily violate the company's standards of business conduct—particularly since both say they did not provide any proprietary information on HP's products or plans. "There used to be a time when trusted senior people were expected to have relationships with the press," says one of the former employees. "That was a good thing. It was a real slap in the face to know things had changed that completely. It was ugly."

That transformation was slow in coming. For decades, HP was one of Silicon Valley's least leaky ships. In part that's because HP still had a familial culture rooted in devotion to founders Bill Hewlett and Dave Packard, who were still alive. And most of all, successful companies tend to have fewer leaks. As HP piled on year after year of double-digit growth and as employees kept getting their hefty profit-sharing checks twice a year, there was little reason to leak.

That changed when HP fell out of step with the tech market during the Net boom. HP seemed to plod along with no major changes, while a slew of startups and nimble rivals such as Sun Microsystems (SUNW) saw their stocks soar. Some employees grew frustrated, and began leaking news about the company's inner workings to the press. And in 1999, HP's board made the decision to replace stodgy Lew Platt with charismatic Carleton Fiorina—in part in the knowledge that her gender and speaking ability would help generate positive PR.


  After a brief honeymoon of positive stories, the coverage of Fiorina's HP began to worsen as the company's fortunes faltered. At times during this period, Fiorina's handlers asked directors including Keyworth to speak to reporters on her behalf. That continued in late 2001 after HP in September agreed to buy Compaq Computer. It was then that the company tried to rally its forces against dissident director Walter Hewlett, who launched a proxy fight that November to kill the merger.

Indeed, HP took its press offensive to new heights in early 2002, with newspaper ads and carefully crafted campaigns to woo shareholders and even HP's many retirees who hold HP stock. Much of the PR work in this era was orchestrated by the high-powered Washington public relations firm, Quinn Gillespie & Associates, say four HP insiders. Co-founder Ed Gillespie, who later became the chairman of the Republican National Committee, was one of Fiorina's closest advisors through the proxy fight and beyond, say the sources. Gillespie couldn't be reached for comment.

But as it stepped up its PR game, Fiorina's HP also began playing a tougher brand of hardball to squelch leaks. During the proxy fight, many HP employees stopped using corporate e-mail or company-issued cell-phones to speak with the press, because word was they were being monitored. After BusinessWeek broke a story quoting sources inside the "clean room" where integration planning was being done on the merger on March 19, sources reported that a "witch hunt" was under way, led by the company's public relations team.


  That vigilance had no doubt been heightened when a voice mail from Fiorina to Chief Financial Officer Robert Wayman regarding last-ditch efforts to find support from big institutional investors ended up in the press. One high-ranking former executive tells BusinessWeek that the initial concern was that an employee who opposed the merger had hacked into the corporate voice-mail system. In the end, says the executive, HP discovered that an anonymous listener eavesdropped as Wayman checked his voice mail on an older, less secure cell phone while sitting in his driveway. "We concluded that it wasn't an HP person," says the source.

As HP struggled to make the Compaq deal pay after the merger closed in May, 2002, the underlying sense of paranoia remained in place. On one occasion, a high-ranking executive told another BusinessWeek reporter that he wouldn't speak on his office phone or his home phone, but only on his cell phone.

While that culture of suspicion lingered after Hurd came aboard, the new CEO swiftly made it a front-and-center issue. In his initial round of get-to-know-me "coffee talks" in HP auditoriums and cafeterias around the globe, Hurd made a point of promising to personally fire any employee caught talking to the press without an okay from public relations.

The shift in HP's convoluted relationship with the press was cast in sharp relief in the days after the leak scandal broke on Sept. 5. The days of employee fealty to a special corporate culture—the vaunted HP Way—seemed like a distant memory. Instead, many in HP's ranks say they are motivated mostly by a rising stock price and that the scandal is no big deal unless it has an impact on financial performance. "For a lot of people, it was a shock the way the newspapers were going on about how this was happening at such a cherished company," said one such person. "That was HP years ago."

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