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EDITORIALS: THE SATURDAY PAGE / FALLEN ICONS

Low-brow high-tech

October 07, 2006

IT WAS A TOUGH WEEK FOR TWO Silicon Valley icons, Hewlett-Packard and Apple Computer. Corporate icons can often weather controversy better than their human counterparts, in part because their reputations matter less to investors than their bottom lines. The leaders of both companies, in contrast, may not fare as well.

Two former HP executives, including ex-Chairwoman Patricia Dunn, were indicted Wednesday on charges related to the company's privacy-trampling investigation into boardroom leaks. The same day, Apple announced the results of its investigation into stock-option shenanigans. The probe found that Chief Executive Steve Jobs had been aware of "a few instances" of backdating from 1997 to 2002, the dot-com boom-and-bust period.

The revelations hinted at more bad news to come, yet they drew nothing but shrugs and sighs of relief from investors. After California Atty. Gen. Bill Lockyer brought the charges against Dunn and HP's former chief ethics officer, shareholders drove HP's stock to its highest level in six years. That's because Dunn's misery apparently won't be shared by Chief Executive Mark V. Hurd, who wasn't charged. And Apple's stock dropped less than 1% after its announcement, a sign that investors believed the worst was over for Jobs.

Giddy shareholders aside, this week's events left the companies' shiny reputations in need of buffing. Hewlett-Packard used to be best known for its technology and its history of innovation; now "HP" is the punch line for jokes about corporate snooping and low-tech skulduggery. And the ignorance-of-the-law rationale offered by Dunn and Hurd -- both were told personal phone records were being obtained in pursuit of leakers, and yet maintain that they didn't realize such records were private and confidential -- only underscores the image of HP as a corporation that runs roughshod over individual rights in pursuit of its goals. That's quite a departure from the storied "HP Way," which was about the means, not just the ends.

Like his counterparts at HP, Jobs' explanation amounts to pleading ignorance of the law. Apple said Jobs "did not receive or otherwise benefit from" the backdated grants he knew of and was "unaware of the accounting implications." It's understandable that a chief executive might not know chapter and verse of securities law, and federal law didn't hold CEOs personally responsible for the accuracy of their companies' financial disclosures until the Sarbanes-Oxley Act was enacted in 2002. All the same, the practice of secretly backdating options is antithetical to public companies because it cheats investors and, potentially, taxpayers.

Apple and Jobs have weathered this controversy well so far. But Jobs need only look a few miles up the freeway to HP and see that, when scandal comes, the corporation is more likely to survive than its chief.

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