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HP's CEO Offers to Testify to Congress About Spying Scandal

The firm's stock slides 5.2% after reports that Mark Hurd knew more than initially believed.

September 22, 2006|James S. Granelli | Times Staff Writer

Hewlett-Packard Co. Chief Executive Mark V. Hurd offered Thursday to testify at a congressional hearing next week about the company's corporate spying scandal amid growing evidence that he knew more about it than previously believed.

Hurd's offer followed reports that he had been aware of at least some of HP's efforts to dig into the lives and private records of about 20 directors, employees, reporters and their families to find out who leaked sensitive company information to the media.

HP's stock sank 5.2% in the wake of the disclosures of Hurd's possible involvement. The decline reflected investor fears that the architect of the company's recent turnaround could himself become a casualty. Until this week, most of the attention had centered on Chairwoman Patricia C. Dunn and her role in spearheading the probe.

As HP directors gathered for a special board meeting Thursday, Hurd said he would testify at next Thursday's House Energy and Commerce Committee hearing. The company declined to say what action, if any, directors took at their meeting.

Hurd's offer was quickly accepted by the committee, which has been looking into the use of ruses to gather private phone records, an activity known as pretexting. The House committee also expects testimony from Dunn, four other HP executives, outside lawyer Lawrence W. Sonsini and two private investigators the company had used.

Separately, HP said in a Securities and Exchange Commission filing Thursday that the SEC's enforcement division had requested records and information about any investigations of "leaks of HP confidential information." The company said it was cooperating with the agency.

HP said the agency also requested records about the May resignation of director Thomas J. Perkins, a Silicon Valley venture capitalist who stormed out of a board meeting that month in protest of the company's spying tactics, and about how the company publicly disclosed the information.

The involvement of the SEC's enforcement division suggests an increased level of scrutiny by the agency. An HP filing earlier this month said it had received a "comment letter" related to the Perkins incident from the SEC's finance division.

The latest filing also included details on agreements between HP and two directors who resigned, Perkins and George A. Keyworth II.

The accords release HP from any liability but allow Keyworth and Perkins to sue outside investigators for invading their privacy. Other clauses provide for reimbursement of expenses and indemnification for any suits filed against them related to HP activities. Each side also agreed not to disparage the other.

With HP's image under siege and the scandal threatening to spin out of control, Hurd will face the media for the first time today at an afternoon news conference at the company's Palo Alto headquarters.

"What began as an effort to prevent the leaks of confidential information from HP's boardroom ended up heading in directions that were never anticipated," he said in a statement. "HP is working hard to determine exactly what took place and when, and without all the facts it has been difficult for us to respond to the questions that have been raised. We plan to give as much clarity as we can to these matters."

Hurd said the news conference would have "nothing to do with the strategy or operations of HP." The company said Hurd was trying to be as transparent as possible about the company's spying.

"The press conference is the most important of his life," said Tim Bajarin, president of consulting firm Creative Strategies. "His future at HP depends on how he handles it and what he says and how he explains his role in this investigation."

Bajarin and other analysts say that Hurd, the architect of HP's financial revival, is critical to the company's future.

"We will all be hanging on his every word," Bajarin said.

The possibility that Hurd might have been involved in approving or overseeing any questionable aspects of the investigation doesn't bode well for his efforts to explain things, said Chuck Jones, portfolio manager at Stein Roe Investment Counsel.

"There's not a positive way to spin that one," he said.

Analyst Rob Enderle of the Enderle Group said "the market is getting nervous." Wall Street, he said, wants to hear Hurd say that the scandal is having no effect on his ability to run the company.

"If he delivers that message solidly, it's very likely the market will recover," Enderle said. "If he doesn't, or if people don't believe him, he could actually add to the problem."

Dunn, who has acknowledged ordering the internal probe, is resigning in January as chairwoman but will remain on the board.

Hurd, who will replace her as chairman, was thought to have been above the fray, a belief on Wall Street that had helped the company's stock price remain at high levels, gaining more since HP first disclosed the spying campaign Sept. 6.

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