Running Head: HP ALLEGEDLY ACCUSED OF SPYING ON EMPLOYEES

Reyte On Publishing
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HP Accused of Spying on Employees

Hewlett Packard (HP) executive CEO allegedly gave permission for the surveillance of

other board members. The topic here is business ethics and how HP leadership used

authority for possible illegal activity. This was attempted by Patricia Dunn, the CEO at

HP the time to find out whether information about the company had been passed on to the

press. There are issues to do with corporate governance and legislation that have been

uncovered as a result of this incident about business ethics and rights to privacy of

employees.

It appears that Dunn had employed a number of professionals in surveillance of

electronic media to watch HP personnel, press personnel, and others to find out whom a

source was for inside HP information that was getting to the press. The information had

to do with HP’s long term strategies and were proprietary details that should not have

been shared outside the company (Kessler & Hopkins, 2006).

In an attempt to put together the entire scenario that took place details of a number of

articles and researchers thoughts on the subject will be examined. In addition,

information from a leading professor and authority on business ethics will be considered

in trying to understand the ethical and legal ramifications of such tactics.

Newsweek released a story in September of 2006 that disclosed that Dunn had hired these

experts to spy on members of her own executive board concerning information that had

been leaked to the press. The private strategy of HP was released to a reporter who

printed the information in a CNET article earlier that year. The team of electronics

experts gathered phone call accounts of not only the executives on the board at HP, but

also several journalists (Kessler & Hopkins, 2006). It was discovered that the procedure
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used in getting the phone accounts is called pretexting. Pretexting is explained as getting

access to personal information by falsifying an identity using false pretenses (Schwartz,

2006).

The reporters that were being observed were from the Wall Street Journal, The New

York Times, and CNET (Business Week, 2006). The records were obtained by the

security team falsifying the identities of the journalists to obtain the information from the

phone company. HP CEO, Dunn reported that she had no knowledge of how the phone

records were obtained. The source according to the information gathered by the security

team identified George Keyworth; a board member at HP. Dunn resigned as HP CEO

soon after this story was released. The new CEO at HP Mark Hurd replaced Dunn in

January of 2007. The Head Counsel Attorney Ann Baskins also resigned (Business

Week, 2006). Hurd reportedly gave an official apology about the scandal and admits that

the leaks needed to stop. However, controls within the board had failed to uphold

corporate standards of conduct (Nakashima, 2006).

Yet there have also been reporting that has shown Hurd to approve similar tactics with

private detectives and sending phony emails in order to flush out a source using software

that tracks recipients (Nakashima, 2006).

The Result

The fallout from this scandal resulted in charges for the arrest of Dunn and others for

felony charges in October of 2006. The charges were for infringements of California law.

The charges brought against Dunn and three of the security experts that obtained the

personal records were “conspiracy, fraudulent use of wire communications, wrongful use

of computer data, and identity theft” (Wong, 2006).

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The charges have a sentence of three years in prison and fines totaling $55,000. In the

attempt to stop private company from leaking, which is also a violation of the corporate

code of ethics, another breach was committed. The attorney general has called the actions

by Dunn “misguided” and stated that those involved at “HP violated privacy rights and

broke state law” (Wong, 2006). The Security Exchange Commission is also investigating

this case.

Amazingly, the case against Dunn was dismissed by a judge in March of 2007.

Is this legitimate practice in corporate America. The reporting of this scandal has brought

to the forefront several issues about business ethics that Tom Donaldson, who is a legal

professor at the Wharton School, has studied. There has been a number of studies done of

several companies including HP to uncover reasons for unethical business practices

(Wharton School, 2006).

One of which was researched in recent years that found that executives are prone to

committing instances of unethical conduct (Wharton School, 2006). The SEC has

released findings from the 1990s until today citing instances suggesting patterns of fraud

or unethical conduct.

The study examines the relationship between the executive’s character and confidence

level and fraud. Citing multiple industries, it appears that fraud is most often discovered

in industries that are intricate and which change very fast. Primarily high tech firms that

experience rapid expansion and growth.

Another study that supports this by Catherine Schrand a professor and researcher at

Wharton, correlates fraud with companies or industries that are associated with a large

return on investment and stock returns that are highly volatile. The report states that "the
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sample demonstrates industry clustering in risky, dynamic, high growth industries that

face significant idiosyncratic risk” (Schrand, 2006). She also informs that these industries

are prone to commit unethical acts more simply because there is easy access to financial

data and more opportunity.

In yet another study from researchers at the SEC it has been discovered that individual

traits also play a part in determining the proclivity of committing fraudulent acts. Trends

compare current cases under investigation to competitors that were not under

investigation. This study was focused on Contrasting deliberate to unintentional acts of

unethical behavior. In the data from this SEC probe a couple of unethical categories

emerged. The first is a deliberate decision to engage in a fraudulent activity. Possibly a

premeditated opportunity (Schrand, 2006).

The other is considered the result of unintentional circumstances. Possibly where a

mistake was made and rather than confessing that this occurred, the error is allowed to be

propagated and remain in the annual reports.

Though researchers admit that many executives decide to stay away from fraudulent

practices. Those that decide to continue to engage in fraudulent behavior are fully aware

that there are penalties for their actions.

In such cases within the study, those that were investigated by the SEC failed to disclose

their error before the SEC was alerted to their transgression. Whereas in the case of

competition, either the mistakes worked themselves out or the executives found a way to

correct the discrepancy according to Schrand.

In trying to understand the category of executives that unwillingly commit fraud it was

found that these companies made a conscious decision to desist from the unethical
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business practice. Once it was discovered that they were going down a path that could

lead to a gross misstatement of earnings, for example, they made the choice of coming

clean and admitting to making a mistake and then corrected it. In short an effort was

made by such executives to do the right thing.

In the case of HP, Dunn did not admit to understanding that pretexting suggested

falsifying the personal identity of another individual. She is reported to say she believed

the phone records were obtained legally (Schwartz, 2006).

As for the political stance on this issue, they quickly made the comment that action would

be taken to draft new legislation against actions such as pretexting. Senator Bill Nelson

from Florida, commented that a law should address incidents of phone record theft in

order to protect privacy(House.gov, 2006). A Bill was approved in April of 2006,

HR4709 which states that it is illegal to pursue phone records without consent of the

owner unless being obtained by police or similar authorities. The attempt to access phone

records without consent is punishable with a maximum of ten years prison (House.gov,

2006). Pretexting however is still allowed at this point.

Conclusion

It appears as that there may have been no policy in place concerning the act of pretexting

at HP. Where employees are concerned there appears to be no protections in place to

safeguard privacy within the organization. At the worst HP failed to follow the policy or

follow-up to track actions of its executive members. In addition there were no

accountability protections in place to ensure the corporate business practices were carried

out (Schwartz, 2006).

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What should companies do to avoid such allegations in the future

A company that develops software that assists companies in drafting corporate

governance compliance policies and practices is run by Ted Frank. Axentis has produced

software that reduces the risk of unethical practices going undetected. In order to protect

the privacy rights of individuals he makes this suggestion to HP or any other firm

(Schwartz, 2006). He promotes that all members of the organization become informed.

Suggesting that members get information about pretexting and other such practices. This

could be accomplished by individuals or the company asking questions or requesting

more information about the company policy (Schwartz, 2006).

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References

Business Week. (2006). HP general counsel ann baskins resigns. Retrieved June 12, 2009

from http://en.wikipedia.org/wiki/2006_HP_spying_scandal

House.gov. (2006). In wake of hp scandal, schakowsky calls for end of pretexting.

Retrieved June 13, 2009 from

http://www.house.gov/schakowsky/PressRelease_9_28_06_HPpretexting.shtml

Kessler, M. & Hopkins, J. (2006). New hp chief makes the best of a bad situation.

Retrieved June 12, 2009 from

http://www.usatoday.com/tech/techinvestor/corporatenews/2006-09-12-hp-hurd-

advantage_x.htm

Nakashima, E. (2006). Tension escalates over hp scandal. Retrieved June 12, 2009 from

http://www.washingtonpost.com/wp-

dyn/content/article/2006/09/20/AR2006092001964.html

Schrand, C. (2006). Are overconfident executives more inclined to commit fraud.

Retrieved June 13, 2009 from http://knowledge.wharton.upenn.edu/article.cfm?

articleid=1907

Schwartz, E. (2006). Spying shakeout demonstrates the importance of clear information

gathering policy. Retrieved June 12, 2009 from

http://www.infoworld.com/d/security-central/lessons-learned-hp-scandal-213

Wharton School. (2006).

Wong, G. (2006). Now hp is a criminal case. Retrieved June 12, 2009 from

http://money.cnn.com/2006/10/04/news/companies/hp_california/index.htm?

cnn=yes