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HP drama unfolds on Capitol Hill

Ashley Milne-Tyte and Kai Ryssdal Sep 28, 2006

KAI RYSSDAL: Room 2123 of the Rayburn House Office building was the setting. And Hewlett-Packard was the featured attraction. Former Chairman Patricia Dunn was there. She was talking. Former General Counsel Ann Baskins was there as well. She was not, except for a statement this morning announcing her resignation. Congress wants to know who at the company knew what about the board’s questionable investigation of itself. Nancy Marshall Genzer has been at the hearings for us all day.

NANCY MARSHALL GENZER: The paparazzi were ready as the subcommittee’s first witnesses filed into the circus ring. Ringmaster and subcommittee chairman Republican Edward Whitfield of Kentucky tried to crack the whip but this was what he heard from the first 10 witnesses.

“I must respectfully decline to answer your questions based upon the rights afforded to me by the Fifth Amendment to the Constitution of the United States.”

The 11th through the 13th witnesses did agree to speak. The one in the spotlight, though, was Patricia Dunn — the former chair of the board at Hewlett-Packard who resigned last week. She says, as far as she knew, the tactics used to find boardroom leakers were legal.

Dunn said she hadn’t even heard of the word “pretexting”— or impersonating people to get their private records — until this summer, a year-and-a-half after the investigations started. Dunn says she supports a law pending in Congress that would outlaw pretexting. She says that would help the rising number of companies that are hiring gumshoes.

PATRICIA DUNN:“Every company of consequence has people who do detective-type work in order to ferret out the sources of nefarious activities. Maybe we’re all just coming to be aware of how common it is.”

Dunn wouldn’t accept personal responsibility for the scandal. Pressed by Oregon Republican Greg Walden, Dunn said HP investigators looked to CEO Mark Hurd for advice on tactics.

GREG WALDEN:“What’s your understanding of his role in this approval process?”

DUNN:“That this particular element of the investigation could not go forward without his approval.”

In the past, Hurd has apologized for the investigagory tactics that were used. When he sat down at the witness table today and was asked who was repsonble, he declined to take full responsibility.

MARK HURD: I would tell you from a checks and balances perspective, in a company of our scale, we have 151,000 employees. We’re kind of a small city, almost, and have all the issues that go on in that size of an institution. The CEO cannot be the backstop for every process in the company. The processes have to be pushed into the organization with clear checks and balances and clear accountability.

In Washington, I’m Nancy Marshall Genzer for Marketplace.

RYSSDAL: Exactly how legal or illegal HP’s pretexting tactics might have been was at the crux of today’s hearing. But there was no word from the woman who until this morning was HP’s top lawyer. Former general counsel Ann Baskins. So we thought we’d get some legal advice.

Eric Talley’s a professor of law at the University of California-Berkeley. Eric, good to talk to you again.

ERIC TALLEY: It’s nice to be here, Kai.

RYSSDAL: What do you make of this situation — that the general counsel of a Fortune 500 company, one that’s one of the 30 Dow Industrials, is so unsure of the legal ground here that she, herself, might be at risk?

TALLEY: Well, this is partly emblematic of the predicament that general counsels find themselves in. Traditionally, this role has been limited to advice on the adequacy of company activities in terms of regulatory requirements and so forth. But increasingly the general counsel is playing a role as a specialized, strategic manager — actually having to plan out compliance regimens and serve a general gatekeeping function. And being unsure about exactly how to balance these two tasks has made the job increasingly difficult over recent years.

RYSSDAL: I don’t know how thick the stack of regulations that Ann Baskins has to be familiar with are, but it seems to me it’s tough to manage from a distance from the general counsel’s office.

TALLEY: Well, the stack is thick and it’s gettin’ thicker. And general counsels are facing a much more difficult time of it in trying to balance everything. Now, that person has to play an increasingly important point role in deciding, “Boy, how do I advise the board of directors? How do I make a decision of going to seek even more specialized legal counsel?” In our post-Sarbanes-Oxley world, post-full-disclosure world, general counselors have to navigate that precipice even more precariously.

RYSSDAL: Is it possible, do you think, that Ann Baskins and her legal staff — it should be said that she wasn’t the one probably doing this — did they go too far in literally reading the letter of the law?

TALLEY: Well, one can make an argument — a very legalistic argument — that if you look at the state and federal laws on the books currently, this type of activity, pretexting activity, may not fit directly within the letter of the law. However, that conclusion has to be put against a bunch of other considerations that are important for a general counsel to consider: “How much should I be delegating that decision down the ladder, given how important it is proving to be to HP now? How much should I really ask questions of the field investigators out there rather than taking their word for what constitutes legal activity and not. Should I lose sight of trying to maintain trustworthiness on the board which is of course important in a world where we’re trying to catalyze full conversations by boards? But, by doing so, using somewhat illicit practices of investigating them — which, while maybe not illegal, certainly treads across boundaries of ethical obligations?”

RYSSDAL: And the whole House of Representatives winds up knowing your name. . . . Eric Talley is a professor of law up at the University of California-Berkeley. Eric, thanks for your time.

TALLEY: Pleasure, Kai.

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