On the HP Debacle

In my column in CIO Insight this month, http://www.cioinsight.com/article2/0,1540,2059021,00.asp, I note that in addition to legal alternatives to getting the information HP's chair wanted about the "leaks" to journalists (which were modest indeed), an even better solution would have been to deal with the board as if its members were all adults, or at least fiduciaries.

A few points were cut for space that are worth highlighting:

1. Taken as true Patricia Dunn's testimony to Congress, it's remarkable that the chair of a major information technology company was not only ignorant of some of the most basic aspects of information retrieval, but didn't seem in the least embarassed to admit it.

2. Likewise, HP CEO Mark Hurd told Congress that he had received, but never read, an 18 page memo on the "Unauthorized Disclosure Investigation" (available from The Smoking Gun at http://www.thesmokinggun.com/archive/0929061hp1.html). This also seems to me a remarkable admission, though neither of these points made it to the surface in any of the press coverage of the scandal.

My point in the column was that inside legal counsel, a relatively recent phenomenon, have a difficult challenge to balance responsibility to their employer, who is also their client, and their obligations as officers of the courts and, as such, are a poor choice for internal investigations of wrongdoing by senior executives and board members, especially without supervision by outside counsel, much as outside auditors must certify the books of public companies.

Is there a bigger point to be made here about the role of boards of directors and senior executives in public companies? About how board members are chosen? About how chairs are elected? About the expectations shareholders have of their representatives and delegated officers?

All the "reforms" enacted or even discussed in the wake of the last major wave of corporate scandals (e.g., Enron, Tyco, WorldCom) just skimmed the surface, and largely punished the innocent with additional reporting obligations that would, had they been in place, done nothing to stop the abuses.

But there has been no serious call to reform corporate governance, to make officers and directors actually answerable to shareholders--even large institutional shareholders. The system as a whole seems to be more-or-less working, I guess. But then why have boards of directors at all? And why pretend CEOs do anything beyond promoting themselves, some of which accrues to their corporations?

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