Technology

Former HP Chair Dunn Indicted


California Attorney General Bill Lockyer has charged former Hewlett-Packard (HPQ) Chairwoman Patricia Dunn and others involved in the company's spying scandal with four felony counts, including wire fraud and conspiracy. "One of our state's most venerable corporate institutions lost its way," said Lockyer at a press conference on Oct. 4 announcing the charges in the month-old scandal.

The indictments give Chief Executive Officer Mark Hurd and the company reason to breathe easier, even as they await word from the Justice Dept., which is conducting its own investigation into the case. But they also send a strong message to Corporate America, which is still trying to pick its way through a post-Enron landscape that remains riddled with regulatory and ethical mines.

As expected, Lockyer also charged former HP ethics chief Kevin T. Hunsaker; Ronald R. DeLia, managing director of Security Outsourcing Solutions, an HP contractor; and Matthew Depante and Bryan C. Wagner, two investigators with Action Research Group hired by DeLia to work on the HP investigation (see BusinessWeek.com, 10/4/06, "Indictments Sought in HP Case").

THE CHARGES. The complaint alleges that Dunn and Hunsaker knew that HP's outside investigators were obtaining personal phone records through false pretenses—usually by lying to phone company employees—and that both "facilitated" the use of the ruse, which Lockyer says is illegal. The defendants, if convicted, face a maximum of 12 years in prison and a $30,000 fine (BusinessWeek.com has posted copies of the complaint, warrants, and press release about the charges.)

The charges against Dunn "are being brought against the wrong person at the wrong time and for the wrong reasons," said her lawyer, James Brosnahan of Morrison & Foerster. In a written statement, Brosnahan called the indictment "the culmination of a well-financed and highly orchestrated disinformation campaign." Lawyers for Hunsaker and DeLia did not return phone calls seeking comment. Lawyers for Depante and Wagner could not be reached.

Compliance experts say the case is a sterling example of the chronic structural and procedural problems corporations refuse to recognize in the Sarbanes-Oxley environment. To achieve compliance, companies have loaded up their legal departments with "compliance officers" and "ethics directors." Indeed, some 30% to 40% of chief ethics officers—who go by many titles—are lawyers who work within a company's legal department.

CONFLICTING INTERESTS. Those ethics overseers, even when they are independent of a company's legal department, often report to upper management instead of to the board of directors. With a chain of command like that, how loud will anyone blow the whistle, if at all? "You don't want this person to be in the position of making decisions that might go against the views of the people who have control over his or her career," as in Hunsaker's case, says W. Michael Hoffman, executive director of the Center for Business Ethics at Bentley College in Waltham, Mass.

Combine the faulty chain of command with management's natural focus on process and goals—such as Dunn's directive to HP staff to get to the bottom of leaks to the news media—and it's easy for other equally important considerations to get lost in the fog. Indeed, Dunn repeatedly told House investigators that she didn't think to question the methods of HP employees because she assumed they were following corporate protocol. And, she claimed that as nonexecutive chairwoman, she had no real authority to delve into routine company practice. Even her lawyer, in her defense, says that "throughout her entire career, she has stood for corporate process."

Compliance experts say that many companies have created a kind of no-man's-land like the one that Hunsaker found himself in, where they are often told to be advocates for the company even while their job descriptions make them responsible for keeping tabs on the company's lawfulness or ethical behavior

"GRAY AREAS." As Hunsaker's lawyer, Michael Pancer, has pointed out, there are a lot of things that are unethical that are not necessarily illegal. "Following the rules, whether they're the policies of a particular company or the law itself, doesn't cover the gray areas where ethics lurk," Hoffman says.

Because of their training, lawyers don't always have the sensitivity toward ethical impropriety—they're too focused on obeying the law. "Organizations are trying to put their compliance and ethics efforts under the legal department because it has to do with laws," says Roy Snell, CEO of the Society of Corporate Compliance and Ethics, a Minneapolis-based trade group. "But the similarity ends there. The roles are both important, both noble, but they're in conflict with each other."

For HP, the compliance saga might be coming to an end. For it and many other companies, however, there remains an extraordinarily long trek toward minimizing corporate wrongdoing.

With Michael Orey, a senior writer for BusinessWeek in New York

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