The cult of arrogance behind the Hewlett-Packard imbroglio pervades the business community and is bigger than any one scandal

I feel sorry for Hewlett-Packard. Not the company's executives, of course—they deserve whatever happens to them. I was thinking about Bill Hewlett and Dave Packard and their heirs. Sixty-seven years ago, Hewlett and Packard started a great technology company that became the prototype of today's successful Silicon Valley companies.

HP (HPQ) established a reputation as a company that gave good value to customers and was a great place to work for employees, and it set the ethical standard for thousands of similar companies with a principled mission statement it called "The HP Way." It was progressive enough to be the first company in the Dow Industrial Index to appoint a woman as CEO.

For those who have missed the recent freak show coming from HP's headquarters in Palo Alto, Calif., here's the abbreviated version: Former Chairwoman Patricia Dunn hired private investigators to spy on her fellow directors, employees, and several reporters because someone inside was leaking sensitive corporate information to the press. The detectives even took the amazing step of "pretexting" their cell phone records. Pretexting is when you call up a company and lie, pretending you're the account holder, to get access to their account information.

UNREPENTANT.

Since then the story has twisted and turned, as these tales are wont to do. Dunn quit and was replaced as chairman by CEO Mark Hurd. Hurd apparently was given a report of the investigation while it was ongoing, but "didn't read it," substituting negligence for guilt as his alibi. Congress is investigating HPGate for some reason that I'm sure has nothing to do with next month's election. The California Attorney General has filed charges against Dunn, other HP executives, and investigators. Meanwhile, attention to the company's probe continues to make headlines with the publicity blitz surrounding former HP CEO Carly Fiorina's new book. On Oct. 8, both Fiorina and Dunn were on 60 Minutes reliving the sordid mess in separate interviews.

So what's the problem here? It's arrogance. What Dunn did was arrogant on a colossal level—Marie Antoinette let-them-eat-cake arrogance. Watergate arrogance. Pretexting may or may not be illegal, but it certainly stinks. It shouldn't pass the ethics smell test on any level. But that doesn't seem to register with Dunn. She took the unusual step of going on 60 Minutes to defend herself. She was unrepentant and said that people who sit on boards give up a lot of their privacy.

I suspect many boardrooms share the belief that leaking inside information to the press is so detrimental that any action to smoke out a squealer is justified. Indeed, Dunn herself validated this assumption in her 60 Minutes discussion: "If you think that Hewlett-Packard is the only company that has an investigations force…monitoring, posing as other people in order to solve problems to protect shareholder value—you're being naive."

There is a cult of arrogance behind HPGate that pervades the business community and is bigger than any one scandal. It manifests differently from time to time, but its roots all grow out of the same soil. Whether it's option-repricing, insider trading, or spying on journalists, business decisions are made at the highest corporate levels that are at best murkily legal and visibly unethical. Ethical thinking does not seem to be part of today's business environment. I am sure that Dunn is correct and many companies also spy. Many others probably think about it but don't do it, not because they think it's wrong, but out of fear of getting caught. Give former Chairwoman Dunn her due. She had the guts to take action to try to solve a major problem affecting her company.

LIP SERVICE.

Dunn also appeared before Congress last week and refused to take personal responsibility for the situation. Her excuse is the modern day Nuremburg defense—she blamed her lawyers. By asking HP's attorneys to make sure that everything she did was within the law, she believes that her actions were clean. The state of California apparently disagrees with this assertion since they did not charge HP's former general counsel, Ann Baskins, along with Dunn and others.

The real problem here is the flawed business belief behind HP's thinking. To misquote Nietzsche, it can be summed up as "What doesn't convict us, makes us stronger."

Corporate governance has an ethical component that exists independent of the legal environment. The real question when discussing controversial issues like spying on directors and reporters should not be "is it legal?" but "should we do it?" Every blue-chip company has a mission statement that lays out moral principles of behavior in detail. It's too bad that many executives only pay lip service to their credo. In closing, here's one of the five principles from "The HP Way":

"We conduct our business with uncompromising integrity.We expect HP people to be open and honest in their dealings to earn the trust and loyalty of others. People at every level are expected to adhere to the highest standards of business ethics and must understand that anything less is unacceptable. As a practical matter, ethical conduct cannot be assured by written HP policies and codes; it must be an integral part of the organization, a deeply ingrained tradition that is passed from one generation of employees to another."