Leak scandal costs HP's Dunn her chairman's job

Patricia Dunn to step down from her post in January in the wake of a controversial probe into media leaks. Complete coverage: HP's boardroom drama

Hewlett-Packard Chairman Patricia Dunn, who launched an investigation into media leaks that resulted in a firestorm of controversy, has agreed to resign her post following a meeting of the company's board of directors.

The board has appointed CEO and President Mark Hurd to take over for Dunn, who will continue to serve as chairman through the company's Jan. 18, 2007, scheduled meeting, the company announced early Tuesday. After that point, Dunn will remain on the board as a director.

In a statement, Hurd said, "I am taking action to ensure that inappropriate investigative techniques will not be employed again. They have no place in HP."

Hurd will continue to hold his positions of president and chief executive. In addition, HP said Richard Hackborn was named lead independent director, effective in January.

Also on Tuesday, HP announced that George Keyworth is resigning from the board, effective immediately. Dunn earlier this year had identified Keyworth as a source of media leaks.

Dunn's departure caps a tumultuous episode for HP, one of the country's largest companies and a Silicon Valley icon that just over a week ago had been basking in the glow of an economic turnaround. The computer maker now finds itself mired in a scandal sparked by an investigation into media leaks emanating from its boardroom.

Last Tuesday, several media outlets reported that an internal HP investigation into its own directors was behind one director's angry resignation this spring.

During the course of last week, it came out that the investigation to find the source of media leaks involved possibly illegal access to phone records of the company's directors, at least nine journalists and potentially many other people. As a result, federal and California state prosecutors launched investigations, and civil lawsuits and criminal charges are possible. A U.S. House of Representatives committee is also seeking records related to the case.

HP said in a statement on Tuesday that it will cooperate with the House subcommittee "and will provide the necessary facts and information."

Patricia Dunn Patricia Dunn

A top aide to the Senate Commerce Committee said on Tuesday that the panel would be pushing harder a floor vote on legislation that would increase penalties for telephone pretexting. That bill, , creates new civil and criminal penalties, and lets individuals sue over privacy violations.

Kevin Martin, chairman of the Federal Communications Commission, noted after the Senate hearing that the FCC last week sent a letter to AT&T asking for details about the HP case. "Making it illegal to sell (phone record information) would be helpful," Martin said.

Dunn, who ranked 17 on Forbes magazine's "100 Most Powerful Women" list in 2005, replaced Carly Fiorina as the chairman of the computing giant last year. Dunn had been a director at HP since 1998. She was co-chairman, chairman and chief executive officer of Barclays Global Investors from 1995 through 2002. According to a biography of Dunn on HP's Web site, she "also serves on the advisory board of the (University of California at) Berkeley Haas School of Business, as well as the conference board's Center for Corporate Governance."

Dunn had been frustrated by media leaks dating back to articles in early 2005 about the relationship between then-CEO Fiorina and the board. A Jan. 23, 2006, report by CNET News.com that quoted an unnamed source describing a strategy-planning meeting of the board apparently so angered Dunn that she authorized an investigation of her fellow directors to find the leak.

In a statement, Dunn said she was proud of her accomplishments at HP but regretted the use of "inappropriate techniques" in the investigation.

"These leaks had the potential to affect not only the stock price of HP but also that of other publicly traded companies," she said. "Unfortunately, the investigation, which was conducted with third parties, included certain inappropriate techniques. These went beyond what we understood them to be, and I apologize that they were employed."

Eric Ross, a financial analyst at ThinkEquity Partners, said replacing Dunn is a good move for the company, if only because the controversy may be demoralizing and distracting to employees.

But Hurd's accumulated power as president, CEO and soon chairman does raise questions of corporate governance, Ross said.

"Making Hurd chairman seems to be a lot of power for one person," he said. "It seems like the world's moving away from that model."

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