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H-P Clears the Air, but Not the Cloud

Kevin Kelleher

What's Dunn is done.

Patricia Dunn, the Vic Mackey of Hewlett-Packard's legendarily dysfunctional board, has resigned not just as its chair but now she's cut ties with the whole cabal entirely.

And that's supposed to make us feel a lot better. But do you really feel better? I know I don't. In fact, the more this slow-motion train wreck plays out, the more I fear for H-P's future.

First of all, Dunn should have resigned a week earlier, when it was clear she unleashed private investigators to commit possibly illegal snooping on board members and journalists. At best, the investigators went way beyond her control. At worst, they did exactly what she wanted.

But Dunn didn't resign then. She held on until a report in The New York Times suggested the investigators were contemplating posing as janitors in newsrooms -- a self-effacing act of servitude if there ever was one.

So, the message from H-P is clear: Flirt with lawlessness by pretexting -- or fraudulently posing as another to gain phone records -- and your wrist is slapped. But think about sending someone to fish through reporters' trash cans, and you're history. I'll let the case studies in MBA courses parse that one out, because it makes no sense to me.

In an attempt to right things, H-P CEO Mark Hurd finally came forth Friday to a) do his best Sergeant Schultz and say he knew nothing -- nothing! -- and b) apologize for something he admittedly knew nothing about. It was that rarest of sights on Wall Street: the CEO as naïve whipping boy.

"I extend my sincere apologies to those journalists who were investigated and everyone who was impacted." (Mr. Hurd, if you really want journalists to take your words to heart, never ever use "impact" as a verb.)

And that was the very moment I started to fear for Hewlett-Packard. I had initially cheered on Hurd's ability to turn the company around in the wake of the fiasco known as Carly Fiorina.

So I never thought I'd actually say this, but the events of the past few weeks -- culminating in Hurd's impersonation of Sgt. Sebastian -- have made me a little nostalgic for the Fiorina era. At least when she messed up, it was visible. It gave investors a chance to bail out at the warning signs.

But under the Dunn era, and quite possibly under the Hurd era, investors may not have the benefit of Fiorina's red flags. If the leak-probe scandal is any indicator, illicit and possibly illegal acts are to be kept under wraps.

That suspicion was in no way ameliorated by Hurd's press conference Friday -- a staged event where he boldly admitted he consented to sending a journalist false information, then turned around and asked a room full of journalists to trust him.

On top of that was the way phrases like "I believe," "I understand" or "we believe" were tossed around at the press conference like candy on Halloween. Public Relations 101 teaches that if you want to make someone trust what you're saying while covering your behind, then use a qualifying phrase like "I believe that..." If you're caught, you just say you were saying what you believed.

So, here's a question for H-P's new chair: What else is the board hiding? When someone you count on betrays your trust, it's natural to ask what else they've held back. This is something that every H-P shareholder should be demanding of the board -- and of its new chairman in particular.

Here's a question that's more to the point: Does Hurd even know what else is hidden?

Hurd said Friday he was "very disturbed" by what he's learned about how the leak investigation was conducted. He said he attended some early meetings on the investigation but missed a key report in which the pretexting strategies were discussed.

It's tempting to take his declarations of blissful ignorance at face value, except for three things:

First, as a board member, why did he miss a report that he knew, if he had been paying attention in those meetings, would be important?

Second, why did he wait until after reports surfaced suggesting he may have known about the pretexting? Why not come clean earlier?

Third, and most significant for H-P investors, why didn't Hurd, not only the top manager but a board member to boot, have the slightest idea that such a mess was in the making? Isn't it part of his job to keep these kinds of things in check?

It's a terrible position for any leader: some malfeasance is uncovered, and you were either complicit in it, or oblivious to it. You're either corrupt or inept. That's the position in which Mark Hurd has found himself. And on Friday, Hurd threw himself wholeheartedly onto ineptitude.

I don't own any shares of H-P. I never have, and seeing the company today, I certainly don't plan on it. The impressive turnaround that H-P has started may well continue. But investors tempted to stay with the stock need to ask themselves whether someone who has confessed to being so out of touch on something so important can be trusted as both CEO and chairman.

At the press conference Friday, Hurd started off by saying, "This is a complicated situation, and the more I look into it, the more complicated it becomes."

Actually for H-P investors, it's beautifully simple: Until you know what is really going on inside H-P, just walk away.