H-P Closing Ranks

Updated from 12:04 p.m. EDT

Hewlett-Packard (HPQ) chairwoman Patricia Dunn apologized for the company's use of inappropriate surveillance techniques and will relinquish her post in January.

But Dunn will stay on the board after CEO Mark Hurd takes her place as chairman. Another H-P director, George Keyworth, quit the board, criticizing what he called its departure from its values. But he said it "is best for the company that every aspect of this unfortunate matter be put in the past."

The moves come after the Palo Alto, Calif., tech giant's board held two days of phone meetings over its response to the expanding spying scandal.

On Dunn's watch, H-P's board hired investigators to spy on board members and journalists in a bid to find the source of news leaks. The investigators used a technique called pretexting that involves impersonating someone in order to get at their personal data without their consent.

H-P's board this spring asked Keyworth, the putative leaker, to resign. But he refused and his ally on the board, venture capitalist Tom Perkins, quit instead. Perkins later complained about what he called H-P's failure to properly disclose his dispute with the company over the handling of the Keyworth leaks. H-P says its disclosure decisions were proper.

The Justice Department, the California attorney general and the Securities and Exchange Commission are all investigating H-P's actions. The California attorney general has said he believes crimes were committed in the pretexting, though he doesn't yet know by whom.

On Tuesday, H-P said Dunn will stay on the board after Hurd takes the chairman's post after the company's Jan. 18 board meeting. Richard Hackborn, who has served on the board since 1992, has been designated lead independent director, effective in January.

"The recent events that have taken place follow an important investigation that was required after the board sought to resolve the persistent disclosure of confidential information from within its ranks," Dunn said Tuesday. "These leaks had the potential to affect not only the stock price of H-P but also that of other publicly traded companies.

"Unfortunately, the investigation, which was conducted with third parties, included certain inappropriate techniques," Dunn added. "These went beyond what we understood them to be, and I apologize that they were employed."

Hurd said, "I am taking action to ensure that inappropriate investigative techniques will not be employed again. They have no place in H-P."

Later Tuesday, Keyworth issued a statement through the company lambasting H-P for the spying that led to the shakeup.

"The invasion of my privacy and that of others was ill-conceived and inconsistent with HP's values," said Keyworth, who defended his contacts with the media, saying they did not involve confidential information.

Shares rose 68 cents Tuesday to $37.04.

>To order reprints of this article, click here: Reprints