Fortune Magazine
Fast Forward
The peculiar logic of Patricia Dunn
Commentary: HP Chairman Patricia Dunn's supporters say her behavior was neither stupid nor weak. Accept it or not - here's another view of the HP mess.
By David Kirkpatrick, Fortune senior editor

NEW YORK (Fortune) -- For the first time, some of Chairman Patricia Dunn's partisans are starting to tell what they say is the accurate story of how this most bizarre of corporate governance fiascos unfolded. Believe it or not, as you will.

I did not speak with Dunn, and nobody at HP is willing to go on the record. But to hear these supporters tell it, there is a logic to how she behaved and why the story unfolded so peculiarly.

Dunn wanted Tom Perkins and George Keyworth off the HP board, the supporters say. Leaking details about board deliberations to the press, she believed, was only one of several ways their presence was a major factor in making the HP board dysfunctional. Since Perkins and Keyworth were the board's strongest connections to company founders Bill Hewlett and Dave Packard, what they said carried weight, complicating Dunn's challenges.

Dunn is not just any board chairman. She is deeply involved with the Conference Board's Global Corporate Governance Research Center, and her photograph and a quote from her are featured on the center's home page.

As a governance perfectionist, Dunn was especially upset about the ongoing obstreperousness of HP's (Charts) board. And she was determined to remedy it, her supporters say. She also didn't want CEO Mark Hurd to have the burden of dealing with the board as he was simultaneously wrangling the company's operations back into shape, so she kept the chairman's job when she and her colleagues hired him.

But people who know her well believe that her goal has been to give Hurd the second title once she succeeded in streamlining the board and eliminating much of its discord.

Empty sacrifice

The company this week cannily portrayed her announcement that she would step down at a mid-January board meeting - four months away - as a just (if belated) punishment for her ill-managed supervision of the leak investigation. It was just the kind of thing people like me had advocated - the person in charge appeared to be falling on her sword for her mistakes.

But since even then she intends to remain on HP's board, her supposed retreat doesn't seem very dramatic. In fact, the supporters say she had been hoping to make such a transition around that time anyway. She wanted Hurd to be chairman in time for next spring's shareholders' meeting, and the last opportunity to hand off the job would be the January board meeting.

Among her goals has been to recruit new members to the board before turning it over to Hurd. And she has had conversations with a few eminent business leaders.

But once Keyworth refused to resign even after admitting to having spoken without authorization to reporters, Dunn was stymied. The first thing any new board recruit was likely to do after being asked to join would be to call a couple current members. He or she would then certainly learn that they were being asked to join a dysfunctional board with an admitted leaker still on it.

Now, with Perkins having resigned in May and Keyworth this week, new board members will almost certainly be named shortly.

Believe it or not, Dunn's partisans say that she deliberately stonewalled Perkins when he began demanding that the board acknowledge to the SEC that he had left over a fundamental disagreement - about how it had conducted its investigation into board member leaks.

Bringing it into the open

In effect, her supporters say, she was willing to resist Perkins even at the cost of a public spectacle. They say she underestimated how disastrous for the company that spectacle would become, because she really didn't know until just a few weeks ago that the company's investigators had crossed the line into unethical and probably illegal behavior in the search for leakers that led to the unmasking of Keyworth.

Her supporters say that even if she knew about the pretexting, she absolutely didn't realize that the techniques had also been used on journalists and employees. She also felt that since the board knew about the leak investigation, board members had accepted and understood that they would be investigated themselves. Clearly Perkins disagrees. In a June 20 email to the company's outside counsel, Larry Sonsini, chairman of Wilson Sonsini, he wrote that the investigation was "unknown to the board except...in the most vague and imprecise terms."

Perkins had no reason to want his friend Keyworth to be identified publicly as the leaker, only that the board deal with the unethical inquiry. By filing a so-called 8K document with the SEC on September 6, Dunn in effect called Perkins' bluff. While it acknowledged the pretexting, the document also named Keyworth. That set the stage for a negotiated settlement that would guarantee Keyworth's departure, which came this past Tuesday the 12th.

But why, we all have wanted to know, didn't Dunn and the other board members show elementary common sense and inquire as to the source of the phone records investigators used to incriminate Keyworth?

Here are two possible explanations: First, Dunn relied on the advice of her lawyers - and that seems to have been that the pretexting didn't break the law. A company SEC filing on Sept. 6 confirms that HP outside counsel Larry Sonsini, the most powerful and eminent lawyer in Silicon Valley, told the board that the methods used to acquire information had been "not generally unlawful." And here's more evidence of how Sonsini was talking about the pretexting: He wrote in an e-mail to Perkins on June 28 that "the process was well done and within legal limits."

Sonsini is not only respected, he is feared. People think hard before taking him up in argument. HP's own internal lawyers, and the lawyers for the outside investigators who had acquired the private phone records, also claimed what they were doing was legal. My sources say the lawyers told the board that all the information obtained on directors was "from publicly available sources."

But the other explanation is more awkward for anyone to discuss, and as a result has been missed in almost all the coverage of this affair - even most of her supporters won't address it. It seems that Dunn is very sick. As David Kaplan in Newsweek revealed in his story Monday, even after having had breast cancer in 2000 and melanoma in 2002, Dunn was diagnosed with ovarian cancer in 2004 and underwent extensive surgery last month after doctors discovered a malignant tumor in her liver.

Think about that timing. It would have quite possibly been late July or early August when Dunn was preparing to go into the hospital for major liver surgery. The letters between Sonsini and Perkins in which the latter demanded the board investigate the practice of "pretexting", or impersonating someone in order to get their phone records, were exchanged during July. It wasn't until July 28 that Perkins wrote his most concrete and accusative letter, which he addressed to the entire board (for the first time) and which included the following well-crafted and persuasive sentence: "That the illegal pretext was done by a consultant is no excuse or defense to HP, which authorized, induced, and benefited from the illegal fraud."

Explaining the inexplicable

None of this excuses Dunn for her gross misjudgment in not acting and asking questions sooner on the unethical if not illegal company behavior. But it does confer some pathos and a glint of explanation onto the delays and misjudgments. The entire rest of the board - including CEO Mark Hurd - also received that letter. (Hurd hasn't commented publicly about the Dunn affair.).

Many of us are still waiting for an active acknowledgement of how grave a disaster this spying episode is for the company, whose chief privacy officer said in congressional testimony in June that "Privacy is a core HP value. As a company, HP is 100 percent committed to excellence in consumer and employee privacy." All I can say is---wow.

So convince me. One way might be to dismiss Wilson Sonsini because of the role its chairman Larry Sonsini played in defending the spying. I wouldn't be surprised if it happened soon.

Dunn and the company have taken a peculiarly uncontrite tone on the entire pretexting matter. In the official press release issued to announce that Dunn would eventually turn over the chairman's job to Hurd her quote begins "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." That sounds overly legalistic and defensive.

Then it gets to the apology part, such as it is: "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."

That is not the language of someone with much genuine regret (though she did personally apologize to the journalists who had been pretexted). Perhaps it's because, at least when it came to the board's composition, she got much of the outcome she wanted. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.