Summary

During the years 2005 and 2006, HP experienced one of the worst corporate deviance with a retaliatory response to the organizational power. There was an ethical crisis at Hewlett-Packard that erupted and brought a series of consequences that affected the company’s moral integrity. The event started in 2005 when a board member at HP leaked confidential boardroom meeting information to the media. It included the leakage of 2000 to buy the consulting firm Price Water-house Cooper’s, the decision to merge with Compaq in 2001 and the leak in January 2005 about possible changes in strategy. As a result of this everyone was causticized by Fiorina and lessened the role of board members to the success of HP with a threat to social identity. Subsequently, in a few days Fiorina was asked to resign, a form of internal voice that changed everything. By firing Fiorina, the board members displayed an act of personal aggression, a form of the retaliatory deviance and response to the frustration of injustice and threats to social identity.

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A relatively Junior member of the board Patricia Dunn, is made the non-executive Chairman of the Board. Robert Wayman was made to intervene CEO. The following month, the Board appointed outsider Mark Hurd is appointed to serve as a CEO and Wayman retained the CFO position. Even with the changes in the executive branch, the boardroom meeting leakages persisted with problems in social identity and autonomy in the boardroom members. On January 23, 2006 CNET news reported detailed HP’s long-term strategy including considerations for additional acquisitions. The leakage itself was an act of organizational deviance and Patricia Dunn is responsible for dealing with this leakage. Dunn

hired an outside investigation via the office of HP’s General counsel Annand Baskins to identify the source of the leak. The private investigation was then executed using other agencies and subcontractors who found the source of the leaks using surveillance and the practice of posing as someone else in order to obtain that person’s phone records or other private information, a process called pretexting. After the private investigation was done, it was a scandal because the board member who had been leaking information was the longest HP board member, George Keyworth. The real problem arose when the use of pretexting was deemed illegal. The problem since they’ve assembled evidence in an illegal manner. A close ally of Keyworth, Mr. Perkins resisted the Board’s decision to fire Mister Keyworth was given 50 years of experience to HP made a decision to resign and later rose is legal counsel. With advice from attorney, Mr. Viet contacted California’s Attorney General and Securities and Exchange Commission as

 pretext testing was deemed illegal in the investigation of leakage ordered by Dunn.

After the investigation, HP settled California’s civil suit for a $14.5 million and agreed to governance provisions for 5 years as well. In the aftermath, HP had to reform its ethical practices for the better and had to deal with a very embarrassing situation.

Questions

What are the ethical issues in this case? Remember, use the listings from chapter 3 in your identification.

There are countless of ethical issues in the 2006 Hewlett-Packard crisis. The foremost ethical issue is the invasion of privacy by Mrs. Patricia Dunn. When Patricia Dunn began the investigation, she completely disregarded everyone else’s privacy. Pretext in was illegal, and the private investigation firm she hired used “pretexting.” Pretexting is posing as someone else in order to obtain that person’s phone records or other private information” (Stecklow et

 al., 2006). This event was a wrong approach in obtaining personal phone records and confidential information so as to detect leakage in the HP Corporation It’s stated in Business Ethics: Ethical Decision Making & Cases, that “if personal data is gathered that includes medical or religious information, it can result in litigation” (Ferrell, O. C.; John Fraedrich, p. 83). In this case however, the private investigators obtained personal phone records of over a dozen board members at the company. This act of obtaining private information is the breach of employees’ privacy as information was obtained without their formal consent.

The second ethical issue present is Corporate Intelligence Espionage. Since 2000, there have been many boardroom discussion leaks into the media. The first one being HP’s decision to purchase a consulting arm of Price Water-House Coopers. Then, a year later, another boardroom leak was released of HP’s choice to merge with Compaq. Four years later in 2005, there was another leak about the CEO’s change in strategy. The recurrent and ongoing boardroom leakage caused a great embarrassment and frustration. Corporate intelligence is defined as “the collection and analysis of information on markets, technologies, customers, and competitors, as well as on socioeconomic and external political trends” (Ferrell, O. C.; John Fraedrich, p. 71). This event is exactly what information George Keyworth was leaking about Hewlett-Packard. It’s stated in Business Ethics: Ethical Decision Making & Cases that “Corporate intelligence can be a legitimate inquiry into meaningful information used in staying competitive” (Ferrell, O. C.; John Fraedrich, p. 71). With Dunn, Hewlett-Packard was put at a huge competitive disadvantage after the repeated boardroom leakages which can cost the company hugely.

Identify two primary and one secondary stakeholder group associated with the spying scandal. How might each of these groups be impacted by the board’s behavior?

Primary stakeholders are defined as “those whose continued association and resources are absolutely necessary for a firm’s survival” (Ferrell, O. C.; John Fraedrich, pg 32). This makes the board members a primary stakeholder. The board members in this case were frustrated and lost total faith in the company with a breach of privacy information through this investigation. In fact, it was stated that in the case that “Everyone was chastised, yet only two of the board members were ultimately found to have been the source of the leaking of confidential information to the media. The remaining board members were unjustly accused” (Randi L. Sims. p. 556 ). The board’s behavior, specifically Dunn’s, abused her executive power and lost the trust of the board members.

The investors in the Hewlett-Packard company as well lost the faith in the future of the company as repeated and crucial information was leaked loosing competitive advantage of Hewlett-Packard. In fact, “shares of the printing and computing company dropped 5 percent, the first major price dip since the company revealed early this month that it had obtained personal phone records of its board members and nine journalists under false pretenses” (Washington Post 2006). Investors were negatively affected by the scandal and resulting in some selling their stocks. They do not want to stand for the company who unethically infringes the privacy of their board members.

Secondary stakeholders “do not typically engage directly in transactions with a company and are therefore not essential to its survival” (Ferrell, O. C.; John Fraedrich, p. 32).The secondary stakeholders here are the media as they are not essential for the company’s survival. The media however unlike the primary stakeholder, benefited from the 2006 Hewlett-Packard scandal. They received insider secret information from George Keyworth that caught a lot of attention helping the media company. The media blew of the case of illegally obtaining personal information of the board members by Patricia Dunn. This is why it’s stated in Business Ethics: Ethical Decision Making & Cases that “secondary stakeholder can have as much—if not more—power to influence outcomes than a primary stakeholder” (Ferrell, O. C.; John Fraedrich, p. 32).

Identify the primary moral philosophy used by Fiorina, Hurd, and Perkins.

The moral philosophy used by Fiorina is Teleology. Teleology is defined as “moral philosophies in which an act is considered morally right or acceptable if it produces some desired result, such as pleasure, knowledge, career growth, the realization of self-interest, utility, wealth, or even fame” (Ferrell, O. C.; John Fraedrich, p. 159). Fiorina was frustrated with the leakage of information by the board and thought it was morally correct to call upon the board members and express the executive authority to stop the leakage. She did this because she wanted to produce a desired effect on her board members. She wanted them to feel afraid of her thus respecting her wishes for a confidential agreement.

Hurd’s primary philosophy is Virtue ethics. Virtue ethics is defined as “ethical behavior involves not only adhering to conventional moral standards but also considering what a mature person with a “good” moral character would deem appropriate in a given situation” (Ferrell, O. C.; John Fraedrich, p. 164). Hurd believed that Dunn’s actions were in fact justified because “she had [Dunn] the best interests of HP in mind throughout her time on our board’’ (HP Press Release, September 22, 2006). Hurd believed that Patricia Dunn’s behavior was simply one of a CEO. It seemed the correct thing to do at the time as her mind was clouded and Powers to find the leaking members information at any cost. So when there is frustration for achieving the goal, unethical behavior is said to be at its peak (Spector and his colleagues as cited in Bennett and Robinson, 2003).

Perkins primary philosophy was justice. Justice is defined as “fair treatment and due reward in accordance with ethical or legal standards, including the disposition to deal with perceived injustices of others” (Ferrell, O. C.; John Fraedrich, p. 166). Perkins protested by resigning after he was confident that his private communication information was infringed by the company and also duties close friendship with Kenworth. In fact, he even hired an external investigator to verify his theories which proved to be true. Perkins believed that he stated on fairly and unethically including his colleagues in the board members and he was in his total rights to feel this way

What can HP do to prevent future scandals?

There are many ways for Hewlett-Packard to prevent unethical scandals. First, the company should place great importance in establishing corporate guidelines which are easy to understand and abide by. They should also periodically measure their level of ethics by using the Open Compliance Ethics Group, short for OCEG. The Open Compliance Ethics Group “developed benchmarking studies that are available to organizations wanting to conduct self-assessments to determine the elements of their ethics programs” (Ferrell, O. C.; John Fraedrich, p. 114). Using this self-assessment test, they will be able to bring out any ethically risky areas in business. This event can help to improve the strategies to prevent misconduct and unethical behaviors.

 The second strategy that could be put in place is a complete overhaul of the ethics training program. Outside Experts in the area should be brought in and conduct periodic cross check and test if everyone is complying with the ethical program. This can achieve a greater impact in preventing internal unethical behaviors. Last whistleblower incentive programs need to be set up that not only protects them, but has a reward built into it. This will enable the employees at Hewlett-Packard to report whistleblower unethical behavior without being afraid and would also be incentivized. HP had to reform its ethical practices for the better and had to deal with it in a very embarrassing situation.

 The third policy should be an imposition of specific corporate governance policies. Public company board members should impose confidential policies specific to the company’s corporate governance structures. The policies imposed should define “confidential information” specifically, listing specific types of information that can be released to the public and to HP employees and emphasize that the “confidential information” category entrusts all non-public information to or obtained by directors because of their position as one of the board of members and consider impositions on any guidelines which are not met. Specific governance policy should remind directors of their corporate and legal duties towards HP and state that the company’s directors may only use confidential information for the benefit of HP, and not for personal benefit or benefit for other corporate or non-corporate reasons. Confidential policies should specifically address the Issue of Disclosure by constituent directors to company sponsors and note to all directors about their confidentiality obligations during and after their tenure on the board.

References

Bennett, R. J. and S. L. Robinson: 2000, ‘Development of a Measure of Workplace Deviance’, Journal of Applied Psychology 85(3), 349–360.

Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2019). Business ethics ethical decision making and cases (12th ed.). New York: South-Western Cengage Learning.

HP Press Article: HP Chairman and CEO Carly Fiorina Steps Down. (2005, February 9). Retrieved May 21, 2019, from http://www.hp.com/hpinfo/newsroom/press/2005/050209a.html.

Sims, R. L. (2010). A Study of Deviance as a Retaliatory Response to Organizational Power. Journal of Business Ethics, 92(4), 553-563. doi:10.1007/s10551-009-0172-3