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Hewlett Packard Spying Scandal Essay

Corporate misconduct, (or people’s misconduct so to speak) is an issue that has been dominating headline news in the American business world in recent years. Theodore Roosevelt, one time U.S. president was probably right when he said, “To educate a person in mind but not in morals is to educate a menace to society” (Platt, 1989). The American society has continued to suffer from corporate scandals, despite the fact that people are now better educated because behind each scandal and crisis is a possible lack of morals in the “educated people” running those corporations (Low et al, 2006). It should be noted that unethical behavior is not a new phenomenon in US business nor it is an issue of the US alone.

Research Questions and Objectives

The year 2002 witnessed the collapse of giants like Enron, Tyco, Arthur Anderson, WorldCom and less known cases like Morgan Stanley, Dupont and Prudential Financial amongst others all involved in one form of scandal or the other.  Such widespread corporate misbehaviors have left many people (including this writer) to wonder where things are going wrong. Should blame be placed on perceived weaknesses of legislation and accounting standards? Or is it that education is not producing the type of business graduates needed to prevent such scandals? (Low et al).   Do the misdeeds simply involve a few “bad apples”: a smattering of corporations that make the rest of American business look bad? Or is the problem much broader than that? Further, if it is a widespread issue, what needs to be done? (Clement R. May 2006). Such are the kind of questions this study is out to seek answers to in light of the Hewlett Packard Spying scandal of 2006.

Conceptual Framework

This section explains what the literature on business ethics suggests for achieving ethical behavior in an organization. It is hoped that this will lay a foundation for the analysis of the recent corporate misdeed of Hewlett Packard.

Business Ethics:

Business ethics, Black J. (2002) is the branch of ethics that studies what standards businesses should observe in their dealings over and above compliance with the letter of the law. This covers questions such as fair dealing with their labour force, customers, suppliers, and competitors, and the impact of their activities on public health, the environment, and animal welfare. If a good reputation helps to gain and retain business, ethical conduct need not necessarily conflict with profit, but there are bound to be cases where it does. Particularly difficult questions of business ethics arise in multinational firms, where practices such as gifts to officials, which are essential to doing business at all in some countries, are regarded as criminal in others.

Previous research works on business ethics have pointed out some measures that can be taken within an organization to help foster a culture of ethical behavior. Many of these studies highlight the role that top management commitment plays in developing an ethical organizational culture. Weaver, Trevino and Cochran (1999) found that the commitment of top management is essential for ethical decision making to be integrated into a firm’s culture; in other words, management’s decisions and actions in promoting the program are more effective than making sure that the program addresses a long list of ethical issues.

Trevino and Brown (2004) found that top executives must manage ethical conduct proactively by means of explicit ethical leadership and conscious management of the organization’s culture. To this end, they suggest that top managers should study the cultures of their organizations to see what ethical messages are being sent. The researchers also assert that executives should communicate the importance of ethics, reward ethical behavior, and model that behavior themselves.

Holmes et al (2002) found that employees are more likely to engage in ethical behavior if top management is firm in its expectations of ethical behavior of all employees, including themselves (p. 97) while Harrington (1997) concluded that, to achieve ethical behavior, top management needs to gain social consensus through changes in organization culture and by encouraging employees to live up to their responsibilities.
What constitutes “unethical” behavior?

It is important to determine the types of corporate behavior to consider unethical, and to decide on the time period over which the data on that behavior should be gathered. Some types of behavior may seem unethical to certain individuals but not to others (Clement R, 2006).  He however identifies three conditions that seem to signal unethical behavior:

– A plea of guilty by a firm to charges of misconduct;
– by courts or government agencies against a firm as solid evidence of corporate misconduct, even if the firm is still appealing the ruling.
– agreement by a firm to settle charges, often by paying a fine or agreeing to other restrictions on company behavior even if the firm is not required to admit guilt.

The Hewlett Packard (HP) spying scandal


In a Newsweek report by Kaplan D, (2006), the confrontation at Hewlett-Packard started innocently enough in January 2006 when online technology site CNET published an article about the long-term strategy at HP and other information that could only come from a director quoting an anonymous HP source. HP’s chairwoman, Patricia Dunn, fed up with the ongoing leaks told another director she wanted know whom it was.

According to an internal HP e-mail, Dun then took the extra ordinary step of authorizing a team of independent electronic-security experts to spy on the January 2006 communications of other 10 directors – not the records of calls (or emails) from HP itself, but the records of phone calls made from personal accounts. That meant calls from directors’ home and their private cell phones were intercepted. Dunn acted without informing the rest of the board and this caused a boardroom fury at the world’s largest technology company.

In a related story by Sakuma P. (2007), the HP boardroom-spying scheme erupted into a national scandal , September 2006, after the company disclosed that detectives it hired obtained the private phone records of directors, employees and 9 journalists in an effort to ferret out the source of media leaks. The scandal also introduced the world to “pretexting,” a shady tactic in which detectives used other people’s Social Security numbers to fool telephone companies into divulging detailed call logs. In an interview with Newsweek, Dunn said she didn’t know that the investigation would reach such heights.


In two separate press releases, HP announced a number of moves that was an outcome of 2 days of teleconferences among the board.

– Patricia Dunn was to step down as chairwoman.
– CEO Mark Hurd will replace her.
– George Keyworth, the longest serving director and one who leaked information to a CNET reporter that led to HP’s investigation was to resign immediately.
– Richard Hackborn, who served on the board since 1992 would become “lead independent director”.
– A criminal investigation against Patricia Dunn, Kevin Hunsaker, HP’s former ethics chief who allegedly directed the probe, and 3 private investigators was started on 4 counts: use of false or fraudulent pretenses to obtain confidential information from a public utility; unauthorized access to computer data; identity theft; and conspiracy to commit each of those crimes. Each charge carried a fine of up to 10,000 dollars and 3 years in prison.

How and Why HP successfully overcame this scandal

Testifying before a congressional in September 2006, Dunn said she was repeatedly reassured by HP’s lawyers about the legality of its detectives’ subterfuge. In a Business Week report, November 2006, a state judge Cunningham in California dropped the above charges against ex-Hewlett-Packard Chair Patricia Dunn after she pleaded guilty. The court however did not accept the pleas of the other three defendants and offered to dismiss the charges against them if they met two conditions – by Sept. 12  2006, they must serve 96 hours of community service and complete any court-filed restitution requests made by victims.

In a related story by CNN’s Katy Byron, (September, 2006), the court dismissed Dunn’s charge because of her cancer battle, according to the attorney general’s office. The dismissal came “not because she’s innocent but because she is sick,” attorney general’s spokesman Barankin told CNN. Dunn had breast cancer in 2000 and melanoma in 2002 and was diagnosed with ovarian cancer in 2004 and is still battling it. She also underwent extensive surgery last year after doctors discovered a malignant tumor in her liver.

In a CNBC news report (september 2006) Hewlett Packard agreed to pay $14.5 million to settle the lawsuit brought by California Attorney General Bill Lockyer, whose office accused the company of unfair business practices in its attempts to unmask the source of boardroom leaks.

HP also implemented changes to its corporate governance policies to ensure that future internal investigations are conducted legally.

There was no finding of liability against HP. The settlement includes an injunction and agreement that the California Attorney General will not pursue civil claims against HP or against its current and former directors, officers and employees.

The vast majority of the settlement — $13.5 million — will fund state and local investigations into privacy rights and intellectual property violations, Lockyer said in a statement.

The personal efforts of new HP chairman and CEO, Mark Hurd also contributed greatly to HP’s successfull exit from the scandal. He says “We are pleased to settle this matter with the Attorney General and are committed to ensuring that HP regains its standing as a global leader in corporate ethics and responsibility”.

The company shareholders rejected a proposal that would have given investors the right to nominate directors to HP’s board. About 39 percent of HP shares entitled to vote at the company’s annual shareholder meeting favored the measure, which was supported by funds including Calpers, the largest U.S. pension fund, and the California State Teachers’ Retirement System, the No. 3 fund.

The above factors culminated in a slight stock price increase of HP in September 2006 despite the fact that September 2006 was a rocky month for the company. Its stock actually rose a bit that month, ending at $36.69. It has since climbed to nearly $40 as HP continues to perform strongly in the PC and printer markets. HP today has regained its leading position as the worlds number one technology company.

The Role of Business Ethics in this Success

The conceptual framework of this study laid some guidelines on how to identify when a company behavior should be considered ethical or not. In the context of the widely publicized Hewlett Packard spying scandal discussed above, there is no plea of guilt by the firm nor by Patricia Dunn and the other defendents to charges of misconduct, we haven’t seen a ruling against either the Carlifornia court that handled the case nor the Securities and Exchange Commissions against HP for unethical behavior.

However, HP agreed to settle charges of $14.5 million to close the case and save the goodwill of the Silicon Valley icon. The payment, by ethical standards could be considered a fine, which is an evidence of unethical behavior, by a firm. HP’s intention, perhaps, as we have seen was to save the company’s image and probably in compliance with a court injunction or lawyer’s advice.

Taking a look at HP’s Standards of Business Conduct, (SBC) , we find that it embodies the fundamental principles that govern  ethical and legal obligations to HP. They pertain not only to conduct within the company but also to conduct involving HP’s customers, channel partners, suppliers and competitors. (www.hp.com).

As a business, remaining profitable and viable is a must for Hewlett Packard though this is not the only concern for the company. HP seeks uncompromising integrity through what each individual can contribute — to its customers, co-workers, company and communities. HP’s business success is dependent on trusting relationships. Its reputation is founded on the personal integrity of the company’s personnel and its dedication to the principles of: (www.hp.com)

– Honesty in communicating within the company and with its business partners, suppliers and customers, while at the same time protecting the company’s confidential information and trade secrets.
– Excellence in its products and services, by striving to provide high-quality products and services to its customers
– Responsibility for its words and actions
– Compassion in its relationships with employees and the communities affected by company business
– Citizenship in observance of all the laws of any country in which the company does business, respect for environmental concerns and service to the community by improving and enriching community life.
– Fairness to our fellow employees, stakeholders, business partners, customers and suppliers through adherence to all applicable laws, regulations and policies, and a high standard of behavior.
– Respect for fellow employees, stakeholders, business partners, customers and suppliers while showing willingness to solicit their opinions and value their feedback.


From the above, we can say that Dunn’s investigation into the leak was simply in compliance with the first principle (Honesty) of the company’s code of ethics. Her intentions were clear from the outset – to probe into an alleged boardroom leak while at the same time respecting the principles of respect and fairness (last two principles) in the investigation. That in itself shouldn’t have been a scandal. It is the methods of the investigation – pretexting that raised controversy and finally erupted into a scandal. Patricia Dunn was able to prove before congress and the courts that such an act was carried out without her knowledge, though she acknowledged that an investigation was going on, which in itself complied with company ethics.

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