Issue: Why Pretexting was worse than illegal
Commentary by: David

The news and editorial coverage of the sensational Hewlett-Packard leak investigation this summer has missed an important point from a branding standpoint. The question HP Chairman Patricia Dunn should have asked herself when initiating an investigation to determine which director was having unauthorized conversations with the media is not just “is this legal” or “is this ethical” but “what will the effect on the Hewlett Packard brand be when this comes to light?”

What is today termed ‘crisis management’ should instead be thought of as ‘brand management.’ We suggest that if business leaders consider potential actions in light of the long-term effect on the brand, they would often make different decisions.

So what exactly happened? The short story is that after it became clear during the ouster of form HP CEO Carla Fiorini that the media was getting the inside story, Patricia Dunn initiated a leak investigation. She was aware that the methods being used by the consultants hired to conduct the investigation included pretexting: pretending to be someone else in order to obtain personal phone records of Hewlett-Packard Directors. The pretexting pointed towards Director George “Jay” Keyworth. Keyworth in fact had a conversation with CNET which painted HP in a positive light and had been asked by HP on numerous prior instances to have contact with the press. When Keyworth was confronted about the leak he refused to resign (he has since resigned his post) and instead Silicon Valley legend Tom Perkins of Kleiner Perkins resigned in protest. After some dithering on Mr. Perkins part and the apparent representation by super-lawyer Larry Sonisi, the reasons for Mr. Perkins departure were made public. (There is some disagreement about this but a good argument has been made that it is a Director’s duty to shareholders to let them know his reasons for resignation if it has been done to protest a board action.)

Why do we believe that the decision to conduct this investigation should have been considered in the light of the potential impact on the brand? The legal questions that were not asked would have saved Patricia Dunn and Hewlett-Packard legal troubles. Had she asked more closely or sought impartial outside advice, she would certainly have learned that pretexting is illegal. The ethical question that Ms. Dunn did not ask would possibly have changed either the tactics of the investigation or the disclosure to the board and might have saved her job.

Neither legal nor ethical considerations, however, would have prompted Ms. Dunn to forego the investigation altogether, however. And we submit that it is the fact that HP is investigating its own outside directors and not just the tactics used in the investigation that has caused untold damage to the Hewlett-Packard brand. If Hewlett-Packard cannot trust its own directors, why on earth should consumers trust Hewlett-Packard products? If the company behaves in a way that most consumers would sooner equate with Wal-Mart or Microsoft, shouldn’t they vote with their dollars and find other brands?

The timing could not be worse for HP. In spite of the questionable merger with Compaq and the turmoil that gripped HP during Carla Fiorini’s reign, HP has made a remarkable turnaround. CEO Mark Hurd (who is himself at risk if his involvement in the leak investigation is shown to be more direct than he has yet acknowledged), has seen a dramatic reversal of fortune under his watch as HP has gone from being the laggard of the PC industry to the leader. And the swell of positive press for HP came as Dell was under a high-profile cloud for issues ranging from financial improprieties to quality concerns to the battery recall.

Now HP has given Dell a breather at the most critical moment. And the damage to the brand will not easily be forgotten by consumers looking for a better alternative in this low-satisfaction industry. Which leaves the door open for Apple. Apple has experienced all of the issues that Dell has (some quality problems with the iMac, Nano and other products, a battery recall and an government investigation of financial improprieties) but has so carefully managed the brand that nothing seems to have stuck to the Apple brand image or impaired Chairman Steve Jobs mythic ‘reality distortion’ field.

The bottom line is that too often persons in a position of power in major corporations act like children, putting their pride or personal agendas above the needs of the shareholders or the value of the brand. If one’s directors are speaking out of school, the company has a leadership issue. The solution is to fix the underlying problem rather than simple seeking the quickest way to end the symptoms.

This entry was posted on Tuesday, September 26th, 2006 at 12:42 pm and is filed under commentary, Hewlett-Packard, Press. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.