Monitoring the Monitors
News leaks plagued Hewlett Packard. The first leaks surrounded the ouster of chairwoman and chief executive Carly Fiorina. During this internal turmoil, The Wall Street Journal published an article with details of closed-door board discussions about the planned management reorganization. An external legal counsel interviewed board members but failed to identify the leak. Evidence of more leaks appeared a year later as news organizations once again described the deliberations of closed-door board and senior management meetings in extensive detail. It was clear that someone from inside was leaking information. In addition to board members, reporters from such publications as The New York Times, The Wall Street Journal, Businessweek, and CNET became targets of the ensuing investigation into ten different leaks. The methods used to try to plug these news leaks led eventually to a board shake-up, which included the departure of nonexecutive chair- woman Patricia Dunn.
Fast forward to 2013, and another company, J. C. Penney, was involved in a story about board leaks. J. C. Penney director and activist investor William Ackman allegedly provided a news outlet information about board meetings, detailing discussions about his frustration with the CEO search process. In another example, the University of North Carolina Board of Governors in 2014 removed a trustee when he allegedly leaked information about candidates in the search for a new chancellor.
Investigating board members is a difficult proposition. Coming back to the HP example, the board could not supervise what was an investigation of them- selves. Neither could the employees handle the investigation because that would have put them in the untenable position of investigating their own bosses. Left with few options, HP board chairwoman Dunn turned the investigation over to a network of private investigators. According to Dunn, she could not supervise the investigation because she was a potential target. Dunn asked the head of corporate security to handle the investigation, as this was the person who handled employee investigations, but he still had conflicts of interest as an employee of the board. So, the company outsourced the investigation to a network of outside investigators, telling them to conduct it within the confines of the law.
The primary source of the leaks was uncovered, but questions remained about the process of the investigations. Although no recording or eavesdropping occurred, investigators had used a form of “pretexting” to elicit phone records. Pretexting is a way of obtaining information by disguising one’s identity. In this case, investigators used pretexting to obtain phone records of not only HP board members but also reporters who covered the story. In addition, investigators followed board members and journalists and watched their homes. They also planted false messages with journalists to get them to reveal their sources inadvertently through the tracking software included in the fake messages.
1. Who should be responsible for acting when a board member engages in problematic behavior? If the chairperson is responsible, when should he or she be involved in the whole board? What are the costs of early full-board involvement? What are the costs of late full board involvement?
2. One complaint lodged was that HP provided board members’ home phone numbers to investigators. Was this out of line? Do board members have a responsibility to provide certain basic information, or was their privacy breached when their home phone numbers were given? A board member whose phone records proved he was not involved in any leaks still resigned from the board in protest that his privacy was invaded by the pretexting. Was he right?
3. The law regarding pretexting is unclear. While it is illegal when used to obtain financial records, the use of pretexting in other situations—such as the phone records in this example—was not necessarily against the law. Should it be?
4. How might things have evolved differently if ethicality rather than the legality of the practice had been the issue? Are the two synonymous or is there a difference?
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