HP Spy Case


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Overview of the ethical considerations present in the HP boardroom scandal.

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HP Spy Case

  1. 1. HP Boardroom Spying Case StudyEthical Issues in Corporate Governance
  2. 2. Hewlett-Packard (HP) was formed in 1939 byStanford graduates, Bill Hewlett and DavePackard. The company manufactures printers,personal computers, and digital imagingequipment. The company headquarters islocated in Palo Alto, California (HP.com, 2007).2
  3. 3. In 2006, after a series of confidential boardroomdiscussions were divulged to the media, HP beganan internal investigation of its own board ofdirectors to identify the source of the leak.Though HP was well within its legal right toconduct the investigation, the manner in which itconducted the investigation is what ultimately ledto charges being filed by the California AttorneyGeneral (Spooner, 2006).3
  4. 4. Key players in the HP case: Patricia Dunn, former chairman of HP’s board of directors Kevin T. Hunsaker, a former senior lawyer at HP. Ronald L. DeLia, a private detective from Boston. Joseph DePante, owner of Action Research Group out ofMelbourne, Florida. ARG is a data brokerage firm. Bryan Wagner, employed by DePante. George Keyworth, board member accused of leaks. Thomas Perkins, former HP board member. Bill Lockyer, former California Attorney General broughtcharges against Dunn, Hunsaker, DeLia, DePante, and Wagner.4
  5. 5. In order to find the source of news leaks toreporters, members of HP hired private investigatorsto pose as board members, HP employees,journalists, and others to get telephone callingrecords which is a process known as pretexting(Lazarus, 2006; Woellert, 2006). At the timepretexting was not an illegal action.5
  6. 6. Ethical issues involved in the HP boardroom spying case: Invasion of privacy The means used to obtain the goal Abuse of power Whistleblowing and protective mechanisms foremployees to come forward6
  7. 7. Invasion of Privacy7
  8. 8. A BREACH OF TRUST?Among the now notorious acts that HP committed in thecourse of its internal investigation was the acquiring ofpersonal phone records of some of its employees in an attemptto assuage the damage that might have been caused by sharingconfidential information to unauthorized parties. As citizens ofthe U.S., all individuals have basic rights to freedom of speechand to expect privacy in their own homes, free fromunwarranted searches and seizures.As an employee in someone else’s organization, it is generallyunderstood that such rights to speech and privacy may becurtailed in the interests of the company. The issue here,however, is whether the management of HP behavedunethically in obtaining the private phone records of some ofits employees. Was this a breach of trust for data that wasoutside of the immediate reach of the company?8
  9. 9. There are two principles that should be considered whenanswering this question- the Utilitarian and Moral Rightsapproaches. The former would suggest that “managers should strive toprovide the greatest degree of benefits for the largest numberof people at the lowest cost.” (Sims, 2002). The latter is more stringent, for it deals with respecting andprotecting the basic rights of individuals, such as, the rights toprivacy, free speech, and due process.Even if the decision accomplishes the greatest good for thegreatest number of people, it is considered unethical if itdenies individual rights (Sims, 2002).9
  10. 10. By applying the Moral Rights approach to ethicaldecision making, it is clear that HP exceeded its authorityand did indeed invade the privacy of those whom itobtained private phone records without consent.Although those who may have shared confidentialinformation did commit a violation of company policy,the management’s pursuit of this breach was no lessreprehensible.10
  11. 11. This occurrence could quite possibly have been averted if HP had adopteda more utilitarian standard early on toward its board of directors. Forexample: Board meetings may be recorded, but kept at headquarters andaccessible only to the executive staff. Personal note-taking may be prohibited. Attendance sheets may be required to keep track of exactly whoattends which meetings and when. More comprehensive memorandums-of-understanding (MOU’s) maybe administered to all board members to elicit compliance withcompany policies.*Even more noteworthy is that the data sharing is indicative of at leastone board member’s dissatisfaction with the company, otherwise, sucha betrayal would not have occurred in the first place. Perhapsmanagement should review the entire corporate atmosphere andidentify areas of improvement in employee relations.11
  12. 12. The Means Used to Obtain the Goal12
  13. 13. Pretexting The planned approach and actions taken on the part ofHewlett-Packard (HP) for the purpose of determining wherethe internal leak occurred have been greatly questionedthroughout our society and legal system. The primary actionin question is known as “pretexting” and has raised some verysignificant ethical and legal issues. Pretexting is the process of impersonating someone else, in aneffort to access another individual’s personal information(Mullins, 2006). In the pretexting incident of Hewlett-Packard,this process was utilized to obtain phone records of boardmembers and journalists for the purpose of identifyingpotential sources of unauthorized information being leaked tothe media.13
  14. 14. Two Primary Issues: Is pretexting and similar techniques in the workplacelegal? Is pretexting and similar techniques in the workplaceconsidered ethical?According to Darlin (2006) of the New York Times, the individuals whoobtained personal information under false pretenses, used workers’ lastfour digits of their social security numbers to obtain their phone records.HP maintains that the type of pretexting used did not violate the law at thetime it was used.In early January 2007, President Bush passed a bill making pretextinga federal offense (Jones, 2007).14
  15. 15. Form of Identity Theft? Although pretexting fell into an undefined and confusing areaof the legal system just months prior to this bill being passed,many believe the process does violate ethical standards(Spooner, 2006). One of the largest ethical issues surrounding this situation isthe possible use of identity theft tactics. Many havequestioned whether or not pretexting should be considered aform of identity theft. This method has been used by policeand various forms of investigators for many years (Koerner,2007). However, more and more criminals who engage inidentity theft are utilizing this tactic as well- accessing creditcards, savings accounts, switching cell phone accounts fortheir own use.15
  16. 16. Ultimately, the issue comes down to the factthat people are pretending to be who they arenot, in order to obtain information that shouldnot be released to them; information that nowcannot be legally released and ethically,should not be released.16
  17. 17. Abuse of Power17
  18. 18. A Moral ChoiceThroughout history there have been many leaders that haveused their status to get information they could use for theirown benefit. This was shown within the Hewlett-Packardcase where the leaders within the organization used theirpower to receive information about an internal leak. It wasPatricia Dunn, the chairman of HP’s board of directors, whowas at the center of this scandal due to her instigating thetactics used within the internal investigation. Dunn used herpower to authorize individuals within the organization to tapinto phone records and other personal data in order to receiveinformation about the internal leak (Spooner, 2006).18
  19. 19. There are several reasons why the abuse of power is damaging to not onlyan organization but also the employees that work within the organization: Using this kind of tactic will only lead to self-gain which is essentiallyunethical. An unethical approach like this can be demoralizing to allemployees within the company, especially those who are actively involved.Employees can view this behavior as normal for those who are in a leader’srole and will most likely end up following in their footsteps once theybecome a leader. Another way this can be damaging to the organization is that abuse ofpower can lead to discrimination issues within the company: We all knowthat when someone is in a position of power and they want to makesomeone do something that they will most likely choose those individualswho are easily swayed. This can lead to employees feeling discriminatedagainst which will essentially lead individuals to view the organization asuncaring and discriminatory.19
  20. 20.  Abuse of power can be damaging to an organization in that it takes awaythe accountability of the leader. Within a leadership role that individual issupposed to become accountable for issues that arise within theorganization (Keohane, 2005). The leader in any organization is one that issupposed to be responsible, ethical, and respecting. When a leader takestheir position of authority and uses it to make employees do things theynormally would not do, this can essentially make employees lose respectfor their leader. If something should happen within the organization theleader should find out what happened but this should be done in a way thatis still respectable and ethical. Abusing power is not the way to get to thebottom of problems.20
  21. 21. In order to have an organization that is motivated andsuccessful there has to be a respectable leader that employeestrust. Before there is any talk about methods of operation,lines of communication, definition of goals or structure of ateam, a leader must present himself or herself with a high codeof ethics that prevents any abuse of power. Robbins and Judge(2007) identify that leadership effectiveness needs to addressthe means as well as the content of any goals. Having thischaracteristic will allow an individual to become a moreeffective leader in the workplace.21
  22. 22. Ways to avoid the abuse of power: Hire or appoint a leader with high ethical standards. A leader must set a good example for their organization andtheir employees. Leaders should treat their employees with the utmostrespect. Leaders should have a trusted advisor in the organization,one outside the organization, and an independent board togo to for counsel (Gardener, 2007). A leader should approach trouble in a fact-finding mode andnot in an accusatory fashion.22
  23. 23. Whistleblowing and ProtectiveMeasures for Employees toCome Forward23
  24. 24. In the HP spying case, Thomas Perkins, a member of the HP board,resigned in protest believing his private communications had beenmonitored and requested an external investigation of the tactics usedby the members involved in the spying activities (Spooner, 2006).The HP boardroom spying tactics found George Keyworth was theperson who shared information on the boards activities withoutauthorization (Woellert, 2006). Thomas Perkins identified with thevictim of the spying investigation, George Keyworth, his friend andfellow board member.Thomas Perkins is what is known as the “whistleblower” in the HPboardroom spying scandal and shows that HP may not have hadprotection measures in place for employees to report improperactivities.24
  25. 25. Whistleblowing in the workplace is when aperson or persons comes forward andreports illegal, immoral, illegitimate, orunethical acts performed by employees oremployers of an organization (Alford,2001; Miceli & Near, 1994).25
  26. 26. Whistleblowing, depending on the culture, can be perceived as a negative or aheroic action: The British hold a negative view on whistleblowing. Conflict shouldbe avoided. China values loyalty, and whistleblowing is a direct threat to a loyalrelationship between employees and their employers. France, Italy, and Russia favor an anonymous reporting system. In America, children learn at an early age that being labeled a tattletaleor snitch is bad. This attitude often follows into adulthood. In Ireland, slightly less than 50% would blow the whistle on improperacts in an organization. Only 3 % would expose a friend’s improprieties. In Western cultures, the media tend to portray the whistleblower as themodel employee and their actions as heroic.(Appelbaum, 2006)26
  27. 27.  Most wrongdoing is reported internally first. It is the response or lack of response to the complaint that forcesthe whistleblower to report the wrongdoing externally. If the complaint is based on theft, or involves harm to theemployees or the public it is more likely to be reported externally. The level where the wrongdoing occurs can cause externalreporting if the whistleblower feels that he or she has no one in ahigher position to go to.(Miceli & Near, 1994)Whistleblowing can be reported internally or externally and can come from anemployee or someone outside the organization such as a journalist or a memberof a watchdog group.27
  28. 28. The Decision to Report Wrongdoing Belief that something will be done in response to the complaint. Strong sense of morality. Sense of duty required by the job to report any wrongdoing. Does not let the fear of retaliation influence the decision to report the complaint.(Alford, 2001; Uty, 2000; Miceli & Near, 1994)28
  29. 29. The Decision Not to Report Wrongdoing Nothing will be done by the management or the organization. Fear of retaliation in the form of job loss or lack of promotions. Social isolation at work. Media attention for employee and his or her family. Sense of loyalty to the organization. Seriousness of the wrongdoing.(Alford, 2001; Uty, 2000; Miceli & Near, 1994)29
  30. 30. Whistleblowing is a clear way for anemployee to separate himself or herselffrom the wrongdoing, assert personalvalues, and establish personal integrityin the work place (Uty, 2000).30
  31. 31.  Prevention of ethical issues from occurring in the first place. Clear ethical and legal guidelines for the organization and its employees to follow. Ethics office or manager to report incidents to or provide clarification (Chang, 2002). Ethics training for all employees to establish what is and isn’t ethical conduct. Clear procedures set in place for investigating any reported misconduct. Anonymous reporting procedure for those employees who don’t feel comfortable comingforward publicly (Chang, 2002).Protective mechanisms to put in place for employees to reportunethical or illegal behavior:31
  32. 32. Conclusion32
  33. 33. In order to prevent ethical problems, both leaders and employeesof an organization need to ask a series of questions beforeproceeding with a course of action. Is it legal?- “The law merely specifies the lowest common denominator of acceptable behavior”(McDonald, 2007) Does it feel right, or are there some feelings of reservations?- The feeling of reservation is a warning sign that needs further analysis. Could it hurt employees or shareholders? Would the action be viewed as responsible leadership? If the details come out in the media, could it jeopardize the organization’s name,cause a risk of liability, or the loss of customers? If this were done to you, would you feel okay about it?- A good rule to follow is “to treat others as you would like to be treated”.33
  34. 34. Legal Case Follow-up Patricia Dunn – All charges were dismissed. Dunn is currently fighting advanced late stageovarian cancer (Poletti & Harris, 2007). Kevin T. Hunsaker, Ronald L. DeLia, & Joseph DePante pleaded no-contest to fraudulent wirecommunications and the charges will be dropped upon completion of 96 hours of communityservice and possible compensation to the victims (Poletti & Harris, 2007). Bryan Wagner pleaded guilty to fraud charges and is awaiting sentencing (Poletti & Harris,2007). Anti-pretexting laws have been adopted which make it illegal to use deception to obtain phonerecords (Poletti, 2007). Hewlett-Packard admitted no guilt, but will pay $14.5 million dollars as a settlement to thestate of California, $650,000 in civil penalties, and $350,000 dollars toward the attorneygeneral’s investigation costs (Woellert, 2006). Hewlett-Packard agreed to appoint a new independent director who will act as the compliancewatchdog for the board of directors and will expand the duties of the company’s privacyofficer (Woellert, 2006).34
  35. 35. ReferencesAlford, C. F. (2001). Whistleblowers and the Narrative of Ethics. Journal of Social Philosophy, 32(3), 402-418. Retrieved from Academic Search Premier database.Appelbaum, S. H. (2006). Whistleblowing: International Implications and Critical Case Incidents.The Journal of American Academy of Business, Cambridge, 10 (1), 7-13. Retrieved from BusinessSource Premier database.Chang, J. (2002). Breaking the Silence. Sales & Marketing Management, 154 (12), p 54. Retrievedfrom Business Source Premier database.Darlin, D. (2006). Hewlett-Packard Spied on Writers in Leaks. New York Times, 09/08/2006.Retrieved from http://www.nytimes.com/2006/09/08/technology.Gardener, H. (2007). The ethical mind. Harvard Business Review, 85 (3), 51-56. Retrieved fromBusiness Source Premier database.HP.com. (2007). History of HP. Retrieved from http://www8.hp.com/us/en/hp-information/about-hp/history/history.htmlJones, K.C. (2007). It’s Official: Pretexting is Illegal. Retrieved fromhttp://www.informationweek.com/news/showArticle.jhtml?articleID=196901982.35
  36. 36. Keohane, Robert O. (2005). Abuse of Power: Assessing Accountability in World Politics. Retrievedfrom http://hir.harvard.edu/articles/1338/.Koerner, B. (2007). Pretexting. Retrieved fromhttp://idtheft.about.com/od/glossaryofterms/g/pretexting.htm.Lazarus, D. (2006). HPs Investigation Broke State Laws, Attorney General Says. San FranciscoChronicle, 9/8/2006. Retrieved from http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/09/08/BUG9EL1ALO1.DTL.McDonald, G. (2007). Business ethics and the evolution of corporate responsibility. CharteredAccountants Journal, 86 (2),12-14. Retrieved from Business Source Premier database.Miceli, M. P., & Near, J. P. (1994). Whistleblowing: Reaping the Benefits. Academy of ManagementExecutive, 8 (3), 65-72. Retrieved from Business Source Premier database.Mullins, R. (2006). Charges Likely in HP Board Scandal. InfoWorld, 28 (38), 19-20. Retrieved fromthe Academic Search Premier database.Poletti, T. (2007). HP Spy Scandal Spurs Laws that Disconnect Shady Data Brokers. San Jose MercuryNews, pp. 1C, 4C.References (continued)36
  37. 37. References (continued)Poletti, T., & Harris, S. D. (2007). Why the HP Case Fell Apart: Negotiations Lead to Outcome inCourt. San Jose Mercury News, pp. 1A, 11A.Robbins, S. P., & Judge, T. A. (2007). Organizational Behavior (12th ed.) pp 441-442. Upper SaddleRiver, NJ: Prentice Hall.Sims, Ronald R. (2002). Managing Organizational Behavior. Westport, CT: Quorum Books.Spooner, John G. (2006). HP Chairman Could Fall in Boardroom Scandal. eWeek, 9/8/2006. Retrievedfrom http://www.eweek.com/article2/0,1895,2013948,00.asp.Uty, T. (2000). The Politicization of Whistleblowers: A Case Study. Business Ethics: A EuropeanReview (pp 259-267). Malden, MA: Blackwell Publishers Ltd. Retrieved from Business SourcePremier database.Woellert, L. (2006). Closing the Door on HP-Gate. Business Week Online, 12/8/2006, 6-6. Retrievedfrom the Business Source Premier database.37