Professor Bainbridge...on law, politics, religion, culture & food

Is the fall in the price of HP stock the media’s fault? Or Keyworth’s?

I’m not going to defend Keyworth, but IMHO the HP Chair (and possibly the CEO) deserves the lion’s share of the criticism for risking the HP brand over a petty dispute. She should have known that a leak investigation had a high danger of unleashing a media firestorm, and she should have had stronger controls in place to prevent illegal investigative techniques. It makes me wonder if the board took the leaks so personally that they reacted emotionally without thinking through the consequences. And IMHO, the fiduciary duty to put shareholder value first is more important than the fiduciary duty of confidentiality.

I doubt the media have forgotten that Keyworth was the leaker, they just don’t think there’s much there to investigate.  He leaked, he’ll be gone after the next election, not much more to report on that issue.

I think they’re right to focus on the investigation, and who knew about it and who authorized it.  That’s a far more serious issue, especially since any number of such people may still be with HP and, unlike Mr. Keyworth, not slated to be purged.

I still find it inconceivable that any sensible manager, presented with the proposal to engage in those tactics wouldn’t have immediately vetoed the idea, or at least demanded a written legal opinion stating that such tactics were prefectly legal.  Presumably Ms. Dunn was not a complete idiot.  She must have had legal advice at some point.  Who gave her that advice and what was the content of that advice?  That’s what I’d like to know.

Frankly, I am surprised that more law professors and ethicists have commented on the tactics of Kevin Hunsaker, HP’s ethics chief who engineered the investigation to out the leaker.  Does unlawful action (i.e., the violation of confidentiality by the leaker) justify unethical conduct?  Perhaps there is an argument that using false pretenses to entrap a reporter into revealing her sources is ethical; if so, I’d certainly like to hear it.  It is also funny how when an issue of corporate ethics come up, it’s mostly the ethics bloggers who discuss it, not the corporate gurus like you and Prof Ribstein and others.  And I think that’s part of the problem - when we divorce ethics from other legal issues, we end up with people like Hunsaker in corporate offices, making decisions without considering the ethical consequences.

Although I am normally a big fan of this site, I’m disappointed in Professor Bainbridge for leaping to the conclusion that Dr. Keyworth leaked to the press and for loose comments about the so called duty of confidentiality.  Full disclosure, I represent Dr. Keyworth.

With respect to the issue of leaks, there simply is no evidence that Dr. Keyworth disclosed confidential or damaging information to the press.  This issue is addressed well by Marc Gunther here: http://marcgunther.typepad.com/.

As for the duty of confidentiality, there is no such duty under Delaware law, or at least no per se duty separate and apart from the duty of loyalty and duty of care, both of which may actually REQUIRE directors to speak to the press on certain occasions.

The HP case is far more complex than I think the Professor has recognized.  Everyone should take a deep breath and wait for the hearings, in my view, before reaching any hard and fast conclusions.

Professor Bainbridge did not “leap to the conclusion” that Keyworth leaked to the press. In his statement of 9/12/06, when he resigned from the board of directors, Keyworth acknowledged that he was the source for the CNET article in January 2006 describing the deliberations at the corporate retreat at Esmeralda. In other words, he released information to the press that he was not authorized to release. That’s a leak. Keyworth may be playing games with the definition of confidentiality—it’s quite striking that Reginald Brown first says that Keyworth didn’t leak any confidential information and then says that he had no responsibility to protect confidentiality anyway—but he is, by his own admission, a leaker.

The fact that he believes his actions were in the best interests of the company simply does not matter. That is not his call to make. It is the call of the board as a whole. And whether the information he leaked was damaging or not is also irrelevant. Leaks of private board discussions are in and of themselves damaging.

Mr. Goodwin makes the same unwarranted leap that others may be making, assuming that the CNET article involved discussions of confidential Board deliberations, as opposed to disclosures of previously public comments about general HP strategy.

Mr. Goodwin also embraces the novel idea that Board members have a collective obligation never to discuss Board actions absent authorization (authorization from whom I might ask?).  If this is his standard, I suggest that he go back and reread a number of articles from 2005 in which HP Directors (including the former Board Chair) discuss Board actions in significant detail, without having obtained such authorization.

The leap is not unwarranted. Here are the facts as we know them:

Keyworth spoke to a CNET reporter about the discussions at the Esmeralda. He asked for anonymity. Why did he do so if he was simply speaking about subjects that were already public knowledge?

The leaked information prompted HP’s chairman to mount a major (and ill-conceived) investigation to find the leaker. Again, if the information was unimportant, why would HP go to so much trouble to discover who was releasing it?

Tom Perkins, Keyworth’s one ally on the board, told Dunn that instead of mounting an investigation she should ask the directors directly and seek an apology. If Keyworth had not violated his duties to the board, why would Perkins have thought an apology was necessary?

Brown himself, in his first post, says that Keyworth did not have a duty of confidentiality—in other words, it was fine for him to leak confidential information. Why would Brown feel the need to assert this if Keyworth never leaked confidential information?

As for all the information in that article having been publicly released previously, I would like Mr. Brown to show us where HP executives had been publicly quoted as saying that they were going to use AMD’s Opteron chip as a cattle prod to push Intel. I’d like to see where HP executives had said publicly that “no one understood” the Adaptive Enterprise concept, or where HP executives had said publicly that “the Next Generation Data Center” was a “cumbersome” name that was probably going to be changed. Maybe they had in fact said all these things previously. But forgive me for doubting it.

This will be my last post as I think the merits are clear.  I’d also encourage readers to review today’s WSJ op-ed by Viet Dinh on the HP matter, as well as a report today on Business Week’s website regarding past efforts by HP to have Dr. Keyworth speak to the press on the record or on background. With that, a final rejoinder to Mr. Goodwin.

First, Mr. Goodwin mischaracterizes what I have said about confidentiality.  One can certainly conceive of a circumstance where a disclosure of nonpublic material information could give rise to a breach of a duty of loyalty or care.  My point, stated plainly above and repeated now, is that Delaware law has not to-date recognized a standalone duty of confidentiality with respect to Board members.  As noted above this makes sense because there are circumstances where a Director would clearly have a duty to speak up to honor his or her obligations to shareholders.  There is, of course, no conflict between arguing that Dr. Keyworth did not in fact release confidential and damaging information, and maintaining as well that there is no per se duty of confidentiality imposed on Directors under Delaware law.

Second, as should be obvious to any fairminded reader, Mr. Goodwin is now retreating to inferential arguments to justify the assumptions he’s embraced about so-called leaks, e.g., there must have been leaks and ones of significance or Ms. Dunn would not have launched such a massive and invasive investigation.  But why is that a necessary inference?  Could it be the case, for instance, that the inquiry was initiated in good faith based on a genuine but misguided assumption that there was a major leak?

Last, there are links to articles referencing the key points in the CNET piece on other websites, including Marc Gunther’s cited above.  I will acknowledge that I don’t know if there’s a specific link there dealing with the opinion expressed in the article that “Next Generation Data Center” is a “cumbersome” name.  But if someone launched a massive investigation because of that revelation, I think most readers here would say that person needs to have his or her head examined.

Fortunately, HP’s new Chairman and CEO Mark Hurd gets it.  He’s called off the leak investigations, apologized for the tactics that were inconsistent with HP’s values, and is focused on getting HP back to its primary mission—bringing great products and services to market.  He’s been charitable in his comments to all the central players in this soap opera, Patricia Dunn, Dr. Keyworth and Tom Perkins, and they in turn have all voiced support for him and HP. 

My point in posting here is not to prolong the current controversy, but to point out that some may have rushed too quickly to embrace negative claims about HP’s longest serving director, Jay Keyworth, a man who deserves better given his decades of distinguished service to HP and the country.

Man, I love lawyers. The last paragraph in particular is a stirring summing up. Unfortunately, the substance of Mr. Brown’s defense is strangely missing. Again, if all the information in the CNET article had previously been made public (as Mr. Brown asserts), it should be easy enough to show. Where are the links? Not here. And the one link on Marc Gunther’s website is in reference to a claim that’s not even sourced to Keyworth (or “the source").

As for the fact that Keyworth has been asked by HP in the past to speak to the press on background, something Keyworth has brought up before as well, it’s irrelevant to the question of whether he should have been talking to the press in January 2006. The fact that Mr. Brown can’t tell the difference between speaking to the press about internal company matters when asked to by the company and speaking to the press on one’s own—particularly when board members had made it clear previously that they didn’t want internal discussions publicly disclosed—says it all.

As for Hurd calling off the leak investigation, well, I don’t think the investigation should have been started in the first place. But his calling it off is proof of nothing: we know who the leaker was, so there’s nothing left to investigate.

I guess that the spin machine of Mssrs Perkins and Keyworth has ample support on this blog. Let’s not lose sight of the fact that the entire board strongly supported the investigation. Perkins was one of the most hawkish until he found out that his buddy was fingered. Then he quit in a huff (not because of the investigative tactics but because he wanted to keep the results of the investigation confidential). Funny that reporters take it as fact that he quit to protest the methods of investigation while the 8-K (representing the views of the board and management) says he quit for other reason. Hmmmm...who to believe...Perkins, or the Board, Hurd, etc, etc, etc?

Then he runs away to his superyacht with the newsweek reporter and organizes an enormous spin machine to discredit pattie dunn because she dared to cross him and because she wanted corporate governance by the rules.

Does this mean that the investigation of the leaker was done ethically or legally. Absolutely not. But it does mean that we can’t single out individuals on the board or in management who were not complicit. This includes Perkins and Keyworth and Hurd.

Has anybody raised the possibility that leaking could be used to manipulate the price of the stock? I believe that BOD’s run the risk of investor lawsuits if they leak any information--good or bad.

Brown and Dinh are right with regards to the specific contents of the Prof’s post--there is no standalone duty of confidentiality.  I think the Prof. would know that, so I was wondering as I read his post why he would say that?

The rest of the debate, I think, has been covered reasonably fairly given that Keyworth may have made a mistake in judgement (which his allies concede), but, unlike his protagonists’ proxies, he probably didn’t step over the bounds of legality.

Well, I guess that depends on what you think the issue really is. Clearly, some of us believe that the real issue is the crimminality of those who conducted (and authorized) the investigation of the leak.

My point was that you can’t single out the chair--Perkins, Hurd, Keyworth, et al, are complicit as well.

The simple fact is that the stockholders didn’t get proper representation on the board and the board served them badly.  The stockholders should vote them all out.