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Hurd to Speak on Leak Probe

Suggestions CEO had role in investigations alters HP's strategy for handling scandal

Hewlett-Packard Co. (NYSE: HPQ) CEO Mark Hurd today decided he could no longer ignore the widening board leak scandal, making his first public statement about the issue and scheduling a news conference for Friday to talk more.

HP said it will hold a press conference at 4:05 PM ET Friday "to discuss the actions HP is taking to address issues regarding the investigation of leaks from its boardroom." HP called the news conference after reports that Hurd may have played a role in the investigation into directors' leaking information to the press.

The news has grown worse almost by the day for HP since it disclosed Sept. 7 that it had been accused of spying on board members to find the source of leaks. (See Paranoia in Palo Alto.) Since then, it's been revealed that HP hired an outside firm to obtain reporters' phone records, and may have obtained the phone records of former CEO Carly Fiorina as well as other board members. (See HP Plots New Course and HP CEO Steps Down.)

The California Attorney General is conducting a criminal investigation, and the House of Representatives scheduled a hearing for next Thursday to look into the scandal.

Patricia Dunn will step down as chairwoman Jan. 1, but plans to stay on the board. (See HP Dumps Dunn, Appoints Hurd.)

"This has nothing to do with the strategy or operations of HP," Hurd today in a statement. "What began as an effort to prevent the leaks of confidential information from HP's boardroom ended up heading in directions that were never anticipated. HP is working hard to determine exactly what took place and when, and without all the facts it has been difficult for us to respond to the questions that have been raised. We plan to give as much clarity as we can to these matters."

Apparently, Hurd feels he can no longer look the other way as he did Monday when he spoke at the HP Technology Forum 2006 in Houston without mentioning a single word about the investigations. The same day, HP held a media event in New York to launch a new SMB storage system also with no mention of the leak saga. (See HP Fills In SMB Storage.) Customers and partners at the event shrugged it off when asked.

On Tuesday, HP revealed it was among the computer companies awarded a U.S. Army contract worth $5 billion. Clearly, it was business as usual. Dunn was even inducted into the Bay Area Business Hall of Fame Wednesday night.

That all changed today when the New York Times, Wall Street Journal, and Washington Post reported Hurd might have known or even approved of HP's tactics during the probe into leaks from the board to the press. The news sent the stock price down $1.91 or 5.19 percent today. The prices of shares had actually gone up between the time the scandal broke in early September and Wednesday. The latest news also prompted HP to call its news conference.

Hurd has been widely credited with turning around HP's fortunes after succeeding Fiorina in March 2005. (See High Hopes in Palo Alto and Storage Shines for HP.) He is also set to replace Dunn as chairman in January, giving him more power. But it will be harder to lead HP through its new problems if he is part of them.

"He needs to come out in public and disclose what he did or didn't do," says a Wall Street analyst who asked not to be named. "Questions will be asked and fingers would be raised, but I don't think there is any danger to his job. Overall he has done a good job so far and there aren't many execs in the market who can take on the CEO role of HP.

"The issue here is that all this drama would distract Hurd instead of letting him focus on the company's turnaround."

While customers may have lost faith in HP's leadership, that won't necessarily translate into a loss of business.

Bill Case, manager of technical support for Troy, Mich.-based engineering firm Peter Basso Associates, says the allegations upset him but he remains happy with HP's products and the HP sales and support personnel he deals with.

"It makes me angry that a few idiots tarnish the image of a company that I promote to my colleagues based on value and performance," Case wrote in an email today. "I suppose it boils down to whether or not this incident would cause me to seek a vendor to replace HP. The answer is no."

Case added he has confidence in the integrity of the HP people he knows: "Despite the actions of the board of directors, these people [I deal with] are not unethical or dishonest."

David Lay, director of IT for Tampa, Fla.-based Salem Law Group, had a similar response, saying "I don't have time to worry about the board of directors, as long as the servers work."

— Dave Raffo, News Editor, Byte and Switch

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