Background
Patricia Dunn was a member of HP’s Board of Directors in 1998 and later, became non-executive chairperson in Feb 2005. She later resigned in Sept 2006 and was replaced by CEO Mark Hurd.
On Jan 23, 2006, CNET news had written an article disclosing details of Hewlett Packard’s annual management retreat. Within, proprietary information on HP’s long term strategies including potential acquisitions, commercial printing plans, and partnership details with AMD and Intel, were revealed. Upon discovery, Dunn initiated an investigation into the source of leaks by hiring a 3rd party contractor.
Unfortunately, the investigation employed the illegal practice of pre-texting-the impersonation of individuals to obtain personal information; as a result, the phone records of HP directors, employees, and nine journalists had been fraudulently obtained.
In Oct 2006, the Attorney General of California filed charges against Dunn and 4 others: they were Kevin Hunsaker, HP’s Director of Ethics and 3 private investigators, Ronald Delia, Matthew Depante, and Bryan Wagner.
In March 2007, criminal charges against Dunn had been dropped due to her battle against ovarian cancer. The 4 others faced misdemeanor charges which could be lifted if 96 hours of community service were completed.
The nature of Dunn’s investigation prompted authorities including the Attorney General of California, the Securities & Exchange Commission, the Justice Department, and a Congressional Committee to conduct inquiries into Hewlett Packard. Throughout the ordeal, several directors and executives resigned, while HP received much media scrutiny and negative public perception.
Problem Definitions
Patricia Dunn’s pre-texting scandal reflects the culmination of many organizational behavior problems. In the following discussion, several problem areas will be outlined followed by appropriate solutions.
Hewlett Packard has a weak organizational culture. HP director George Keyworth was identified as the source of information leaks. Before the scandal, Keyworth had been known by some HP directors to occasionally talk to reporters about company activities. HP may have had formal rules on handling interviews with the media-a role fulfilled by the company spokesperson; however, Keyworth’s informal approach with the media was implicitly accepted by some board members. From the Board’s behavior an overall consensus to follow shared standards to handle media inquiries was missing. Moreover, if rules were present, they were not rigorously enforced. HP’s organizational culture was non-uniform.
Within Hewlett Packard’s dominant culture, there exist 2 sub-cultures. HP director, Tom Perkins, described HP’s board of directors as divided into two kinds-guidance directors and compliance directors. The former concentrated on business strategies and marketing, while the latter focused on corporate social responsibility and regulations. Dunn and Perkins represented compliance and guidance directors respectively; the two had contrasting beliefs and values on how the company should be run which represents a significant source of dysfunctional conflict.
Even before the scandal, there were signs of conflict among board members. Soon after Dunn became chairperson in Feb 2005, she had suggested that Board members take training courses to be updated with the Sarbanes Oxley regulations. In response, Perkins “vociferously” resisted, saying that the idea of veteran directors going off to “take some course” was “ridiculous.” To Perkins, her ideas were just “a bunch of paper pushing.” Other directors said Dunn felt some board members were “high tech old timers” who were “set in their ways” and stood against her methods to modernize the company. It was clear that the role differences and perspectives between compliance and guidance directors had facilitated the emergence of two sub-cultures within HP.
Hewlett Packard lacks an ethical culture. Before Patricia Dunn’s investigation, HP had admitted to using pre-texting on previous occasions. Internal memos had revealed that in July 2005, Kevin Hunsaker, HP’s chief ethics officer, and his team had used pre-texting to gain phone records. This incident shows that regardless of any HP ethical policies in place, even the chief ethics officer had failed to uphold them. In effect, a key management figure becomes a harmful role model for employees, compromising HP’s ethical culture.
Hewlett Packard has 3 weaknesses in its organizational structure. The 1st is that HP’s structure is highly centralized, giving great power to Patricia Dunn. Dunn’s role as chairperson is to lead the director’s board and create company policies. Using legitimate power, Dunn had initiated the investigation and directed it closely by giving out employee phone numbers; and in a congressional inquiry, she admitted to seeing the word pre-texting during her briefings. Because Dunn had management conflicts with Perkins and Keyworth, her decisions were likely personally motivated. As Perkins claims, Dunn’s investigation was a red herring (distraction) in her attempt to seize control over the company by getting rid of Keyworth. The drawback to high centralization is running the risk of allocating large decision making powers to unethical leaders.
The 2nd weakness is the degree of formalization in the chairperson’s role. Patricia Dunn had the authority to conduct an internal investigation into HP’s departments; however, she also had the option to do otherwise. To decide between the two options considers a great deal of judgment-a grey area in management not covered by formal rules or company policies. If mandatory protocols were available to a chairperson in offering several options before needing to conduct an extensive investigation, then Patricia Dunn would have had more resources for decision making.
The 3rd weakness lies in HP’s chain of command. According to Michael Hoffman, the director for Centre of Business Ethics in Waltham, Mass, HP’s chain of command created conflicts for ethics directors such as Hunsaker: Ethics directors work independently from HP’s legal counsel and operate on behalf of shareholders; however, Hunsaker reported directly to chairperson Dunn. If Dunn’s instructions to Hunsaker run contrary to shareholders’ interests then the ethics director would find himself in a dilemma.
A lack of communication between board directors and chairperson was evident. According to a company source Dunn had “an obsession with the investigation and talked about it all the time” and “nobody else wanted to hear about it”; furthermore, the directors never took Dunn’s probe seriously and that it was a big distraction; as a result, Dunn was ignored and left to do as she pleased. These incidents suggests that Dunn lacked company support and struggled to communicate her concerns to the board; her concerns were also a sign of fair warning to perpetrators that investigations were underway.
If this conjecture were true, then Dunn may have become frustrated after reasonable efforts and resorted to 3rd party investigations as a final option.
Lack of communication was also evident after Dunn lobbied to get rid of HP’s technology committee. According to Perkins, the technology committee was too technical for Dunn to understand and that it was perceived as “a board within a board.” The technology committee lacked the effort to communicate its value to Chairperson Dunn; as a result Dunn aggressively responds by attempting to rid a valuable branch of Hewlett Packard.
Solutions for Effective Communication
To combat misunderstandings and maintain healthy organizational relationships, effective communication is the key. When Dunn voiced her concerns to the board, she was not taken seriously and felt ignored; in this instance of one way communication and lack of feedback, the problem escalated into bad decision making. The board should have organized an exclusive meeting to address Dunn’s concerns; within, members should function as a team and contribute ideas and solutions as feedback to the problem. The board needs to show initiative and receptiveness to Dunn’s worries in order to build perceived trust and support. Before Dunn began her full blown investigation, Perkins did advise Dunn to informally, seek out the source of leaks and get an apology. If the board had shown more interest and support, Dunn would likely have acted with better patience and made better decisions.
Improved communications can also bridge the gap between the guidance and compliance sub-groups within the Board of Directors. Biases in management perspectives and selective perception are barriers to effective communication that prevent Dunn and Perkins from reconciling their differences. To facilitate communications and build cooperation between the two groups, HP should employ a conciliator. This trusted 3rd party would encourage informal communications to promote understanding and generate a consensus.
The conciliator would encourage the technology committee to, perhaps, draft an informal report that explains in laypersons’ terms, its functions and objectives in a format specially catered to Chairperson Dunn’s concerns. Perkin’s attitude that Dunn is too non-technical to understand is likely a result of a mix of bias, impatience and intolerance. A conciliator encourages initiatives to communicate which is a necessary start.
Solutions for Improved Organizational Structure
Patricia Dunn’s position as chairperson holds a great deal of power and responsibility. She was hired by HP due to her qualified knowledge and expertise; however, when a key power holder makes bad decisions, the company suffers extensively. To minimize this risk, HP should consider the following strategies:
First, the degree of formalization in Dunn’s role should be heightened. This is a challenge because many decisions are “grey” requiring great judgment drawn from an expert: not just anyone has the necessary skills to make the decisions Dunn needs to make. In this respect, various specialized departments, high level executives, Vice-Chairpersons, and CEO’s should pool their professional judgment to establish company policies that would aid the chairperson’s decision making. These guidelines would increase the level of formalization in the Chairperson’s role.
Second, the Chairperson’s decision making powers should be further limited by the use of peer review boards. Decisions that have far reaching consequences must be presented by the Chairperson to a panel made of executives, vice-chair, CEO and perhaps shareholders. The rationale for decision making must be debated followed by unanimous vote. The peer review and vote system represents a channel for two way communication: The panel addresses all concerns acting as the receiver, and the voting outcome acts as feedback. This process also mandates the Chairperson to show accountability every step along the way.
Third, the Chief Ethics Officer should not report directly to the Chairperson. Ethics is a specialized department that has the goal of overseeing the ethical performance of all other departments. As well, it functions on behalf of the company shareholders. It makes little sense to have such a specialized department answerable only to the chairperson because she does not have the professional expertise to evaluate ethics. Instead, it makes better sense to accountable to Hewlett Packard as a whole. To achieve this, ethics officer Hunsaker should report a panel comprised of important stake holders including CEO, Chairperson, Vice-Chair, executives and shareholders. This alternative modifies the old chain of command by connecting the Ethics Department to a panel more representative of company stakeholders. Moreover, this arrangement prevents a conflict of interest that arises when the ethics officer fears for his job safety to satisfy the chairperson while compromising his ethical duties. Lastly, it is consistent with the first two remedies of limiting the Chairperson’s power by being accountable to an HP panel.
Solutions for Creating an Ethical Culture
Although Patricia Dunn’s fraudulent investigation had violated ethical standards, her behavior is likely a by-product of a weak ethical culture. Hewlett Packard needs to improve its ethical culture to not only remind top executives to set better leadership examples, but also to educate staff in all departments in order to monitor each other’s ethical and professional practices.
To revamp Hewlett Packard’s ethical culture, the following design criteria are suggested:
Top Management must serve as visible role models. The Chairperson, CEOs, and top executives must practice ethical behavior to set good examples. In this manner, employees would know right from wrong behavior.
Communicate ethical expectations. Top management must also explain the relevance of ethical standards and how they align to company mission and objectives. Ethics are then perceived as the norm rather than the exception.
Provide ethics training. The adage “practice makes perfect” applies to ethics. Training seminars and workshops provide opportunities for employees and management to engage in ethical scenario exercises together.
Visibly reward ethical behavior and punish unethical ones. Performance appraisals should include measurable ethical criteria that count towards performance. The means (methods) as well as the ends (outcomes) should be emphasized in evaluating the ethical and hence, successful completion of a job task. Deviant, unethical behavior should be punished and reported in company newsletters.
Provide protective mechanisms. Hewlett Packard should create formal avenues of communication that facilitate the reporting of unethical behavior or discussion of ethical dilemmas. A company Ombudsperson could be employed and one who holds employee anonymity in confidence.
