HP Settles Civil Suit; California Will Not Pursue Board Members

As expected, Hewlett-Packard and the California state attorney general's office have reached a settlement in a civil suit pertaining to the company's methods in investigating its own board members. The company will pay the state $14.5 million, and in exchange, the state has agreed to an injunction against it pursuing any further civil matters against HP employees, executives, directors, or the company itself.

The civil settlement sets aside proceedings against HP as a company for its having allegedly hired an investigative firm that misrepresented itself in an attempt to gain telephone records for a former board member, and those to whom he may have spoken.

A criminal suit continues against former HP chairwoman Patricia Dunn and four others who allegedly schemed with Dunn in that investigation. As part of the settlement, HP was not found liable for their conduct.

"The Hewlett-Packard incident has helped shine a national spotlight on a major privacy protection problem," California Attorney General said in a prepared statement this afternoon. "With its governance reforms, this settlement should help guide companies across the country as they seek to protect confidential business information without violating corporate ethics or privacy rights."

Those reforms include the hiring of an independent director who will sit on HP's board specifically to monitor and report on HP's ethical compliance, though it is not clear from either the Attorney General's or HP's statements today whether that "reporting" will address anyone other than HP's current chairman and CEO, Mark Hurd. Today, HP announced it chose Ken Thompson, the respected chairman/president/CEO of financial firm Wachovia, as that ethics board member.

Last October, as part of its ongoing ethics reform, HP also hired Jon Hoak as its new chief ethics and compliance officer, again reporting to Hurd. Hoak was formerly senior vice president and general counsel at NCR, reporting to its CEO at the time, Mark Hurd. A month prior, HP hired Bart Schwartz to serve in a role being called "Qualified Authority," charged with investigating HP's investigative practices and drawing qualified conclusions. Schwartz previously served as an assistant to then-US attorney Rudolph Giuliani, prior to his tenure as mayor of New York City.

The first $650,000 of HP's payment will pay statutory damages, and $350,000 will pay attorneys' fees. The remainder will be used toward the creation of a Privacy and Piracy Fund for state prosecutors, assisting them in future prosecutions against similar infractions. Federal action against HP is still being considered by the Justice Dept., as well as by the Federal Communications Commission.

A Washington Post investigation found that Hurd may have authorized at least part of the investigation for which federal charges may be filed later. Hurd was not named as a party to the California civil suit.

"Fortunately, Hewlett-Packard is not Enron," stated Lockyer. "I commend the firm for cooperating instead of stonewalling, for taking instead of shirking responsibility, and for working with my office to expeditiously craft a creative resolution."

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