HP's chairwoman agrees to step down
But despite scandal, Dunn stays on board
SAN JOSE, Calif. -- The ranks of Fortune 500 chairwomen slimmed by one Tuesday when Hewlett-Packard announced that Patricia Dunn would step down in January, felled by a growing investigation into questionable tactics that were employed to discover the source of media leaks.
Dunn will be replaced by Chief Executive Mark Hurd, who has the respect of Wall Street and is untainted by the scandal, which has enveloped the computer and printer maker for the past two weeks.
While some analysts said Dunn's demotion sent a message to investors that HP was ready to move on, others said she should have been removed completely. She plans to remain a director on the board.
And California's attorney general, Bill Lockyer, indicated for the first time that company insiders are likely to face criminal charges.
"We currently have sufficient evidence to indict people both within Hewlett-Packard as well as contractors on the outside," Lockyer said in an interview aired late Tuesday on PBS' "The NewsHour with Jim Lehrer."
Dunn initiated the investigation in which private investigators impersonated HP directors and journalists to access their personal phone logs. On Tuesday, she apologized for the use of methods that have drawn scrutiny from state and federal investigators, though she defended the investigation itself.
"Unfortunately, the investigation, which was conducted with third parties, included certain inappropriate techniques," she said in a statement. "These went beyond what we understood them to be, and I apologize that they were employed."
Director George "Jay" Keyworth II, who acknowledged sharing company information with reporters, resigned from the board Tuesday after refusing to do so in May.
Dunn will remain on the board after giving up the top job on Jan. 18. Her demotion allows Hurd to consolidate his power atop the Palo Alto-based computer and printer maker, adding chairman to his existing titles of chief executive and president.
That news pushed HP's stock, which has been immune to the corporate spying scandal, to a 52-week high.
Shares of Hewlett-Packard Co. rose 56 cents, or 1.54 percent, to close at $36.92 on the New York Stock Exchange. Before Tuesday, they had traded in a 52-week range of $25.53 to $36.73.
Hurd criticized the investigation's methods, saying he was "taking action to ensure that inappropriate investigative techniques will not be employed again.
"They have no place in HP," he said in a statement.
The pressure on Dunn to step down rose sharply when Congress and federal investigators joined the investigation of the scandal involving HP's board of directors
On Monday, the FBI, the U.S. Attorney for Northern California and the House Energy and Commerce Committee all requested information on HP's investigation, which was already the subject of inquiries by Lockyer, the Securities and Exchange Commission and the Federal Communications Commission.
Dunn was angry about media leaks of confidential board discussions and commissioned an unidentified outside firm to identify their source. The investigators used Social Security numbers and other personal information to get phone companies to turn over detailed logs of home phone calls of reporters and company directors.
Keyworth said Tuesday that he was often asked to be HP's liaison to the news media, and that he believed he was acting in the company's best interest when he spoke to News.com.
"The invasion of my privacy and that of others was ill-conceived and inconsistent with HP's values," Keyworth said.
Morningstar analyst Mark Lanyon said Dunn has become a liability for HP and should have been removed from the board completely.
"She needed to go," he said. "But just removing her from the chairperson role and keeping her on the board is a half-measure at best and probably not appropriate.
"There are still legal matters that could come down on the company," he said, "and the issue is still festering with her there."
Perkins, Keyworth and Dunn were all in a conciliatory mood Tuesday, saying HP's focus should now be on moving forward with Hurd at the helm.
"I believe in HP. I believe in Mark Hurd," Perkins said, adding through a spokesman that he would not return to HP's board if asked. "This, too, shall pass."
Hewlett-Packard  has announced that the chairman of the company's board, Patricia Dunn will resign in January, following revelations that private investigators hired by the board to discover the source of media leaks had used false identities to obtain telephone records from service providers.

Chief Executive Mark Hurd will replace Dunn as chairman, though she will continue to remain a director on the board.

Bill Lockyer, California's Attorney General has indicated that company insiders are likely to face criminal charges.

George A. Keyworth II, a board member, accused of leaking information said he resigned only after Dunn agreed she would give up her post.

Those hired by the investigation company pretended to be others, a practice known as pretexting to obtain the phone logs of board members and journalists.