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New Book Details HP Board Investigations

Tom Perkins, the famous venture capitalist who cofounded the leading firm Kleiner Perkins Caufield & Byers, and more recently was a key player in the changes at the top of Hewlett-Packard, has written a new book about his experience titled “Valley Boy.”

The book details how his legacy took an unexpected turn when he resigned from the board in 2006, protesting the “questionable ethics and dubious legality” of board chair Patricia Dunn's now infamous leak investigation. The following is an excerpt from the book:

“Flying down to what proved to be the penultimate meeting for me, I was sure that with those votes in my pocket I could do the deed. But, while aboard the HP G-5 corporate jet (yes, directors do travel and live well), two board members, Lucie Salhaney and Jay Keyworth, talked me out of a high-noon shoot-out with Pattie. Their winning argument was, “Pattie knows that she doesn’t have the support of
the board. We can use this to change things; she’ll follow our directions; we’ll replace her with Mark at the next annual meeting and we’ll get back to the business of making HP a winner. Don’t rock the boat this way, at this time.

"

Their reasoned arguments prevailed, and I did nothing. A mistake. I did not expect the next meeting, in May, to be my last. I arrived early, and Pattie cornered me. She said that she had the goods on the leaker. When I asked how, I couldn’t believe her response. Over the past many months, HP had employed a team of security experts. She took me into their room, where a table was filled with electronic gear, unfamiliar to me. Pattie said that it could detect the presence of “bugs” over a wide area, and even suppress them. She said that these experts, or others, had otherwise obtained all of the personal telephone connections for target board members for the period of the leak. They were tracing calls not just made from HP, but from the directors’ homes, cell phones, and so forth. I was amazed! “How can this be legal?” I asked. She said that it all was quite legal, as long as the content was not transcribed—an assertion I immediately doubted. She said that she had definitively established the identity of the January leaker (the benign CNET.com leak). It was Jay Keyworth, but she had not established a connection to the malign leaks of the previous year. Those sources, which may be numerous, remain a mystery to this day.

“Flying down to what proved to be the penultimate meeting for me, I was sure that with those votes in my pocket I could do the deed. But, while aboard the HP G-5 corporate jet (yes, directors do travel and live well), two board members, Lucie Salhaney and Jay Keyworth, talked me out of a high-noon shoot-out with Pattie. Their winning argument was, “Pattie knows that she doesn’t have the support of
the board. We can use this to change things; she’ll follow our directions; we’ll replace her with Mark at the next annual meeting and we’ll get back to the business of making HP a winner. Don’t rock the boat this way, at this time.

"

"Then she dropped the bomb. Ignoring what I thought was a firm understanding to handle this problem (assuming that it really was a problem) off-line, she told me that she had screened the information with the audit committee chair and that he recommended that the matter be put to the entire board, and that was precisely what she was going to do. Why? I can only suppose that, knowing my opposition, she just made an end run around me.

"The meeting opened with her description of her investigation, which revealed her 'proof.' I was shocked. My good friend and stalwart director, Lucie, seemed quite equally shocked. Director Larry Babbio, whose own company, Verizon, was suing parties for using the practice (as I later learned), was silent on the point. Pattie and Ann brushed my concerns off. Lucie and I both thought that the magnitude of the investigation was completely out of proportion to the nature of the problem—if the disclosure even was a problem.

"Since there was no confidential information in the “leak,” as I’ve previously mentioned, it would not have been surprising to have seen Jay Keyworth’s name highlighted, as the source, in the article.

"Pattie then disclosed Jay’s name as the “leaker” and distributed a yellow-lined copy of the offending article—which, with the speed of events, few, if any of the directors, took time to read.

"Someone requested that Keyworth leave the room, and he, being polite, complied—but not before apologizing and saying, “I would have told you all about this. Why didn’t you ask? I thought I was just helping the company through a rough patch with the press."

'Aren't directors supposed to do that?'

"Aren’t directors supposed to do that?” Jay was the longest serving and most technically savvy person on the board, having had a hand in some of the most strategically important initiatives HP was undertaking. He had been asked to talk to the press on numerous occasions in the past by the company. I expressed dismay that we were, in effect, staging a trial. A valued director was at risk of being destroyed, exactly the scenario I had discussed with Pattie and had sought to avoid.

"But, after Enron—a company that behaved fraudulently, rather than stupidly—this is an age of corporate purity, purity at any price.

"The 'sin' of the leak became the issue, not the content or intent of the leak itself, or the method used to discover the source. Form over substance. Keyworth was a director who most recently had tried to help Pattie and, ironically, he had been most persuasive in talking me out of my effort, planned at the previous meeting, to tank her, send her to the corporate bench, the sidelines, so to speak.

"

A motion was made to ask for his resignation. I was incandescent with anger. I felt betrayed by Pattie, and I said exactly that, in those words. (Did I have it coming?) I fulminated. I protested that any action should be postponed. I tried to get the board to “sleep on it”: take the time to read and form an opinion on the alleged leak; postpone any vote until the next meeting. Pattie accused me of wanting to do a “cover-up.” The debate continued for ninety minutes, but the outcome was nearly preordained. In today’s world, Sarbanes-Oxley and corporate “goodness” will always revail in such a trial. How can a director be faulted for doing the “right” thing? Just substitute box ticking for judgment; it’s certainly easier. Why even have a board, these days? Just let the lawyers check off the boxes; take, always, the safest course; and maybe the lawyers will also check for

"Titanic-size icebergs as well? Increasingly directors are becoming “plug to plug” compatible—any director can serve on any board. Just comply with governance advice and don’t worry too much about the actual business.

"Two very new directors, with literally no experience in HP or Silicon Valley nor with the benefit of sleeping on it, were, I think, the swing votes when the motion was called with a secret ballot.

"(Secret votes are extraordinarily unusual in corporate America—this was the first in my experience.) The motion passed. Around the board table all the directors were watching me. I had been so passionate in my opposition to the investigation and to the motion to eliminate the director that I think everyone expected some further outburst. But, instead, I felt only a tremendous sadness—a profound disappointment. I knew without having to think about it that this was to be my last minute with this company, a company that I had helped to build and which I loved.

"Aren’t directors supposed to do that?” Jay was the longest serving and most technically savvy person on the board, having had a hand in some of the most strategically important initiatives HP was undertaking. He had been asked to talk to the press on numerous occasions in the past by the company. I expressed dismay that we were, in effect, staging a trial. A valued director was at risk of being destroyed, exactly the scenario I had discussed with Pattie and had sought to avoid.

"But, after Enron—a company that behaved fraudulently, rather than stupidly—this is an age of corporate purity, purity at any price.

"The 'sin' of the leak became the issue, not the content or intent of the leak itself, or the method used to discover the source. Form over substance. Keyworth was a director who most recently had tried to help Pattie and, ironically, he had been most persuasive in talking me out of my effort, planned at the previous meeting, to tank her, send her to the corporate bench, the sidelines, so to speak.

"

"The HP boardroom is bland, monotone, void of any decorative interest or distinctive feature—not even photographs of the founders. Without further debate, I stood, closed my briefcase, and simply said, 'I resign,' just those words. I left that nondescript room with its majority of cipherlike directors, as I now saw them, for the last time.

"After I departed, Dr. Keyworth (who, along with Lucie, was one of the few admirable directors, in my opinion) was called back into the boardroom and asked to resign. He refused, rightly saying that the shareholders had made the election to the board seat and that the obligation to serve continued until those shareholders spoke otherwise.

"Now, at this remove, I am more confident than ever that subrosa surveillance of the board’s communications was illegal. My opinion has been ratified by independent advice, including a prominent professor of law at a famous university, and by subsequent felony guilty pleas from the investigators. Legal or not, I found it all unconscionable, and I couldn’t continue to serve on, or support, that board. Full stop. Today I can only paraphrase Nathan Hale, the Revolutionary War hero, who said, 'I regret that I have but one life to give for my country.' I regret that I have but one HP board seat from which to resign. But at that, my last board meeting, the mouse certainly won the battle when the defeated cat resigned.

"Still, cats have nine lives. I tried to get the company, on a confidential basis, to correct the situation. The whole mess blew up in the press some months later. Keyworth had resigned and, of course, I was off the board, but leaks from directors continued to appear in print. Pattie took a major public relations hit for the spying on members of the board. She resigned from the company and was served with criminal indictments from the California attorney general. But by stepping down as chairman, she made it possible for Mark to take over that post, as I had planned. HP is back on track, and I have been hailed by many as a champion of corporate governance—what irony! It was never my intention be a whistle-blower. In fact, I was not.

"In the three months after resigning, I attempted to get Pattie, lawyer Ann Baskins, and finally the whole board to write the minutes of the meeting to chronicle accurately what had transpired. All of them refused; the minutes simply continued to read, 'After a discussion Mr. Perkins resigned.' "