Reference no: EM131379780
How could a CEO and chairperson of the board of directors of a major company resign in disgrace over a personal relationship with a contractor that led to a sexual harassment charge and involved a conflict of interests, a violation of the code of ethics? It happened to Mark Hurd on August 6, 2010. Hurd was the former CEO for Hewlett-Packard (HP) for five years and also served as the chair of the board of directors for four years. On departure from HP, Hurd said he had not lived up to his own standards regarding trust, respect, and integrity. In 2006, Hurd led the company out of disgrace when it was found guilty of spying on its own members of the board of directors in a "pretexting case" where the company gained access to board members' personal phone records by impersonating the board members.
The goal of obtaining information under false pretenses, was to plug leaks from the board by using private detectives to spy on directors, employees, and journalists who covered the company. The scandal resulted in the removal of then-chair Patricia Dunn and vaulted Hurd into the board chair position after assuming the CEO role in 2005. The facts of the pretexting situation are discussed in Case 3-4. The board of directors of HP began an investigation of Hurd in response to a sexual harassment complaint by Jodie Fisher, a former contractor, who retained lawyer Gloria Allred to represent her.
While HP did not find that the facts supported the complaint, they did reveal behavior that the board would not tolerate. Subsequent to Hurd's resignation, a severance package was negotiated granting Hurd $12.2 million, COBRA benefits, and stock options, for a total package of somewhere between $40 and $50 million. In a letter to employees of HP on August 6, interim CEO Cathie Lesjak outlined where Hurd violated the "Standards of Business Conduct" and the reasons for his departure. Lesjak wrote that Hurd "failed to maintain accurate expense reports, and misused company assets." She indicated that each was a violation of the standards and "together they demonstrated a profound lack of judgment that significantly undermined Mark's credibility and his ability to effectively lead HP."
The letter reminded employees that everyone is expected to adhere strictly to the standards in all business dealings and relationships and senior executives should set the highest standards for professional and personal conduct. The woman who brought forward the sexual harassment complaint was a "marketing consultant" who was hired by HP for certain projects, but she was never an employee of HP.
During the investigation, inaccurately documented expenses were found that were claimed to have been paid to the consultant for her services. Falsifying the use of company funds violated the HP Standards of Business Conduct. On December 30, 2011, a letter from Allred about Fisher's responsibilities was leaked to the Associated Press during the trial in a Delaware court. The letter showed that in an effort to impress Fisher, who was hired as an event hostess (not a true marketing consultant), Hurd showed her his checking account balance holding over $1 million.
The Delaware court had ruled that the disclosure of the letter did not violate Delaware laws. In rejecting efforts by Hurd's lawyers to keep it confidential, the court concluded that the letter did not contain trade secrets, nonpublic financial information, or third-party confidential information. The ruling said information that is only "mildly embarrassing" is not protected from public disclosure. Some sentences concerning Hurd's family were ordered redacted from the letter, however. 1 Allred alleged in the letter that, while Fisher was ostensibly hired as an HP event hostess in late 2007, she was really brought on to accompany Hurd to HP events held out of town.
In a serious corporate allegation, during a trip to Madrid in March 2008, Hurd allegedly called Fisher's room and told her about a then-undisclosed deal in the works, in which HP was going to acquire the tech consulting firm EDS. Fisher had heard of the company, having lived before in Dallas. Hurd told her to keep what she knew about the deal secret. As for the sexual harassment claim, Allred alleged in the letter that Hurd harassed Fisher at meetings and dinners over a several year period during which time Fisher experienced a number of unwelcome sexual advances from Hurd including kissing and grabbing. Fisher said that this continual sexual harassment made her uncertain about her employment status.
Questions
1. What is the role of trust in business? How does trust relate to stakeholder interests? How does trust engender ethical leadership? Evaluate Mark Hurd's actions in this case from a trust perspective.
2. Define conflict of interests in a business sense. How does Hurd's actions and relationship with Jodie Fisher in the case create a conflict of interest? Did the conflict of interest and trust issue contribute the possibility that sexual harassment may have existed? Why or why not?
3. Leo Apotheker, the former CEO of HP who succeeded Mark Hurd, resigned in September 2011, after just 11 months on the job-but he left with a $13.2 million severance package. Hurd left with a package between $40 million and $50 million. What is the role of a severance package in hiring a CEO? Do you think the size of the severance package given to Hurd was ethical? Does the Hurd case affect your views about the "say on pay" rule?