The $13.25 billion acquisition of Electronic Data Systems by Hewlett-Packard—the ninth largest tech deal ever, according to DealLogic—has moved the M&A league table standings, DealJournal Heidi Moore reports. Before the deal was announced, Goldman Sachs and Morgan Stanley led this year’s ranking from advising technology companies on mergers. But neither bank has a role in the H-P deal, pushing them down in the rankings

“Goldman ranked first with $14 billion of announced deals to its credit this year, and Morgan Stanley ranked second with $11 billion according to investment-banking research provider Dealogic,” Moore writes. “But now, Goldman is in third place, displaced by Lehman Brothers and J.P. Morgan. Lehman has jumped from fifth to first place with $17 billion of deals to its credit, while J.P. Morgan — which, just yesterday, languished in seventh place with only about $2.2 billion of tech deals to its credit — has vaulted to second place in the rankings from seventh place. Morgan Stanley has fallen to No. 5.”

Citigroup and Evercore Partners advised Electronic Data on the deal. J.P. Morgan Chase and Lehman Brothers advised Hewlett-Packard.

Hewlett-Packard: The Advisers [Deal Journal]

Hewlett-Packard wants to be the tech-company of the future and, unfortunately, that goal may be coming a reality in a way they never planned. Instead of becoming a shining star of new technologies, the company has been plagued by an association with a darker kind of future—a sort of Max Headroom, Robocop-style dystopian future where corporations employ spies to steal confidential, personal and corporate information about competitors, employees and reporters.

The pretexting scandal that led to the departure of the chairman of Hewlett Packard’s board of directors, resignations by senior executives, humiliating public hearings on Capitol Hill and a lawsuit brought by the state of California is by now well known. (A recap: H-P apparently engaged private detectives—to snoop into alleged leaks to the press that seemed to come from board members—who used false pretenses to obtain the phone records of board members and reporters, possibly breaking the law in the process.) This morning, however, Fortune writer Nicholas Varchaver, breaks the news that Hewlett-Packard’s spying may have started long before that famous episode. And, disturbingly, his reporting suggests that the pretexting that made headlines last year might not be the anomaly Hewlett-Packard chief executive Mark Hurd claimed it was.

[After the jump, the nasty lawsuit and the new claims of possible pretexting.)

When we read the report in the San Jose Mercury News on Tuesday that venture capitalist and former Hewlett-Packard board member Tom Perkins was making pointed remarks about corporate governance—including some fierce jabs at former H-P board chair Pattie Dunn—we all thought: why bring this up now?

After all, Tom won this fight last year, right? Pattie lost her position at the head of the board table, then had to leave the board altogether. She became a "fallen" or "disgraced" "former corporate leader." Her name became synonymous with corporate scandal, and especially pretexting. She was indicted by the California attorney general. She even got cancer. Isn't it time to leave Pattie in peace? Even DealBreaker hadn't picked on "Pattie Cakes" for months.

So why now? We thought maybe it was the book. Tom's got his memoirs coming out soon. Maybe he wants the publicity. It sounds a bit cheap to drag a sick, unemployed and indicted woman's shame back before the public just to sell a few more copies of a book. Especially when you are already rich enough to afford a $100 million yacht. Does Tom Perkins really need to worry about whether his book sells?

Today the Wall Street Journal's editorial page runs the full text of the speech that was reported earlier in the Mercury News. And there's one line that might shed some light on why Tom is dragging out the whole H-P thing again instead of sailing around the South Pacific.

And so, when the "wet kiss" Cnet.com article about how great Mark Hurd was at strategy appeared, Ms. Fiorina and I agree that Ms. Dunn launched the now infamous "Kona" spying investigation aimed at ridding the board of those directors (the tech committee) most familiar with strategy, whom Pattie assumed were the "evil" leakers. All this is documented in a characteristically long-winded New Yorker article of Feb. 19.

That's right! It was the New Yorker! And it's long-windedness!

Of course, we have no idea what Tom's talking about because, let's face it, it was the New Yorker. That's the magazine that's read by people who want to appear brainy but don't really want to be bothered with doing stuff like learning very much. But we'll check it out and report back.

See how far we'll go for you? We'll even read the New Yorker!

The 'Compliance' Board [Wall Street Journal]

Hey, remember yesterday when we did a couple of posts that weren't about Tuesday's market plunge? Remember the one about the remarks about corporate governance by venture capitalist and former Hewlett-Packard board member Tom Perkins? No? You don't read our posts about corporate governance because (as one reader told us yesterday) "corporate governance is so f---ing boring?"

Well, it's not quite as boring anymore. Perkins drew a distinction between compliance oriented corporate boards and business guidance oriented boards. Seems like a useful distinction, right? Well, apparently it didn't go over well with the lawyer for former Hewlett-Packard chairwoman Pattie Dunn. So the Dunnsters are fighting back. And this time it's personal.

From the San Jose Mercury News:

"Tom Perkins attacked my client. He did so unfairly. He did so falsely when he knows she cannot answer him,'' he said in a statement e-mailed to the news media. Dunn can't respond directly to Perkins' accusations because of the legal case pending against her. The case erupted after Perkins quit over the way Dunn, then-HP chair, conducted an investigation into boardroom leaks to journalists.

"He's rewriting the history of what happened,'' Brosnahan told the Mercury News. "Normally, I wouldn't say anything, but when he attacks my client personally, we're not going to sit here and let him get away with it. It's just awful what he did.''

Tom Perkins apparently didn't respond to this. So just imagine him chuckling as he sails his $100 million yacht into the horizon.

[No clue why Pattie's getting her, uhm, lawyers all in a twist about this? Well, to put it mildly, Pattie and Perkins have a bit of a history together. Feel free to check out our H-P Archives for all the gruesome details.]

Dunn's lawyer blasts Perkins [Mercury News]

We've noted before that the faddish devotion to compliance-oriented corporate governance—encouraged by everything and everyone from Sarbanes-Oxley, it's attendant regulatory schema, some of the more opinionated-parts of the business press and the reigning corporate governance gurus—has serious costs that are all too often ignored. The whole corporate-spying pretexting scandal at Hewlett-Packard was probably the public example of this.

Now Tom Perkins, a veteran from the HP wars, has made his first public remarks since the scandal and directed them at exactly this problem. According to Perkins, too many corporate board members are so obsessed with compliance that they don't know much about the company on whose board they are serving. He draws a useful distinction between two-types of directors--the guidance geeks who understand the business and the compliance nerds who understand legal rules and regulations.

The San Jose Mercury News reports:

During his 35-minute talk, Perkins outlined two kinds of board members, placing himself in the category of an old-style venture capital-type who is extremely involved in the business. He called that type a "guidance director.''

In contrast is the new emerging director, whom he called the "compliance director.'' He described that person as someone increasingly focused on Sarbanes-Oxley requirements, who jumps from company board to company board, dispensing and heeding advice from consultants and lawyers.

Perkins, 75, derided the latter, which he called a "plug-to-plug compatible director'' who believes he or she is equally capable of serving on a bank board as on that of a technology behemoth such as HP.

And Perkins thinks things are only getting worse. The compliance nerds are beating out the guidance geeks.

But today, he said, with too few "geeks'' on its board, HP has evolved fully into a compliance board, "possibly untroubled by worries about technology and marketing strategy.''

"I think the guidance board will vanish and it will be replaced by compliance boards who just listen to lawyers and consultants,'' he said, referring to the general corporate trend.

Ex-HP director laments corporate board trend [Mercury News]

The pretexting scandal claims another victim, Silicon Valley super lawyer Larry Sonsini. This won't come as a surprise to anyone who watch Sonsini at the Congressional hearings earlier this year, where he came off as at least a bit evasive. Particularly frustrating was the fact that he seemed to be giving board members advice based on the legal work of Hewlett-Packard's general counsel. Kind of makes you wonder what part of outside counsel Sonsini didn't understand.

After the resignation, Mr. Sonsini, in his role as outside counsel, immediately interviewed Mr. Perkins. But he did not find that Mr. Perkins had resigned because of a disagreement with the company, which would have prompted the board to disclose the circumstances to the Securities and Exchange Commission. That has prompted an S.E.C. investigation.

Mr. Perkins also alerted the board to the use of pretexting, calling it illegal. In a response, Mr. Sonsini told him that the pretexting was “within legal limits,” though that opinion turned out to be based on the advice of the H. P. lawyer, now facing charges, who in turn had received the opinion from a Boston lawyer sharing an office with one of H. P.’s private investigators.

The Sonsini firm in late August interviewed people involved in the spying, as well as Mark V. Hurd, the company chairman and chief executive, and concluded again that nothing illegal had occurred. In early September, the company filed a statement to the S.E.C. disclosing the pretexting and stating that it was “not generally unlawful.”

A Congressional subcommittee asked Mr. Sonsini to testify during its investigation of the spying. He was called to testify alongside Ms. Dunn and had to sit in the witness seat for more than five hours, though she got the brunt of the queries. He defended his law firm’s work during the hearing and said that he considered pretexting to be unethical and improper.

H.P. Board Cuts Its Ties With Lawyer

Tom Perkins, the former Hewlett-Packard board member who helped expose the spying scandal that rocked the company and unseated its chairman earlier this year, has agreed to write a memoir that will provide details of the H-P affair.

From Keith Kelly's column in the Post:

The memoir is entitled "Valley Boy: The Education of Tom Perkins," and will appear under the Gotham imprint.

It begins with his stormy resignation from H-P in May 2006, shortly after the board learned that then-Chairman Patricia Dunn had conducted a lengthy spying operation on the company's own board members to learn who was leaking stories to the press.

Perkins, a board member at Post parent company News Corp., went to authorities after he discovered that he had also been the subject of unauthorized surveillance by Dunn, which triggered the scandal that forced her to step down.

H-P Insider Scores A Tech-Tell Memoir [New York Post]

Sponsored by Winning: The Answers: Confronting 74 of the Toughest Questions in Business Today – the ultimate stocking-stuffer.

Our second candidate for DealBreaker of the Year might be a bit unexpected choice—former Hewlett Packard board chairman Patricia Dunn. Just today news broke that Hewlett Packard will have to pay $14.5 million to settle the civil case stemming from the spying scandal that resulted in Patti Cakes stepping down. But the DealBreaker of the Year award is beyond good and evil. Sometimes the world of finance is moved by the forces of light and sometimes by the forces of darkness. This year, Pattie Cakes clearly claimed her place in American corporate history, on the front pages of the business sections and, certainly, all over DealBreaker.

The pretexting story is now very well-known. At least one member of the board of directors of Hewlett Packard was leaking information to the press. The board investigated but the leaks persisted. A second round of investigations was authorized by Dunn, and that's when the trouble started. The investigators charged with finding the leak lied to telephone companies to obtain the phone records of board members and journalists, and when news of this kind of corporate spying broke, America was scandalized. Hearings on Capitol Hill were called, criminal charges were filed, heads rolled. Dunn's now jobless and facing possible jail time while she attempts to deal with cancer.

But long before she became known as Pretexting Pattie, Dunn was regarded as one of the woman the most accomplished and powerful women in corporate America. There may yet be more chapters to be written in this American life.

In many ways, Dunn's story is tragic because she did so many things right. Well, if not right, then according to the books—she was a true believer in the reigning ideology of corporate governance and it was this zeal that was her undoing. This would have been a very different year if not for Patricia Dunn, which is why we've made her a candidate for DealBreaker of the Year.

Value Added: Other than the pretexting misstep, Dunn's tenure at the head of Hewlett Packard's board is considered exemplary. Her downfall also helped teach us two important lessons. First, that there is something wrong with the process-obsessed view of corporate governance. Second, by falling so publicly while Hewlett Packard's stock continued to climb, we learned that corporate boards may be even less relevant than we thought.

Risk Factors: Dunn's insistence that she didn't do anything wrong struck us as, well, a little bit scary. It seemed so far removed from reality. She never seemed to get how frustrating or even insulting her testimony about the pretexting affair was. She gave the impression that no-one had ever challenged her authority. Being in love might mean never having to say you're sorry. Being the chairman of the board certainly does not.

Should Pattie Cakes be the DealBreaker of the Year? Well, she’s only the second candidate we’ve named (the first was Hank Paulson), so this might be premature. But we invite you to let loose with your inner-most feelings in the comments section below. And if you want to nominate other candidates, please feel free to email us at tips@dealbreaks in Business Todayer.com. (If you can use the format we’ve laid out above, all the better. If it’s a hassle, we’ll take ‘em as we get ‘em.) If we use your nomination, you’ll get a free copy of Winning: The Answers: Confronting 74 of the Toughest Question.

Read More About Patrica Dunn:
Patricia Dunn Archives [DealBreaker]
Hewlett Packard Archives [DealBreaker]
Wikipedia Entry [Wikipedia]

hosted by the venerable Week

Let’s just cut to the chase—I’m in love with Harold Evans. And had I been given more than 20 minutes’ notice that I was going to be in his delicious presence, I might have stood out among the suits in more of a tastefully displayed cleavage way and in less of a “I shop at American Apparel" way.

Evans begins to read a passage from the book about the board telling everyone that Fiorina’s leaving because of “personal reasons, to spend more time with her family,” etc, and then gives the audience what I swear to God is a come hither look and paraphrases with, “basically a bunch of bull shit.” I’m sitting within maybe 10 inches of him, and if I thought it wouldn’t distract the audience from the conversation at hand, I would reach over, place a hand on his forearm and mouth, “I love you.”

Fiorina waxes on about the H-P takeover of Compaq for about six minutes; very articulate and all but you’d have to have a really deep interest in H-P and/or Compaq to not start hearing “If you like pina coladas…gettin’ caught in the rain…if you’re not into yoga…if you have half a brain” 90 seconds in. Evans interjects—“I’ve been involved in some takeovers myself; mostly on the receiving end.” I laugh and toss my hair over my shoulder—he knows what that means.

We don't know whether Pattie Dunn wasn't offered a bargain or just decided she wasn't pleaing out. We hope it's the latter, and that she's taking the Dick Grasso "clear my name under any costs" road. Because that trial will be totally awesome.

From the Associated Press:

Former Hewlett-Packard Chairwoman Patricia Dunn has pleaded not guilty to four felony identity theft and fraud charges.

It's alleged that she instigated the company's ill-fated spying probe into boardroom leaks.

Dunn appeared briefly for her arraignment in Santa Clara County Superior Court.

Dunn was released on her own recognizance after a lawyer entered the plea for her.

The 53-year-old Dunn is one of five people charged in the technology giant's efforts to unmask board members who discussed company business with reporters.

Investigators used a shady ruse known as "pretexting" to obtain the confidential phone logs of directors, reporters and others to trace the source of the leaks.

[One more quick note: shady ruse? That's pretty hip lingo for the kids over at the Associated Press. ]

[Oh, wait, another note: We're thinking of calling Pattie "Cakes" from now on. As part of our new "arbitrary nicknaming policy." But let us know if you've got a better idea.]

Former H-P chairwoman Dunn pleads not guilty [Associated Press]

Peter Cohan at BloggingStocks has an original take on the Wall Street Journal cover story on Hewlett-Packard spying we linked to earlier. Here’re the money graphs.

There are many levels of irony in this story. Reporters do all sorts of investigations on their subjects. I don't know how they cultivate their anonymous sources to dig up the details that they report. But my hunch is that while they're often snoops -- peering into places where their targets would prefer they did not -- reporters don't resort to the kind of tactics (pre-trash inspections or monitoring phone calls and IM sessions) to which Tam was subjected.

But I can't help but think that Tam's subjects share some of the same fears of being investigated that she must have felt when she began to realize that HP was placing her under surveillance. Her article's cool, almost tongue-in-cheek tone does not reveal these fears explicitly, instead leaving them to the reader's imagination.
But I imagine that former HP Chair Patricia Dunn must have felt a similar fear when she realized that someone on HP's board was leaking to the media. I'm not defending what HP did; I think it's a 1984-like invasion of privacy for which HP will suffer significant consequences.

We get the point—what’s good for the goose is good for the duck, or whatever. We at DealBreaker certainly aren’t against reporting on reporters. Actually, we're really into it. But, look, it’s a bit of an understatement to say that “reporters don’t resort to the kind of tactics…to which Tam was subjected.” Uhm, that’s right they don’t. Pretending to be someone you’re not, stealing phone records and attempting to tap into other forms of personal communications are not just things reporters don’t do…they’re things that can, will and have gotten reporters fired from respectable news organizations. This is the equivalent of espionage, not reporting.

Let’s not encourage our paranoid corporate leaders to think that H-P spying is on anywhere near the same moral plane as business reporting.

HP turns the table on the Wall Street Journal [Blogging Stocks]

We’ve said it before but we’ll say it again. Hewlett-Packard’s out-of-control investigation into leaks from its board of directors reads like something out of science fiction. The Corporation employing its own secret agents, tapping into the records and stealing the trash of directors and reporters.

Except that the future is now. As it turns out, corporate spooks are real and we’re just now learning how far they’ll go. In fact, there’s still a lot to learn, as this creepy story by WSJ reporter Pui-Wing Tam shows. The creepiest (and we’re sorry to keep repeating “creepy” but it seems exactly right) part of the story is that even Hewlett-Packard seems not to know what its agents did to Tam. Either that or they aren’t telling.

A couple of weeks ago we wondered aloud whether it really made sense to file criminal indictments against Hewlett-Packardites and their spies. We’ve got a gut reaction against criminalizing business executives. But in this case, it seems more and more evident that a criminal prosecution is the only way we’re going to get to the bottom of this thing. And find out how low that bottom really is.

A Reporter's Story: How H-P Kept Tabs On Me for a Year [Wall Street Journal]

[On a slightly more upbeat note: we sometimes like to drop in obscure graphics on our posts, and this one is no exception. Bonus points for whoever leaves the first comment explaining where the picture is from and what it has to do with corporate spying.]

Okay. Look. We’re going to have to say it. What is it about Hewlett-Packard that has led to so much self-deception and denial on the part of people at the top of its org chart? Between Carly Fiorinia and Pattie Dunn, Hewlett-Packard seems to have developed a fetish for leaders who are large-and-in-charge and who seem incapable of doing wrong—in their own eyes. We’ve harped on Dunn enough already. Her insistence that she wasn’t responsible for the leak investigation—it seems no one was—and that she did almost everything right while everything went very, very wrong has now become downright weird. How about Carly? She’s still playing the same tune—that there was nothing in her performance while she was CEO of H-P that led to her downfall.

Yesterday the New York Time’s Joe Nocera delivered a brutal smackdown of Carly’s latest attempts to burnish her public image.

''Here's what the firing was not about,'' Carleton S. Fiorina told Damon Darlin of The New York Times this week. ''It was not about performance.''

The firing to which Ms. Fiorina was referring, of course, was her own. It took place in February 2005, when she was dismissed as the chief executive of Hewlett-Packard by the company's ''dysfunctional board,'' to use her words. Ms. Fiorina, universally known as Carly, wasn't just any chief executive, either; she was the highest-profile female executive in the country, the perennial top choice for Fortune magazine's ''50 Most Powerful Women,'' and a celebrity C.E.O. who was to the business media what Paris Hilton is to the tabloids. Her firing was a very big story at the time…

So I come here this Saturday morning to offer a simple corrective. Carly, it was about performance. And if you didn't realize that then -- and can't admit it now -- you should never have been Hewlett-Packard's chief executive in the first place.

Nocera goes on to describe Carly’s organizational reforms as burdening H-P with “an organizational chart with so many overlapping responsibilities that nobody seemed to be in charge. She larded the place with bureaucracy.” Which is pretty much sounds like the organization that Patty Dunn describes whenever she talks about the leak investigation—once the project was off and running, no-one seems to have actually been in charge of it. And so its no wonder it went out of control.

At some point, Pattie may realize that she was undone by the structures put in place by a woman she has described as her hero. And then things will really get ugly.

Carly Fiorina's Revisionist Chronicles [New York Times]

Mark Hurd was clearly a winner in the recent debacle a Hewlett-Packard. The chief executive of the company that has run into so much trouble for a leak investigation that ended up with investigators stealing the phone records of directors and reporters, Hurd publicly took responsibility for the abuses. This ‘buck stops here’ attitude favorably impressed investors and other observers. No-one really seems to think Hurd is at fault in the investigation but his refusal to duck-and-cover seems admirable, especially when contrasted with defensive finger pointing by former Hewlett-Packard’s ex-chairman Pattie Dunn.

When Dunn was forced to step down as leader of the board of directors, Hurd was elevated to her spot. Now he has hired a new ethics officer for the company—attorney Jon Hoak, who worked with Hurd for ten years at NCR Corp.

One word of caution. The leak investigation that went out of control began as a sort of ethics investigation. As Pattie Dunn has gone through pains to explain, it proceeded according to all the dictates of modern corporate governance theory. But it still went badly wrong. As we've seen fetishizing procedural and structural reform—dividing management from the board of directors, professional ethicists and the like—can obscure more important elements of good corporate governance such as judgment and good sense.

Hewlett-Packard Names Ethics and Compliance Officer {Bloomberg]

Part of the weirdness that is Pattie Dunn’s article yesterday was take her insistence that she did everything right. It would help if just maybe she admitted that she could have done more. But maybe there is could reason why she cannot: she subscribes to an ideology of corporate governance that tells her doing more would have been usurping management authority and would have been wrong.

It's fascinating to watch this corporate governance ideology clash so directly with reality, and then too see the ideology win, at least in Pattie's mind.

More on this over at the Ideoblog’s discussion of the “costs of corporate governance.”

H-P and Good Governance [Ideoblog]

The blog for the 92nd Street Y has an interview with former Carly Fiorina up today, in advance of her talk there on October 15th. Somehow they get through the entire interview without once mentioning the word “pretexting” or the name “Pattie Dunn” to her.

Here's how it starts.

1. When most people think of a bi-coastal life, New York/L.A. comes to mind. How would you describe the life of D.C./Silicon Valley splitters? Most people think of D.C. and Silicon Valley as totally separate worlds. Certainly geeks and wonks speak different languages. And, in the summer, the evenings in D.C. are hot and damp, while the air in Silicon Valley is cool and dry. But it is the things the two places have in common that I love: the view of the water-although one’s a river and one’s a bay; the towering monuments-although some are marble and some are redwood; the beauty of the rising and setting sun-although in one place my view is framed by bridges (Memorial and Key) and memorials and in the other by mountains. Two beautiful places where the people who live there think they’re the center of the universe!

Now go read the rest.

92YQ: Carly Fiorina [92Y Blog]

We’re not sure that Pattie Dunn deserves to be charged with felonies. But we are sure that she, like, totally deserves to be burdened with the responsibility for the leak investigation that went too far. She was the one who initiated it.

Her denials are actually getting weird. At the congressional hearing, Pattie tried to pass the buck to Mark Hurd. Now she’s blaming Tom Perkins.

"It was a disinformation, a classic disinformation campaign," Dunn said. "He set the mind-set for basically everything that's believed about this right now."

Okay, Pattie. Can we talk for a minute? This isn’t helping. You are sounding even more paranoid now than everyone already thought you were. Perkins might have it out for you but he doesn’t need to orchestrate a disinformation campaign to convince people that your investigation went too far when it started stealing the phone records of Hewlett-Packard board members. That just plain old information.

Ex-chairwoman says director instigated 'disinformation'[Reuters]

Hurt feelings. Pink slips. People who were directly involved in Patty Dunn's recent sticky wicket. It's all included in ex H-P CEO Carly Fiorina's memoir, Tough Choices, to be released next week by Penguin. Although the book does not mention the company's latest leak investigations, it helps shed some light for those who have been asking themselves, "What the fuck was thinking?" per Ms. Dunn's actions, when discussing suggestions given to Fiorina in January 2005 by George "Jay" Keyworth, Dick Hackborn, and Dunn, concerning the company's stock price and reorganization. She writes, "From my perspective, their suggestions came out of left field and were half-baked."

Fiorina Memoir Details H-P Board Conflicts Preceding Her Ouster[WSJ]

Law firms make a good deal of money from delivering legal opinions to client guaranteeing the legality of certain transactions. It’s a largely under-reported but highly profitable business for law firms. Clients need to hedge the legal risk of their transactions—risks that a purchase of assets by a troubled company might be annulled when the company goes under, for instance—and law firms assume part of that risk by issuing letters to clients telling them everything can be okay. If the opinion turns out to be wrong, the client can sue the firm for the damages it suffered by relying on the firm.

But many corporate managers might not fully realize that you cannot hedge criminal liability in this way. If you commit a crime, no letter from a lawyer telling you it was okay will get you off the hook. What’s more, most criminal statutes don’t require that you had a guilty state of mind when you commit the crime. You simply have to know what you were doing, not that it was illegal. And there’s good reason for that. The opposite rule—immunity by way of ignorance—would encourage widespread, intentional and totally rational ignorance.

That might seem pretty obvious but not everyone gets it. Here’s Henry Blodget on his Internet Outsider blog arguing the indictment of Pattie Dunn is wrong.

What is wrong is that Patricia Dunn has been charged with four felonies. Unless the California attorney general knows something that the rest of us don't (possible), Dunn neither intended to commit a crime nor knew one was being committed. On the contrary, she took repeated, active steps to assure herself that the investigation was legal. She sought and received assurances from, among others, HP's general counsel, Ann Baskins--a legal expert far better qualified to know (and who, for some reason, has not been charged with the same crimes). Baskins reportedly concluded and still believes that the investigation was legal. Wilson Sonsini, HP's outside law firm, concluded and still believes that the investigation was legal. As do many other legal experts.

So what more could Patricia Dunn have done? Used her own legal spidey sense to say, "Hey, my lawyers tell me it's fine, but I think they're wrong"? Again, the issue here is not whether the investigation was smart or ethical--it wasn't--but whether it was criminal. And it seems a more-than-fair defense for Dunn to say, "I consulted legal experts--not hacks, mind you, lawyers at the top of their field--and they assured me it was legal." Dunn will have an opportunity to make this defense, of course, but she will have to do it in court, after sacrificing her board seats, reputation, more than a year of her life, and tens of millions of dollars in legal fees. And given that hindsight is always 20/20 and juries aren't omniscient, she might still go to jail.

The answer is “yes.” She should have used her legal spidey sense to figure out that authorizing her operatives to lie their way into the private phone records of her directors might be illegal.

[Editor's Note: By popular demand, we've replaced our Pattie Dunn picture with a new one. It's not exactly a picture of her in something "slinky" but we hope you'll like it better.]

HP's Patricia Dunn...Felon? [Internet Outsider]

Business Week has broken the story that California Attorney General will seek indictments on felony charge today against former Hewlett-Packard chairwoman Patricia Dunn and four others involved in the company's corporate spying scandal. Chief executive Mark Hurd can breathe a sigh of relief—the AG is reportedly not planning on bringing charges against him.

All of this is good news for H-P investors, as the legal liability for the leak investigation seems contained to a few individuals and doesn’t seem to be landing on any of the company’s top management.

Official word of the indictments is expected to come in the form of a press conference scheduled for around 6 PM (EST) tonight.

Indictments Sought in HP Case [Business Week]