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"I didn't do it, he did it" is a time-honored defense that children have employed since, well, forever. It has not lost its sheen in the ongoing HP scandal. The five defendants in the recent California criminal action have claimed ignorance about obtaining phone records under pretext and blamed each other.

HP's chairwoman, Patricia Dunn, became frustrated earlier this year as confidential information discussed at board meetings was leaked to the media. Without involving any other board member, Dunn hired a Boston private investigator who hired a Florida private investigator who hired a California private investigator to find the source of the leaks.

Dunn and other senior HP executives--and even outside HP counsel--were subpoenaed to testify before Congress. Criminal charges were filed in California state court against Dunn, HP's ethics director and three private investigators. The five defendants face up to 12 years in jail for felonies involving false pretenses, unauthorized access to computer data, identify theft and conspiracy.

Dunn, who has since stepped down as HP's chairwoman, claims to be ignorant of the spying. This may be a problem given the comprehensive phone records supplied to her. The HP ethics director was fired, but also claims ignorance and a belief that the investigators' work was legal. The Boston and Florida investigators are pointing fingers at the California investigator, who claims he did not know he was working for HP.However, that investigator, according to the prosecutor, also allegedly destroyed computer records linking him to the HP spying.

Meanwhile, the HP probe eventually identified a longtime HP board member and a former presidential advisor as the leak. That board member resigned as did an independent director who chaired the board's governance committee--resigning in anger about being kept in the dark.

This episode is a perfect example of how not to run a public company board. First, if directors believe that they are targets of secret internal investigations, they will either not serve as directors or serve in a way where they are hesitant to candidly speak to managers and shareholders. In this post-Sarbanes-Oxley world, either result is devastating.

Secondly, investigating board members without the board's knowledge is particularly morale-busting and, quite frankly, just indecent.

It reminds me of a case I triedyears ago of a NYSE company that sued a sitting board member for unfair competition and violation of a noncompete agreement. The company's inside directors did not like the outside director and suspected him of secretly helping a competitor?owned in part by the outside director's son. Though the suspicions were unjustified, the company conducted an intense two-year, multimillion-dollar secret investigation.

The company sued the director, but it lost the trial and had to reimburse the director for his legal fees. At trial, the director testified that if the other board members had simply advised him early on of their suspicions, everything could have been avoided.

The spying/secrecy factors worsened both of these situations, not only costing the organizations millions of dollars in litigation but also tarnishing their reputations and hurting the board-serving population. This all could have been avoided by simple candor.

David Packard, who co-founded HP in his garage on unfettered candor with his partner Bill Hewlett, must be rolling in his grave.

PHILIP KIRCHERis co-chairman of the commercial litigation department at the law firm of Cozen O'Connor.

December 1, 2006

Copyright 2006© LRP Publications