Question

Accountability of Ex-HP CEO in Conflict of Interest Charges:

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 interest, a violation of the code of ethics? It happened to Mark Hurd on August 6, 2010. Hurd was the former CEO for HewlettPackard (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.

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 was 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.

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.

In August 2013, HP and former CEO, Mark Hurd, won dismissal of a lawsuit that challenged the computer maker’s public commitment to ethics at a time when Hurd was allegedly engaging in sexual harassment.

HP did not violate securities laws despite making statements such as a commitment to be “open, honest, and direct in all our dealings” because such statements were too vague and general, U.S. District Judge Jon Tigar in San Francisco wrote.

As a result, shareholders led by a New York City union pension fund could not pursue fraud claims over Hurd’s alleged violations of HP’s standards of business conduct, the judge ruled.

“Adoption of the plaintiff’s argument (would) render every code of ethics materially misleading whenever an executive commits an ethical violation following a scandal,” Tigar wrote.

Shareholders led by the Cement & Concrete Workers District Council Pension Fund of Flushing, New York, claimed in their lawsuit that the share price had been fraudulently inflated because of Hurd’s alleged activities.

They also claimed that HP’s statements about its rules of conduct implied that Hurd was in compliance, and that Hurd ignored his duty to disclose violations.

At most, Tigar said, such statements “constitute puffery—if the market was even aware of them.”

Tigar also said Hurd’s alleged desire to keep his dealings with Fisher secret did not by itself give rise to a fraud claim.

“Nothing suggests that Hurd thought that he could mislead investors with the statements the court finds were immaterial,” the judge wrote.

Questions:

1. When he was CEO, Hurd wrote in the Standards of Business Conduct at HP that “We want to be a company known for its ethical leadership….” His message in the preface continued: “Let us commit together, as individuals and as a company, to build trust in everything we do by living our values and conducting business consistent with the high ethical standards embodied within our SBC.”

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 an ethical and professional perspective.

2. Despite hundreds of pages of policies, codes of ethics, organizational values, and carefully defined work environments and company culture, lapses in workplace ethics occur every day. Explain why you think these lapses occur and what steps might be taken by an organization to ensure that its top executives live up to values it espouses.

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. Do you think executives who resign from their positions or are fired because of unethical actions should be forced to give back some of those amounts to the shareholders to make them whole? Why or why not?

Answer 1

Trust is something which can be given N number of names like belief, reliability, integrity in actions, quality of product etc. But what it is, is just a commitment to the other for providing quality service promptly. In a business, Trust is a bedrock at which it thrives. Trust need not be established just with customer, but also with employees to provide them safe workplace, with suppliers to provide them with repeated business and fair price of their products.

Stakeholders and the persons who are associated with a company in one form or another. It is not like one must hold shares in a company to be a stakeholder. They can be anyone who transacts with company like employees, suppliers, buyers, investors, creditors, etc etc. They all expect returns from the company in one form or another and it is upon the trust upon the practices availing at the business that they remain associate with it. No Trust, No Associaton and business will ultimately fall.

Trust may endanger ethical relationship in an event where some honest mistake has been comiitted which may result in fall of share prices for stakeholders. Trust upon senior management imposed by stakeholders to provide with good returns may lead to situation where owing to trust, management may compromise with ethics to provide reveal actual situation and window dress it.

The statement reveals failure in conduct of fair standards of conduct of business.

Part 2

A couplet says that, once a bookworm ate all the books in the library but still could not learn how erudite. Similarly, no matter how many books are written or how perfect the code of conducts are. Lapses may continue to erupt because of one thing or another, this can be due to personal experiences, needs, requirements, situation or a mix of all these. These can be avoided by imparting following measures:

• Organising lectures on ethics frequently
• Encouraging employees to commit the mistakes they have done instead of humilating them
• Have proper internal audit teams duly qualified, for every section of company. Appint persons experiences in purchasing to audit purchase dept etc.
• Set up an structure which keeps check over the unethical practices

Part 3

Yes, I believe so because this may would allow management to practice such practices with belief that they would get thier hefty pay inspite of them conducting irregularities.