Wednesday, October 04, 2006

What went wrong at HP?

I sat and stared at my HP printer blinking at me for the third time today with yet another paper jam and wondered what happened to the quality. Just a few years ago HP was the darling of the manufacturing community with a product of unsurpassed quality and reputation. I remember too, sitting through a graduate school class and listening to a case study presentation given by the professor about one of the best managed companies in the world - Hewlett-Packard Corporation.

Today, HP is on the verge of unraveling, with members of the Board of Directors and other lesser company directors under criminal investigation for activities the impact of which will affect every employee in every job category and every division. The net result will be that every employee will look askew at their director, manager, or supervisor and wonder if that person spying on them or their family - a further layering-on to the culture of fear that developed during the Carly Fiorina years. Problems like this often trickle down to the product level and quality will likely suffer further due to the huge morale implications that will follow. Stockholders will suffer too.

What happened at HP is not uncommon in the business community. A company culture predicated on good ethics and an above board management style changes, sometimes over time but often overnight, when ethically impaired people happen to good companies. Frequently, the metamorphoses occur as the result of actions initiated by the board in response to lack luster company performance or other real or perceived shortcomings. Often, the changes start with a shake-up on the board itself; sometimes resulting in the appointment of a new chairperson. The change is usually hastened further by personnel changes at the CEO, COO, or President levels. What happens next is a win at all cost climate where ethics take a back seat to achieving certain short term goals and standards of conduct become blurred. Be careful when you hear the euphemism "culture change".

Ironically, the person who initiated the investigations that ultimately cost her her job was the former Audit & Finance Committee Chairperson, and the person who was directly responsible for Sarbanes-Oxley compliance, Patricia Dunn; a person in a position to know better. What Dunn specifically knew about the techniques and outsource security agency used to gather personal information, including phone records, is under investigation. What is known is that periodic reports to certain Directors and board members regarding the information gathered were made. The content of those reports and the nature of the information contained in those reports should have set off alarms and sent company ethics police scrambling. The investigation in question was a company inquiry into information leaks by a board member(s). The personal phone records obtained as part of the investigation are alleged to include employees, journalists and the family members of same. Computer spying is also alleged. Whether the information allegedly leaked was material or damaging in nature is questionable.

What is certain is that key individuals in positions of governance made decisions that placed the company at risk - smart individuals whose experience and education would seem to indicate that they knew better. What caused these people to set aside their ethics is speculative. That no one understood that an outsource investigative agency is, in fact, a consumer reporting agency and must comply with FCRA regulations is absurd. But, amidst culture change loyalties are tested and individuals often presented with ethical decisions. The question in play is "are you part of the new team or the old one?" "Are you part of the new circle of trust, or not?" Each person confronted by this question has an ethical dilemma if the newly emerging culture is not ethics based. When intense culture shift becomes evident rest assured that all management employees will be tested. Unfortunately, an employee's options are few: Buy in to the standards of conduct or say "no" and wait for the hammer to fall.

Asset Control recommends that all companies appoint a person to be responsible for the implementation of a company ethics program. This person should be required to become a member of a national organization that provides ethics based training to members. Public companies ought to assign specific board member to oversee its implementation. Typically, this task would rest with the Chairperson of the Audit & Finance Committee. However, the responsibility could reside elsewhere such as with the Chair of the HR Committee. Regardless, that committee's charter ought to include ethics as a documented function. Ironically, the responsibility for corporate ethics does not appear to have been assigned to any of HP's board level committees. What resulted was a disconnect between the board and its Sarbanes-Oxley mandated role in monitoring corporate ethics. All employees need to know that there is a formally established procedure through which to provide ethics related information directly to the board, if necessary.

Last, it is imperative that company officials in appropriate areas are trained in privacy matters. Specific attention should be paid to the FCRA and the company's obligation for compliance as well as the penalties for non-compliance. Several months ago I wrote an article challenging journalist Liz Pulliam Weston's contention that the FCRA has given companies the license to spy on its employees. In the article I expressed concern that some companies might actually buy her story. Apparently, there is one that did. While the primary responsibility for what happened at HP lies with management, the methods of the security agency the company hired must be questioned. The integrity of your outsource agency will ultimately reflect on your company. When you ask for a job to be done, always take the time to find out how it will be done. If the answer is "you don't want to know", walk away. Today (as opposed to 30 years ago, or so) expect that no secret will be kept. Even our government, which is in the business of keeping secrets, can't keep secrets any more. Leaks about questionable ethical behavior will cost executives their careers and topple management.

So how do you keep your ethics while all around you are losing theirs? It's as simple as just saying "no". But there will be consequences. This is what I did when my integrity was tested by the senior most executive in my company. My refusal to bend eventually led to my departure from the company but I left with my integrity intact. You may be the lucky enough to remain after the ethically challenged are purged from the company as is invariably their fate. If you are so lucky, roll up your sleeves. Restoring a company's climate of honesty is arduous work.


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