Monthly Archives: September 2006

What’s Taking HP So Long?

The more we learn about the circumstances and details of Hewlett-Packard’s investigation into information leaks from its board of directors, the worse the situation looks for the board’s chairman, Patricia Dunn, and for the integrity and reputation of the company itself.

Yesterday, as reported by the Associated Press, the FBI, the U.S. Attorney for Northern California and the House Energy and Commerce Committee joined the California attorney general and the Securities and Exchange Commission in investigating the HP scandal.

It is well past time for HP to make the right call and dismiss Dunn from the board. No, I don’t think she should retain a board position while losing her status as chairman. She needs to leave the board, never to return.

I cannot believe that HP is struggling with this decision. It’s an easy call, and it should have been made days ago, if not earlier.

CEO Mark Hurd, who has been a golden boy since coming aboard about 18 months ago, should not allow the situation to deteriorate further, which is what will happen if HP doesn’t take definitive action, showing the proper degree of contrition in the process.

Day of Shame for HP?

If Patricia Dunn’s statement is true that several of her board-of-directors colleagues want her to stay on as chairman, well, the next investigation launched by HP should be a probe into where, exactly, the board members misplaced their moral compasses.

In investigating board-level leaks, Dunn has commissioned and countenanced violations of California criminal law. She is pleading ignorance of the investigative tactics that her contractors and subcontractors employed — she says she didn’t know the term “pretexting” or its meaning until June or July — but, even if that were true, it should in no way absolve her of the ultimate accountability and responsibility for their scofflaw actions.

These people were acting on her behalf. It was up to her to manage them responsibly, just as it was up to her to provide a higher standard of accountability and leadership for HP’s board of directors. She failed these tests in multiple respects.

First of all, as I mentioned earlier, she should not have launched an investigation into her own board. It’s asinine, juvenile, and wholly unbecoming of the chairman of one of the technology industry’s largest public companies. That she felt compelled to do so demonstrates overwhelmingly that HP’s board was plagued by more than a few leaks of sensitive information.

Second, even granting that the advent of such an investigation might be justified on some shaky ethical or fiduciary basis, it should have been Dunn’s responsibility to ensure that the contracted investigators conducted themselves and their probe with discretion, integrity, prudence, and — last, but certainly not least — basic adherence to the law. Yes, that would have been good; obeying the law would have been a start, one would think.

Not only that, but it seems that Dunn’s detectives somehow obtained at least part of the Social Security numbers of one board member and several business journalists. I wonder how they got the board member’s Social Security number. It appears, from the available evidence, that the last four digits of the board member’s Social Security number were supplied to the contracted snoops by HP itself.

Now ask yourself this question: How could Dunn and her lieutenants not have known of the legally dubious methods the private investigators were about to use if they were the ones who provided the gumshoes with the personal, private information required to run a pretexting scam?

This stinks, folks. It stinks to high heaven. Hewlett Packard must hold its board to a higher level of ethical conduct than this. You know the old saying, “The fish always stinks from the head down.” Right now, HP has a very stinky head.

How come most of us know what has to be done and HP doesn’t?

HP’s Reputation Permanently Sullied; Dunn’s Head Must Roll

After all that we have learned in the past week about the antics and pervasive distrust on the board of directors at Hewlett-Packard, I cannot believe that the venerable technology company can or will allow Patricia Dunn to remain the non-executive board chairman.

The latest news — with more to come, I’m sure — is that California state Attorney General Bill Lockyer has determined that Hewlett-Packard’s clandestine investigation of its own board members violated the law. At this point, though, Lockyer doesn’t know whether charges will be filed or who might be prosecuted.

The Wall Street Journal, among others, has done a stellar job following this story. Its latest report this morning focused on how the scandal is casting an unflattering light on the actions of its outside counsel, prominent Silicon Valley lawyer Larry Sonsini, and board chairman Dunn. The Wall Street Journal also examined how journalists’ phone records, and not just those of HP board members, were targeted and obtained by HP’s investigative contractors looking into the source of a series of leaks regarding the putatively confidential deliberations of HP’s board. 

The Wall Street Journal also points out that private investigators often take the fall when inquiries get twisted, as seems to have happened in this case. You can see Patrician Dunn and HP counsel already pointing fingers at the contractors and subcontractors that indelicately carried out the wrongheaded probe on their behalf.

Dunn’s board leadership really must be called to account here. It’s alarming that HP, at least so far, has not taken to heart the message that it is unacceptable to use surreptitious, police-state tactics to keep its board in line or to ensure that journalists only write what they want them to write. (And, at the end of the today, rigid control — of the board, of news coverage — is precisely what this was all about.)

Dunn is a senior standard bearer of Hewlett-Packard. To have her authorizing and commissioning covert investigations into her own board members, okaying (if only implicitly) privacy violations and ethically questionable and legally sketchy intelligence-gathering tactics, well, it’s appalling. HP should have higher standards. At one time it did have higher standards. As this unseemly scandal plays itself out publicly, the company’s founders must be spinning in their graves.

No, Dunn does not run the day-to-day business at the company. Mark Hurd and his executive team have a bigger impact on the strategies, tactics, operations, and field execution that will determine HP’s success in the marketplace.

Still, HP’s board chairman approved a covert investigation into the personal communications of other board directors. That investigation involved legally dubious tactics, including "pretexting" — impersonating and misrepresenting another individual to gain access to personal records and information — involving nine business journalists and HP board directors as targets of inquiry.

Some observers say Patricia Dunn’s status as board chairman is now tenuous. Others say she’ll survive to chair another day because she can claim to have been ignorant of the unethical and illegal methods that contracted and subcontracted parties used in their investigation of board leaks to business journalists.

She should not get off the hook so easily, though, and I’ll be profoundly disappointed in HP if it allows her such a facile escape from accepting a higher level of responsibility in this matter.

Let’s step back for a second and look at the bigger picture. In the first place, Dunn should not have begun a cloak-and-dagger investigation into her own board of directors. If there’s so little trust among that group, then she has been an abysmal failure as its chairman and should step down. End of story .The ensuing investigation only exacerbates a pre-existing, extremely serious problem of board leadership and trust. 

Second, she was the one who commissioned the investigation, so she should have taken it upon herself — having gone down that dark and sleazy alley — to ensure that the methods and practices of commissioned investigators were legal and beyond ethical reproach, even though the initiation of such an investigation, in and of itself, was an ethical lapse of epic proportions.

There are some observers who say this matter is irrelevant to HP as a technology company and as an investment vehicle. I disagree vehemently.

HP has been tarnished by this debacle, and somebody there must have the integrity and perspicacity to see it.

Mark Hurd or somebody at a senior level must take a stand. Otherwise, what conclusions will HP employees,  contractors, suppliers, technology partners, channel partners, and customers draw from this scandal? Can HP be trusted? How does one not know that HP will attempt to use subterfuge or illicit investigative practices to get its way in other matters? Will the company start handing out social-insurance numbers of employees to private investigations, as it appears to have done with the social-insurance number of a board member?

This is a serious matter, more serious than some commentators seem to appreciate. Patricia Dunn’s head must roll, and HP must be seen to be contrite and penitent for her actions.

Missed A Couple Days

I was busy Wednesday, and I suffered from allergies and a cold yesterday. I should get around to posting some thoughts today.

Vonage: A Short-Lived Victory of Sizzle Over Steak

The New York Times provides a feature article on Vonage today. The article places a strong emphasis on the point of view of Jeffrey Citron, Vonage’s founder and chairman.

Among the revelations contained in the article is that Citron claims to have been surprised that Vonage’s shares faltered so badly on the day of the company’s IPO.  In my view, that’s like a baseball fan in Kansas City saying he was surprised the Royals did so poorly this season.

Everybody in the industry knew Vonage’s IPO was destined to fizzle. How was Citron, of all people, caught so unaware? He must have known exactly how the shares would be received, and it’s disingenuous of him to argue otherwise.

I don’t think Citron and Vonage’s financial backers ever thought the company would get to the IPO stage. I think they were hoping the company, which doesn’t own any of the networks through which its IP telephony calls are routed, would be bought before it reached its fateful IPO date.

Well, it didn’t.

Nobody wanted to pay the exorbitant price Vonage sought to extract from an acquirer. Now the company, the ultimate apotheosis of marketing sizzle over intellectual-property steak, is adrift, looking to cash out on a waning brand and a succession of lightweight marketing gimmicks, such as the V-Phone.

VoIP is great for consumers. It’s brought real price competition to the staid world of telecommunications.

However, from a business-model standpoint, Vonage never had a sustainable pitch. It was hatched to be flipped, driven into the public consciousness by classic bubble-era marketing, with which Citron, former founder of Datek Online, an online stock-trading firm that he left suddenly under cloudy circumstances — is all too familiar. 

Obviously, Citron forgot what happened to the bubble.

When you look at what Vonage really offers, it’s thin gruel. It has a VoIP service that’s offered over other  companies’ networks. It’s only a VoIP service, just plain telephony running over IP. Yes, Citron is talking about advanced IP-derived features now, but they haven’t implemented yet and Vonage will be far behind market leaders — not just the cable MSOs, but the RBOCs, the online unified communications vendors (Yahoo, Microsoft, Google, eBay/Skype) — by the time it gets around to deploying them.

How can Vonage succeed? I don’t think it ever had a plan for long-term success. Citron thought this gig would be over by now.

Viewers Shun Lengthy Online Video

A research survey commissioned by AOL and the Associated Press has found that more than half of Internet users have watched or downloaded video.

Most of the favored fare have been relatively short video clips, including news clips (which have been seen by 72 percent of online video viewers), movie and television clips, music videos, sports highlights, and user-generated amateur videos. It sounds a lot like the portfolio of fare offered by YouTube, doesn’t it?

What’s more, only 20 percent of the online video crowd has watched or downloaded a full-length movie or television show. In all likelihood, that number won’t spike upward dramatically in the foreseeable future.

The research study provides a few reasons why feature-length television and movie videos haven’t taken off. Among the reasons: poor video quality, constrained bandwidth,  and entrenched viewing habits (people still go to their television sets when they want to settle in for an evening of extended entertainment consumption).

YouTube has the right approach to online video, at least for the time being.

Others are quickly encroaching on YouTube’s territory with similar services, but at what point does the YouTube brand become solidly entrenched? Have we reached that point?

Intel Prepares to Slash at Least 10,000 from Payroll; Analysts Want More

Apparently having concluded an internal efficiency review launched in April, Intel CEO Paul Otellini and his executive team are reputed to be on the cusp of announcing cuts to at least 10,000 employees, according to reports at CNET and in the Wall Street Journal (subscription required).

The layoffs, which reports say will come Tuesday after the close of market trading, are not unexpected.

Intel announced in July that it would dump 1,000 managers, and it has sold two communications-chip businesses in recent months. As it has lost ground to AMD, particularly in the higher-margin server space, Intel increasingly has been pushing for greater efficiency, focus, and management accountability.

One might think a payroll reduction of 10,000 employees — about 10 percent of Intel’s workforce — would be more than enough to satisfy the ghouls on Wall Street, who typically love this sort of thing because of what it does (over time) for the bottom line, but apparently the analysts want more blood running through the cubicle corridors of Intel.

Said David Wu of Global Crown Capital:

It would be seen as lame if Intel does less than 10,000.

Added Doug Freedman, an analyst at American Technology Research:

Ten thousand would be at the low end of everyone’s expectations.

Meanwhile, Mark Edelstone of Morgan Stanley, quoted in the piece that appears in the Wall Street Journal, said staff reductions at Intel could range as high as 15,000 to 20,000, though he contends those cuts would include future sales of business units (who many more can Intel sell?). Edelstone asserts that headcount at Intel “just ballooned, almost out of control” in 2004, and that it needs to be rolled back significantly.

The impeding job cuts is are likely to take an inordinately large chunk out of Intel’s marketing staff. After doing studies comparing its staffing levels to those of its competitors, primarily AMD, Intel concluded that its ratio of marketing personnel to salespeople was too high, according to sources cited in the CNET report.

That’s all well and good, but, cutting staff will not cure Intel’s competitive torpor. Oh, it well help lower operating costs, no question, but it cannot and will not, in and of itself, address the relative lack of aggressiveness, creativity, and innovation that has afflicted Intel in recent years.

I’m no bean counter, nor do I play one on television, but perhaps Intel needs better C-level executives at least as much as it needs fewer employees.