The HP Saga: Focus on Counsel

30 Sep ’06

In the latest instalment, the focus is on the lawyers, particularly former General Counsel Ann Baskins and quite possibly soon-to-be-former outside counsel Larry Sonsini.

CNet fastens on what is now known about the rest of a Wilson Sonsini memo that appears to have been the basis for HP’s September 6 filing with SEC, made to correct the filing deficiencies that were so persistently raised by George Perkins. The gist is that the Wilson Sonsini report identified possible wrongdoing that was not mentioned by HP as it provided assurances that its counsel had given it a clean bill of health:

In its Aug. 30 report, Wilson Sonsini Goodrich & Rosati concludes that the use of pretenses to obtain phone records, a practice known as “pretexting,” was “not generally unlawful” at the time of the investigation. However, the same report notes that “HP subcontractors may have used Social Security numbers (not provided by HP) while pretexting, which more likely than not violates federal law.”

Hewlett-Packard did not disclose any information about the leak probe until a Sept. 6 SEC filing, then saying only that its outside counsel had found “that the use of pretexting at the time of the investigation was not generally unlawful (except with respect to financial institutions), but such counsel could not confirm that the techniques employed by the outside consulting firm and the party retained by that firm complied in all respects with applicable law.”

An HP representative on Friday declined to comment on the leak investigation or say why it did not mention in a Sept. 6 SEC filing that Wilson Sonsini had warned that the use of Social Security numbers may have been illegal. The Aug. 30 report was part of a batch of documents turned over to the House Energy and Commerce Committee and made public this week.

Reading between the lines, whoever managed the SEC filing seems to have fastened on Wilson Sonsini’s uncertainty over whether SSNs were used as a justification for whitewashing the mention of possible wrongdoing. (The whitewash was something that Kedrosky noted, back in the day when the HP saga first burst onto the front pages.) Question is, why did the Wilson Sonsini report not complete the investigation concerning that uncertainty and why didn’t HP disclose what it was doing to resolve the question? Answer is, presumably, because HP was trying to fudge the issue in the hopes no one would pick up on it. One also wonders whether Baskins had a hand in crafting the disclosure – what an interesting conflict-of-interest question that raises.

The NYT picks up the story by wondering about Baskins’ liability:

If a company’s most senior lawyer is assured by a subordinate that something the company is doing is legal, what is her liability if it turns out that it might not be?

The simple answer is that not enough is known now to say. And if the investigation now cools off, enough may never be known; Baskins has received her payout, and HP will have no appetite for keeping such questions alive. This was presumably a key consideration behind her decision to leave HP and take the fifth; if the facts dry up, so too might interest in her involvement. So too the role she must have known she would play in the hearings; both Dunn and Sonsini were careful before the Committee to point their fingers in Baskins’ direction. As The Recorder put it, “[m]uch of Thursday’s testimony suggested Baskins had in fact become the designated scapegoat.” Baskins knew this, of course; it had been taking shape for days – Baskins must have known she would arrive at the hearing to find herself squarely in the sights of the Committee members (“It all comes down to you – what on earth were you thinking”, etc. etc.).

The general impression of the NYT piece is of a good lawyer who may have made one big mistake. Eric Goldman is quoted to that effect:

“Her overall message is, ‘Look, I did the right thing,’ ” said Eric Goldman, director of the High Tech Law Institute at the Santa Clara University School of Law in California. “But underlying all of that is still this nagging doubt that she knew pretexting wasn’t appropriate and that’s why she kept asking questions.”

The documents provided to the committee mention that the scope of Mr. Hunsaker’s research into the legality of pretexting consisted of an “hour’s worth of online research,” as well as interviews with the outside investigators and an outside lawyer with ties to the investigators. [Ed.: given the role of this investigation within HP, surely this is the single most astounding aspect of the case]

“Every interaction described in these documents suggests she’s still bothered by this,” Mr. Goldman said, “and if you have to ask the question, ‘Is this legal?’ so many times, common sense says it’s probably not appropriate, if not illegal.”

I doubt that Baskins’ mistake was counselling an investigation that she knew to be improper; I suspect it was over reliance on a subordinate when her own instincts were telling her the subordinate might well be wrong. But after a nearly $5 million payout, some might think there is value in knowing which it was. And it still boggles my mind that in the middle of an investigation that had such profile in the company, HP’s GC did not vigilantly run to ground the issue of the investigation’s legality. Once again, one is left with the suspicion that questions were not asked because answers were not welcome.

Finally, The Recorder covers Baskins’ resignation and the usual spin from counsel on why she took the fifth, and Larry Sonini’s five hours in front of the House Energy and Commerce Committee. The gist of the Sonsini presentation is what appears to be a successful effort to blame others for the fiasco and to stay just far enough away from the flame, culminating with the same question that has bedevilled Dunn: how could Sonsini have not suspected that pretexting was problematic?

Near the end of the hearing, Sonsini had to wrestle with another hard question: “You were told that people at HP were lying about their identity,” said Colorado Democrat Diana DeGette. “You did not raise questions or say this is unacceptable. I don’t understand.”

“That’s a fair question,” Sonsini answered. “I didn’t know what pretexting was.”

Sonsini said he now believes pretexting is “clearly wrong, unethical and improper.”

Now he tells us.

Final observation – we’ve now seen a series of incidents – starting with the option backdating cases – in which counsel have been forced out after it has become known that they did not “do enough” to stop illegal or improper conduct inside the company. What to say about these cases? Lawyers are ordinary people. For my part, I’m certain that these cases are rarely about the lawyer as architect of wrongdoing. Large organizations poorly led are very skillful at extorting compliant behaviour from all of their members. But in any event, I’m hoping that someone will take up the pen on these cases and present an interesting narrative on what is happening in the GC’s office these days.

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