Case 3-10
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
interests, a violation of the code of ethics? It happened to Mark Hurd on August 6, 2010. Hurd, was the
former CEO for Hewlett Packard for 5 years and also served as the chair of the board of directors for 4
years. On departure from HP, Hurd said he had not lived up to his own standards regarding trust, respect
and integrity.
In 2006, Hurd led the company out of disgrace when it was found guilty of spying on its own members
of the board of directors in a “pretexting case” where the company gained access to board members’
personal phone records by impersonating the board members. The goal was to plug leaks from the board by
using private detectives to spy on directors, employees, and journalists who covered the company. The
scandal resulted in the removal of then-chair Patricia Dunn and vaulted Hurd into the board chair position
after assuming the CEO role in 2005.
The board of directors of HP began an investigation of Hurd in response to a sexual harassment
complaint by Jodie Fisher, former marketing contractor who retained Gloria Allred to represent her. While
HP did not find that the facts supported the complaint, they did reveal behavior 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 is
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” hired
by HP for certain projects, but 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.
On December 30, 2011, a letter from Allred about Fisher’s responsibilities was leaked to the
Associated Press during the trial in a Delaware court. The letter showed that in an effort to impress Fisher,
who was hired as an event hostess (not a true marketing consultant), Hurd showed her his checking account
balance holding over $1 million. The Delaware court had ruled that its disclosure did not violate Delaware
laws. In rejecting efforts by Hurd’s lawyers to keep it confidential, the court concluded that the letter does
not contain trade secrets, non-public financial information or third-party confidential information. The
ruling said information that is only “mildly embarrassing” is not protected from public disclosure. Some
sentences concerning Hurd’s family were ordered redacted from the letter, however.
Allred alleged in the letter that, while Fisher was ostensibly hired as an HP event hostess in late 2007, she
was really brought on to accompany Hurd to HP events held out of town. In a serious corporate allegation,
during a trip to Madrid in March 2008 , Hurd allegedly called Fisher’s room and told her about a then-
undisclosed deal in the works, in which HP was going to acquire the tech consulting firm EDS. Fisher had
heard of the company, having lived before in Dallas. Hurd told her to keep what she knew about the deal
secret.
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.
Questions
1. 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 a trust perspective.
The Six Pillars of Character in chapter 1 note that dimensions of trustworthiness include being honesty,
acting with integrity, being reliable and exercising loyalty in dealing with others. A leader cannot expect
workers to exhibit such virtues in their conduct if he is not displaying those same virtues himself. In
2. Define conflict of interests in a business sense. How does Hurd’s actions and relationship
with Jodie Fisher in the case create a conflict of interest? Did the conflict of interest and
trust issue contribute the possibility that sexual harassment may have existed? Why or
why not?
A conflict of interest arises in business when a person has a personal interest in the situation that may be
counter to the company’s interest. A conflict of interest may arise even if there is an appearance of both
personal and company interest being different, whether it is in fact different. Hurd’s action of telling Fisher
about a possible deal with EDS was a conflict of interest. Hurd had a personal interest in impressing Fisher
by his wealth, knowledge and power in order to have an affair with her. HP had a desire and need to keep
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. What
is the role of a severance package in hiring a CEO? Do you think the size of the
severance package given to Hurd was ethical? Does the Hurd case affect your views
about the ‘say on pay’ rule?
The role of a severance package is to provide salary and benefits until the executive can find another
position. Some severance packages include all earned deferred compensation in a lump sum. Some
severance packages may be equal to 6 months or a year’s salary. Severance packages can seem extreme as
The ethicality of these severance packages can be analyzed using moral reasoning. They appear to be
motivated by egoism in that the company is doing what it believes to be in its best interests to attract what it
believes to be top talent to the CEO position. The CEO is negotiating a package in his best interests in case
the company prematurely fires him. Nowhere in this calculus is utilitarian analysis that might indicate the
Say on pay rules give the shareholders a voice in executive compensation packages, although they do not
have the final say. That decision is in the hands of the board of directors. The reason the say on pay rule is a
good idea is the notion of full disclosure and ethical principle of “Rights.” The shareholders have a right to