Research

Interview: Marianne Jennings discusses the ethics of the HP situation

The HP situation provides a many-faceted illustration of ethics in the breach, according to Marianne Jennings, professor of legal and ethical studies at the W. P. Carey School of business and author of "The Seven Signs of Ethical Collapse: How to Spot Moral Meltdowns in Companies ... Before It's Too Late." Jennings says that the actions of a board member in leaking company information to the press were unquestionably wrong, but the board's shady investigation only exacerbated the legal and ethical breakdown.

2006-10-11

The HP situation provides a many-faceted illustration of ethics in the breach, according to Marianne Jennings, professor of legal and ethical studies at the W. P. Carey School of business and author of "The Seven Signs of Ethical Collapse: How to Spot Moral Meltdowns in Companies … Before It's Too Late." Jennings says that the actions of a board member in leaking company information to the press were unquestionably wrong, but the board's shady investigation only exacerbated the legal and ethical breakdown. Jennings shares her observations in a conversation with Knowledge@W. P. Carey [podcast].

Transcript:

Knowledge: Business Ethics. In recent weeks, the entire nation has received an unexpected lesson in the ethics of doing business, or more accurately, the lack of ethics in doing business, all courtesy of Hewlett-Packard and its boardroom shenanigans. To recap, a board member leaked information to the press, and in response other members of the company's Board of Directors, and some high-ranking HP officials went to extraordinary, perhaps even illegal lengths to try to smoke out the leaker.

Now, California's Attorney General has filed criminal charges against former HP Chairwoman Tricia Dunne and four others involved in the spying scandal. The FBI and a Congressional panel are also investigating. The turmoil at HP has resulted in a living laboratory of sorts for W. P. Carey Legal and Ethical Studies professor Marianne Jennings. Her latest book, "The Seven Signs of Ethical Collapse: How to Spot Moral Meltdowns at Companies Before It's Too Late," was released in August. Here, Jennings talks about the HP Debacle, and the lessons it holds for the rest of corporate America.

Marianne Jennings: This one is striking because it is just so dumb. This is one of those that you look at, classically, and say, "Where were your minds and what were you thinking?" It is also almost childlike, because there is no question that people who leak information and are directors are damaging the company, and that was wrong, and the chairman is correct in pointing out that you can't have that because that affects the stock value and everything else, and not everybody is agreed on what the director said.

So that is a problem. But it goes back to the same simple principle we were taught as children: two wrongs don't make a right. They were wrong, but you can't respond with this kind of behavior, because that just creates more difficulties. The other thing that is so striking is, if this is the leadership of this company, and this is the best strategy that they could come up with, which is sort of skirting the law at best, violating the law at worst, what else do we have going on here? So it is just worrisome, generally.

Knowledge: So when you saw those HP executives — in some cases former executives — going before Congress and pleading the Fifth one by one, and particularly the former Chairman not taking any personal responsibility for it, what kind of message do you think that sent out to corporate America, and just Americans in general?

Jennings: The ethics and the breech is what I see here, and there is not very many good examples for kids to look at here and say, "Now there's someone who did something wrong, but is holding himself or herself accountable." It is just so disgraceful to see this, and you feel sorry for them, because the fact that they are taking the Fifth is a pretty strong signal that something is wrong.

And from what I read on the emails, and the history of this whole situation, what went on, it's not as if they didn't see the issue. They did. They saw the issue, but yet they couldn't bring themselves to say no, and now they're caught in this awful predicament. There just aren't many good stories for you to look at and tell your kids at bedtime, "Now this is what you do when you make a mistake." That is what's so disappointing.

Knowledge: Now, the ethics chief told them, "This is on the edge but aboveboard." But then their senior company investigator said, "This is very unethical at least, and probably illegal." And this was early on in the process.

Jennings: Right.

Knowledge: Still, nobody listened. Why was there such a feeling that there was disregard for — not for law, they were following the law, they were to the letter of the law, but to ethics and what their moral responsibilities were and ethical responsibilities were to the company and the shareholders?

Jennings: See, this is a culture issue, where what you want to do is have employees do exactly what these employees did, which is speak up and say, "It may be legal but it is not ethical," because with so many people in companies fail to realize is that once you trot down this path and you start crossing lines, you compromise a bit of your soul, and a bit of the company standard, and you just keep rolling. You can see that happening here, because even when it became public there was a hesitancy to talk about it.

This problem is a universal one, where there is never a problem with people in companies not seeing the ethical issue, ever. I always say to people, "You don't need me to tell you when you have crossed the line." They know when they have crossed the line, and this case is just proof of it. The real issue is whether the company executives were listening when employees who are experts in their fields tell them that there is a problem.

When they disregard them, not only is there a signal sent to that employee that they don't want to hear about it, but it sets the tone for the culture in the company, so that now the culture is fundamentally flawed because employees think, "Well they don't want to hear it." Even if you raise it, they don't want to hear it, so how much more is kept silent? So it is a terrible signal all around.

Knowledge: How did the turmoil at HP, in terms of their CEO being replaced, in terms of just all the upheaval that was going on, how did that impact, how did that possibly lead to the situation that we are seeing now?

Jennings: Well, pressure. The company was not performing. They had just done the merger with Compaq. People had questions about that, people disagreed about that; and that is legitimate. People will disagree about the path a business should take. That bright minds don't meet minds, don't have agreement on these issues, is not a problem, but we expect that there would be the maturity and professionalism to carry forward.

It almost became a battle of wills, who was right and who was wrong, about dumping Carly versus keeping Carly, and who was right and who was wrong about the merger. So egos got in the way here, and anytime you have egos, you have egos who think they can solve a problem, that they can solve a problem doing whatever it takes. So you see this sort of problem that took place right after she was removed as CEO.

Knowledge: You talk about the egos. You could definitely see some of that egotism, that hubris even, when their former Chairwoman, Patricia Dunne, sat before that panel and didn't take responsibility.

Jennings: Well, and it was such a teaching moment. It would have been so easy, and I would argue that her career would have been better from this point forward, if she had seized that moment and said, "I was in a position of leadership. I was concerned about the well-being of the company, the shareholders and the leaks, and I probably did not use the best judgment in these circumstances," and offer apologies and take it from there. But the arrogance only serves to just underline, underscore the problem that she raised, the lines that she crossed, the arrogance, all of that. It's all evident and she lost the teaching moment for generations — this could have been a teaching moment for generations.

Knowledge: What type of thinking do you think went into that, "I'm not going to take responsibility." Do you think it was, "We didn't break any laws?"

Jennings: You know it is very typical in these situations where the fingers point a million different ways. Failure is always an orphan. That is what happened here. It is very typical. I always say, "Never trust the people you cheat with, they will throw you under the bus." So in this circumstance, she is throwing them under the bus, they are trying to throw her under the bus.

This is what happens when you get involved in situations where you are really not sure that what you are doing is the right thing. When everything breaks and becomes public, everybody runs for cover, and self-interest kicks in, and there is nobody going to stand behind you, and this is exactly what happened here. She is trying to say, "I relied on their advice." They are trying to say, "We felt pressured to get something done." Nobody takes accountability, and everybody looks pretty foolish.

Knowledge: Well, do you think that the fact that no one is taking accountability and how this will affect other companies in the future is the fact that shareholders really haven't been responding to this in a negative way? The stock has not dropped dramatically for HP. There didn't seem to be any immediate repercussion. So in that sense, will it become a lesson for other companies?

Jennings: There are some peculiar facts with HP that make it not such a surprise that the shareholders aren't reacting. A) the company is doing very well, and so that would explain, "Well, as long as you're doing well we'll live with this." The other thing that you see is that it looks like they caught it in time and stopped it, and that is really what you hope happened, that somehow internally people break the story and break the pattern, and get rid of the bad conduct before they can really do some damage.

Because imagine if this had carried over into decisions that really could affect the earnings, the contracts, other kinds of things that the company, so you can see that. But I still believe it will have an effect, because there is so much personal damage from this. Every ethics officer in the country, every general counsel, will know this case, will know the lines, will know what was said in the email, and will think twice when they are confronted with similar situations, which I'm sure happen almost every day.

So the implications may be that those people who were involved in a governance and management sense take it to heart and say, "I don't want to end up like that." So the shareholder reaction may not be as important as the personal damage and fallout.

Knowledge: Well when you talked about "the lines," obviously this showed it isn't just the legal lines that can't be crossed.

Jennings: That's what I've been saying for 30 years, only no one listened for the first 25! When the law is our only standard we are bound to get into trouble, because the law can't write every possible circumstance. You still have to look at the intent of the law, you still have to look at the spirit of the law, and you still have to look at what you're trying to accomplish as you're trodding in this gray area. None of that was examined here, and when you fly this close to the treetops, this close to the interpretation of the law, one little slip and you court disaster, and that is what happened here.

Knowledge: How does this — what happened at HP — how does this tie in with your most recent book? Is this something that you foresaw, or saw a similar circumstance? Has there been a precedent set for what happened with HP?

Jennings: Well it's really very typical. I mean, this is what I talk about in the book. One of the things that I talk about, for example, is the iconic CEO/Chairman, and that is the way it was with Chairman Dunne. She was respected, she was well known, she was a tough-as-nails leader, and so for anyone to question her was really a great deal to ask.

But the advice I give in the book is that you always question the icon, because sometimes, due to ego, due to hubris, all of those things, they're wrong, and that is why there are checks and balances in companies, with boards, with legal counsel, with ethics officers, to help these folks understand that even they are subject to the rules. So you saw that.

You also saw the fear and silence factor. Any time people see the issue but are not able or willing to carry it forward and get the line drawn and the conduct stopped, the culture of the company is problematic. They need to fix that so that when employees raise issues, they have an avenue to raise them, they are listened to, and the issue is explored beyond just as one of them said in this case, "I'm sorry I asked," or just dismissed out of hand. So these are two key factors that play into all of these scandals. They are universally present.

Knowledge: I can't imagine this is the first time that a company has done this, to spy on board members.

Jennings: Probably not; or spy on other individuals. We have documented instances where companies spy on everyone from their political enemies — which could include environmental groups and consumer groups, and other kinds of things. This is certainly a well-documented type of activity. That doesn't make it right, but they honestly believe it is a really quick and easy solution to their problems, whereas the real solution is effective and almost plodding leadership that keeps you going, day after day, working with these issues, trying to find a breakthrough, working with people, mediation, trying to work the issues through. You know, that's hard work. You'd rather spy on them. It's easier. Not legal, but easier.

Knowledge: So, do you think that's really taught any other corporations any lessons, or just taught them to be more careful?

Jennings: Well, in my conversations with people — because everybody asks me about the HP case, everybody has read it, because we may not understand financial reporting matters, but this one is one everybody can understand, they can look at and they can identify with. So my experience in just talking with both the executives I teach and also the executives that I work with in the community, and just the ordinary folks I interact with, is they really see it as evidence that we are still not there, that we have still not fixed the corporate cultural governance issues that need to be fixed, that there is still this sort of disease that exists in companies.

We saw it with maybe all of the superficial fixings of Sarbaines-Oxley that we were there, but the vibrations that I get is that people are really worried that we have not taken it to heart, and that these issues come up and we are still behaving the same way. So I don't see it as all in vain. This is one case that people can really relate to. They understand the issues, they understand it was wrong, and they understand that the company did not respond properly when employees raised an issue.

Knowledge: Speaking of Sarbaines-Oxley, that was brought about because of Enron, Adelphia, Worldcom. Do you think HP will lead to any type of changes, any type of Congressional regulations, or are they just going to let this play out and see how it happens in the future?

Jennings: Well, you can see from the hearings that this is one of the things that would clearly attract attention; but here's my take on that, and this is also part of what I write about in the book. When all of the reforms are accomplished on a systemic level, which is Sarbaines-Oxley, when we put all of the statutory and regulatory national reforms in place, you've got that layer, and there are some protections for employees that raise issues.

Then the next layer is when individual companies take steps or actions to prevent these kinds of missteps when they put checks and balances into place, internal controls, so you have control over changes. When all of that is said and done, and this HP matter illustrates this beautifully, we are ultimately dependent on individuals. Individuals have to raise the issues, individuals have to take action, and it is moral courage.

The one you look at here in this case is Mr. Perkins, the one director who said, "You can't do this, and this is wrong, and I am leaving the board." He is the one who brought all of the public attention to it. That takes guts, and that's what you need. So I'm sure that people would want to have additional reform, but I hope the realization is that moral courage is a pretty important part of all of the regulations, internal controls, and company changes in policy.

You still have to rely on individuals to raise the flag and say, "Whoa! We have a problem here, we need to stop." And that is the one lesson I'm afraid they'll miss in all of this,that we have to have individuals with convictions who will raise the issue and see it forward.

Ethics Management Faculty