Suppose You Discovered that Your Company was Snooping on You…
from
January/February 2007
by Julie Connelly
Hewlett-Packard board members weren’t the only ones staggered by the revelation that their personal phone records had been accessed by private detectives hired on HP’s behalf to run down the source of boardroom leaks. The story, which soon included the resignations and criminal indictments of chairman Patricia Dunn and others, fascinated and appalled directors everywhere. But what would they do if they found themselves similarly targeted in a spying probe launched by their own chairmen? To find out, Corporate Board Member conducted an ad hoc written survey of directors attending our annual Boardroom Summit, held in October in New York City. We asked them four questions. Here’s a summary of their responses, along with a sampling of 50 individual replies:
What would you do if you found your chairman or company was spying on you?
Nearly half say they would resign. Most, however, specify that first they’d confront the chairman, the CEO, or the lead director to find out why they were being targeted, and that they’d step down only if they weren’t satisfied with the answer. A few say they’d push to remove whoever had instigated the spying. Examples:
"Resign under protest. Provide a detailed letter of resignation to the Securities and Exchange Commission. Engage counsel to explore legal action against the chairman."
ROBERT C. STONE, 58
Senior Vice President, Whitney National Bank, New Orleans
Directorship: Petrohawk Energy Corp.
"I would confront him and request a meeting with the full board."
LEANDRO S. GALBAN JR., 71
Chairman, Global Financial Services, DLJ Merchant Banking Partners, New York City
Navigators Group Inc.
"Contact other board members with this information. Obtain their support. Hold an executive session without the chair to put together an action plan. Hire a quality law firm to examine the allegations. If they’re true, the chair is out."
TOM WHEELER, 70
Retired Chairman and CEO
Mass Mutual Financial Group, Springfield, Massachusetts
Genworth Financial, Textron Inc.
"Bring it to the general counsel and the lead director."
DAVID BRODSKY, 70
Private Investor, Newport, Rhode Island
Harris Interactive, Southern Union Co.
How should a chairman try to plug leaks concerning boardroom discussions?
The consensus is that every board should have a clearly articulated policy about what information stays in the boardroom. The chairman should reiterate this policy at intervals and discuss it individually with the directors. Most feel that leaking confidential information is a violation of a director’s fiduciary duty and can warrant a request for his or her resignation. Among the responses:
"
Set a board policy that provides for resignation or termination of a member who discloses confidential information—and define what constitutes that kind of information. Then ask board members to verify and certify they have not and will not be the source of leaks."
Barry T. Zeman, 60
Regional Business Development Manager, Wells Fargo Home Mortgage, San Francisco
Metropolitan Health Networks Inc.
"Conduct a legal investigation to identify the source and confront that source. Further steps depend on the response of the source and the advice of legal counsel."
Gerald W. Hepp, 69
CEO, Gnosis Praxis Ltd., Southfield, Michigan
Miva Inc.
"The chair shouldn’t try. Leaks are inevitable, and violating the trust among board members is no remedy. Information can be controlled by verbal discussions."
James W. Harris, 60
CEO, Seneca Financial Group, Greenwich, Connecticut
El Paso Electric Co.
"Establish a policy to maintain confidentiality. Promote candor in the boardroom."
Sean O’Keefe, 50
Chancellor, Louisiana State University, Baton Rouge
DuPont
Is it ever permissible to talk to the press without clearing it with the CEO?
There is less consensus on this question than on any other. Many directors think that generally speaking, it is not permissible, saying that the CEO is the spokesman for the company and the company should deliver one message. But there are exceptions.
"Yes—a director represents the shareholders. If illegal activity is covered up and there is refusal to change, whistleblowing may be necessary. Resign at the same time."
Patrick J. Ward, 76
Retired Chairman and CEO
Caltex Petroleum Corp., Dallas
Tesoro Corp.
"I believe you should tell the CEO and listen to his concerns, but I do not believe you need consent."
Edward J. Smith, 58
Founder and President, Barnegat Bay Capital Inc., Mantoloking, New Jersey
Federal Services Acquisition Corp., Global Imaging Systems Inc.
"
Yes, if you’re an expert on an issue and can add value to a matter without harming the company in some way."
Philip Odeen, 71
Chairman, Reynolds & Reynolds Co. (since acquired by Universal Computer Systems Inc.), Dayton, Ohi
AES Corp., Avaya Inc., Convergys Corp., Northrop Grumman
"No."
James M. Voss, 63
Financial Consultant, Voss Consulting Inc., Arlington Heights, Illinois
Portfolio Recovery Associates Inc.
When should a director talk about what happens in the boardroom?
“Never” is the overwhelming consensus here, and most believe that if a director seriously disagrees with the board he or she should resign. A director who discovers that something illegal is going on, they say, should talk to the appropriate regulatory authority, not the press. Among the responses:
"Only when he or she has made an effort to resolve the issue in the boardroom, without success, and deems the matter to be of utmost importance to shareholders."
Maurice A. Parker, 74
Executive Director, Regional Aviation Partners, Phoenix, Arizona
Mesa Air Group Inc.
"Only with a mandate to do so by the board."
Meldon K. Gafner, 58
CEO, Farsight Group, Scottsdale, Arizona
BMC Software Inc.
"Never while an active board member. One exception: board members who were brought in by a large activist shareholder to transform the company."
Robert L. Smialek, 62
Former Chairman and CEO, Insilco Corp., Dublin, Ohio
General Cable Corp.
"Never. If something illegal is occurring, the press is not the suitable outlet for complaints."
Edward H. Shortliffe, 59
Chair, Department of Biomedical Informatics, and Deputy Vice President, Columbia University Medical Center, New York City
Medco Health Solutions Inc.
