The Hindu Business Line : Basic rules of ethics have answers to corporate dilemmas

While a traditional line of inquiry into HP boardroom leaks had hinged on an investigative analysis of news reports, "comparing quotes from unnamed sources with the language typically used by the company's directors," a hi-tech operation unleashed "e-mails embedded with software that could pinpoint addresses where the messages were eventually forwarded." It is alleged that investigators had also deployed a good dose of pretexting of social engineering to gather personal information of their targets.

All this has raised serious ethical questions; and HP is the focus of regulatory probe. "More than 70 companies in corporate America are under scrutiny from the SEC (Securities and Exchange Commission), IRS (Internal Revenue Service) and DoJ (Department of Justice) following a series of scandals that surfaced in mid-2006 relating to back-dating of stock options to a low point in its market price in order to maximise the benefit in the hands of management executives," notes Mr Kaushik Dutta, Partner, Price Waterhouse, New Delhi.

Though back-dating itself is not illegal, the issue of ethics has become a focal point in deciding whether back-dating of options to senior executives without authorisation and adequate disclosure to all investors is appropriate, Mr Dutta points out.

In contrast, HP's case is more dramatic, harking back to `gumshoe sleuthing'. The company's Chairwoman, Ms Patricia Dunn, had authorised private investigators to obtain phone records and other details of directors on HP's board for determining who amongst them may have leaked information about meetings relating to the company's long-term strategy. This again, raises the same ethical question, says Mr Dutta: "Whether the directors need to have adequate disclosure of such intent and the manner of investigation."

He reminds that one of the tenets of company law is that directorship is a fiduciary relationship, inherently built on trust. "Any breach could be a matter of serious threat to the organisation depending upon the severity." Which means, leaking boardroom secrets is a breach of fiduciary duty.

"But where do you stop? It would also be inappropriate to use private investigators in much like a crime-scene drama to snoop into the lives of your directors," argues Mr Dutta. "In either case, disclose the intent, and let legal norms of uncovering the truth be followed. In the basic rules of ethics and governance lie the answers to such corporate dilemma," he counsels.

For the rich lessons that the episode offers, especially of what should not be done, it may not be surprising if l'affaire HP turns into a management case study in B-schools soon.

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