SAN FRANCISCO — The one winner in the Hewlett-Packard Co. boardroom spying scandal that has enthralled Silicon Valley appears to be Mark Hurd.
The CEO and president will soon add chairman to his duties, so long as he manages to avoid the mess that splattered on the current chair, Patricia Dunn. But some corporate governance experts wonder about the wisdom of consolidating so much power in the hands of one person.
"This is a big step back for the good corporate government movement," said Kirk O. Hanson, director of the Markkula Center for Applied Ethics at Santa Clara University. "An all-powerful CEO who also has the board chair role can be less subject to challenges by others than by a CEO that has to contend with a separate board chair."
Dunn will step down in January due to her role in the company's ill-fated investigation of media leaks. At her behest, the company hired contractors who impersonated HP directors, journalists and employees in order to get phone companies to turn over detailed logs of their calls, a method known as "pretexting."
The scandal has already prompted state and federal criminal investigations. One board member quit upon learning of the pretexting tactics; another resigned after being outed as a leaker.
And last week, a congressional panel said it wants to question Dunn and other key figures in the scandal, while a shareholder lawsuit was filed in state court accusing the company's top executives of breaching their duties.
Most governance experts agree that the CEO and chairman should be different people. But under the circumstances — with the scandal at HP rapidly growing — the company decided to act quickly.
"In the best of all worlds, it would be a good idea to split up the jobs," said Charles Elson, chairman of corporate governance at the University of Delaware business school. "But I don't fault them because they didn't have the time or talent to find someone immediately."
Elson said HP should revisit the notion of doling out the jobs to two people once it recovers from the scandal.
Hurd was in many ways the obvious choice to steer the company's dysfunctional board of directors back on course. Since he became CEO 18 months ago, HP's market value has soared by nearly 70 percent, or $38 billion. The company's stock reached a five-year high even as the scandal was unfolding in its boardroom.
"Since Mr. Hurd was appointed CEO, both the company and the Board have undergone substantial changes," HP spokesman Ryan Donovan said in an e-mail. "The board felt strongly that unifying the roles under Mr. Hurd was the most effective way of aligning the board with the company. The board also believes that the corporation can be well served by a CEO who also serves as chairman."
The notion of splitting the two jobs as part of good corporate governance has been kicking around since at least the 1990s, but took on new urgency with Enron Corp.'s 2001 flameout and the string of boardroom scandals that followed.
In recent years, several Wall Street bellwethers, including Walt Disney Co., Oracle Corp. and Dell Inc., have split the CEO and chairman's jobs in a bid to better monitor management.
Still, most publicly traded companies have a single person serving both roles. Fewer than 10 percent of the companies on the Standard & Poor's 500 have a chair that is completely independent of management, and some 70 percent have given both jobs to a single person.
Three years ago, more than 80 percent of the companies had one person in both jobs, according to the Corporate Library's Board Analyst database.
"There is no reliable research to support splitting or not splitting," said Stanford University business professor Michael Klausner. He said the corporate reform law known as Sarbanes-Oxley, enacted during a 2002 wave of business scandals, has helped strength independent oversight of management.
The law stiffened penalties for corporate fraud and required CEOs and chief financial officers to personally certify the accuracy of financial statements. It required boards to create two powerful subcommittees comprised entirely of independent directors. Sarbanes-Oxley also required all independent directors to hold a meeting separate from inside board members.
"Particularly since Sarbanes-Oxley," Klausner said, "board structures have been built to strengthen the hands of independent members."
Hewlett-Packard itself won plaudits from governance activists when it split the CEO and chairman's posts after Carly Fiorina was ousted as CEO and chairwoman in February 2005. Fiorina had alienated many on the board and within the company for her autocratic management style of a company proud of its collaborative, research-heavy heritage.
Now, the HP board will have to change its corporate governance guidelines to accommodate Hurd's increased power. HP said it has appointed Richard Hackborn to a new position — "lead independent director" — that it says will help the board keep Hurd's power in check. Hackborn is a former HP executive and served as chairman before Fiorina took the slot.
Despite her involvement in the spying scandal, Dunn will remain on the board but relinquish the chair. Hanson, the Santa Clara ethicist, called that a "half measure." If the company thinks she did nothing wrong, he said, Dunn should remain as chairwoman. If she's at fault, she should be off the board.
"I don't think they have put out the fire," Hanson said.