Inside Job

HP and the Foreign Corrupt Practices Act

HP and the FCPA

As if HP didn't have enough ethics-related problems, the company recently disclosed in its 10-Q that the Justice Department and SEC have expanded an investigation of possible bribe payments in connection with contracts the company obtained in Russia. The payments may have violated the Foreign Corrupt Practices Act (FCPA). The Act prohibits persons, entities, and certain foreign entities (mainly issuers of securities on a US exchange) from making bribes or offering any inducement for the purpose of obtaining or retaining business with a US firm. The Act extends to anyone transacting business while in the USA. Basically, if the payments are designed to induce a foreign party to make a decision that might not normally be made, for example, awarding a contract to the payer of the bribe, then it violates the FCPA. Payments that are made to induce foreign parties to do what they should be doing anyway (i.e., payments to custom officials to let exported goods into the foreign country), do not violate the FCPA and is considered a facilitating or "grease" payment.

The HP bribery investigation began in Russia in connection with a contract with a former German subsidiary of HP that involved the installation of a computer network in Russia's chief prosecutor's office of all places. Russian and German prosecutors are looking into the transaction, which took place from 2002 to 2006, and have requested documents from the company. In its -10-Q, HP admits the investigation is broader than the one contract and goes back to 2000.

I have previously blogged about ethics in the workplace. The culture at HP seems to be one that condones unethical behavior. HP In addition to possible violations of the FCPA, the company's former CEO resigned in August 2010 after an investigation found he had a personal relationship with a contractor. Actress and former porn star Jodie Fisher has stepped forward as the contractor in question in the sexual-harassment allegations brought against Hurd. The parties have settled out of court and the reason given for Hurd's "forced" resignation was not a violation of the sexual harassment policy but, instead, the company's standards of business conduct. You mean HP has a code of conduct?

Talk about your classic conflict of interests. Hurd allegedly submitted receipts for expenses ranging from $1,000 to $20,000 over two years including meals and travel that should have been labeled personal and not related to business. I guess Hurd's $24.2 million compensation package in 2009 that included $1.3 million in salary wasn't enough to cover the few thousands of personal expenses without charging it to the company.

A shareholder derivative lawsuit was filed following Hurd's departure. The suit seeks unspecified damages and changes to HP's corporate governance. It claims that HP lost "significant credibility" due to the controversy and a loss of $9 billion in market capitalization when shares began trading the Monday after Hurd's resignation, and that his severance package could have been significantly smaller if HP's board fired him for cause. The suit was filed on behalf of shareholders by Brockton Contributory Retirement System against Hurd, and HP's board members.

 That's not all. The company settled a lawsuit with the California attorney general in December 2006, over a corporate spying scandal. The scandal broke when HP acknowledged in a SEC filing that investigators probing internal HP leaks to the media had gained access to board members' personal phone records by impersonating the board members, a practice known as "pretexting." HP's investigators also conducted physical and electronic surveillance of board members and reporters. The company tried to justify its actions by claiming that sensitive information had been leaked to the public. As for Hurd, he was named in a lawsuit brought by investors claiming the company's directors sold $38 million in stock shortly before publicly acknowledging an internal probe into board room leaks. Oh, by the way, Hurd left HP with a $28 million severance package and became the co-president of Oracle in September 2010.