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Executive's Departure Offers Lesson on Handling Sexual Harassment Issues

Like Bill Clinton, Hewlett-Packard's former CEO Mark Hurd "did not have sex with that woman." Whatever he did cost him some of his own money to settle a sexual harassment claim. It led to a derivative suit against him and the HP Board of Directors alleging that his actions, and the way the board handled his "resignation," cost HP and its stockholders $9 billion in market value. And it cost him his job. The events leading to Hurd's recent departure are a trove of "teachable moments" that can be used by in-house counsel in conversations with their clients.

First it could be a conversation-opener between counsel and senior executives on the pitfalls of creating a job category, for employees or "independent contractors," populated with greeters for "high level customers" who would also work at "executive summit events." Should a CEO really think his Board will stand behind him if he's created a job whose occupant is to "greet" high level customers; he selects an attractive blonde to fill it; and her background becomes the talk of the Tabloids?

Second, it could kick off a discussion re-emphasizing the wisdom of not bypassing normal hiring procedures--with their background and reference checks. If such a process had been followed, someone at HP would likely have uncovered the facts that (1) Ms. Fisher's r?sum? included "acting" roles in steamy movies like "Intimate Obsession" and "Night Nurses From New Jersey"; and (2) she was appearing as a contestant on an NBC reality show called "Age of Love," which was supposedly going to find a 40-ish female companion for Australian tennis player Mark Phillipoussis.

There are potential pitfalls in resorting to Google or Bing to do background research on a job applicant or prospective consultant, but here, HP was hiring someone who would be put in close contact with "high level customers" and senior HP executives A simple Internet search should have turned up a hit on Ms. Fisher's background at IMDB, the Internet Movie Database. You would like to think someone in HR would have asked, "Is this really a good idea?" Effective - and lawful - screening of applications (and contractors) really can reduce a company's exposure.

Third, senior executives could stand to be reminded that company policies forbidding harassment or regulating fraternization with subordinates and contractors apply to them too, and they have a lot more to lose. If HP's stock really did drop 13% because of the scandal and Hurd's departure, as the shareholder suit alleges, their equity-based compensation stands to take quite a hit.

Fourth, counsel could use this episode to remind executives and managers of the "old saw" that gained traction in connection with Martha Stewart's troubles: "It's not necessarily the deed but the cover-up that brings you down." Put aside for moment that Ms. Fisher actually did claim she'd been sexually harassed, and Hurd actually did pay her off. Accept Hurd's, and Fisher's, and HP's story that no intimate relationship developed and there was no violation of HP's harassment policy. But look at what HP says happened:

Hurd arranged for Fisher to be paid for work she didn't do. Doesn't that sound like classic conduct on the basis of which you'd advise HR that a discharge was appropriate and, in the absence of disparate treatment, you could easily defend it. Hurd may have a defense to this - sources who support him say it only happened once, when an event was cancelled at the last minute and Fisher's contract called for her to be paid unless she got 30 days advance notice. But if that were really so, the appearance of impropriety seems to have overcome it.

The other thing that HP says brought Hurd down - expense account irregularities - is another topic that bears discussion with managers - including Senior Managers. It's something I dealt with repeatedly when I was an in-house employment counsel. I would see managers at all levels throw their career away over relatively insignificant amounts for which they falsely claimed reimbursement. Don't mess around with your expense submissions! If you're expensing a dinner or an entertainment event and you really went to "Scores, a Gentlemen's Club" because the business prospect insisted, don't try to hide what can later be made to look like bad judgment by claiming on your expenses that you ate at Ruth's Chris. Dishonesty on expense reports - even the fairly venal sin of changing the name of the restaurant - will not be viewed favorably by auditors, let alone outside counsel hired by the Board of Directors to conduct an investigation.

HP also announced that Hurd had committed the slightly more serious expense account sin of claiming he entertained someone who didn't really eat with him. Very Bad Form! In this putative conversation based on the HP incident, in-house counsel could stand to remind their clients that in addition to being the "right" thing to do, it's always safest to be absolutely truthful and accurate about who was being fed or entertained. A lavishly expensive meal for a small number of people will only implicate one's judgment, not their honesty.

Christopher H. Mills

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