* HP General Counsel Mike Holston was hired by Hurd
* Holston shook up HP legal dept after pretexting scandal
* Holston helped oversee probe into “good friend” Hurd
* Case was handled by the book - corp governance experts
By Gabriel Madway and Dan Levine
SAN FRANCISCO, Aug 12 (Reuters) - Hewlett-Packard Co’s (HPQ.N) top lawyer, Mike Holston, came to the company on the wings of a board spying scandal in 2006. He is now at the center of another storm, this time surrounding the ouster of his friend, Chief Executive Mark Hurd.
As HP’s general counsel, Holston’s office helped direct the investigation into a sexual harassment claim against Hurd that was brought to the board’s attention in June this year.
Although the probe, carried out with outside counsel, deemed the sex harassment charge without merit, it nonetheless set the wheels in motion for Hurd’s departure because it found that he had allegedly falsified expense reports to cover a relationship with a female marketing consultant.
Holston became the public face of HP last week when he openly charged his boss with a “disregard for the values of HP of trust, respect, and integrity.”
While Holston did not make a recommendation to the board on Hurd’s future, it must have been hard for the 47-year-old former federal prosecutor to have a hand in toppling the man who hired him. The two have been described as “good friends” by people who know them.
“Mike supported the (board‘s) decision and went out and made some strong statements. He pulled the bandaid off,” said an attorney who knows and has worked with Holston.
“That alone speaks volumes about Mike because it could not have been easy. I know he liked Hurd, so it’s a credit to him to be such a professional in such a lousy situation.”
Holston is widely regarded as a straight shooter who likes to play by the rules. In addition to running HP’s legal department, Holston manages its compliance, ethics and government affairs.
Corporate governance experts said Holston’s handling of the sexual harassment claim went by the book, even as Wall Street analysts and investors still wonder if HP overreacted in forcing out Hurd over inaccurate but modest expense reports.
Benjamin Heineman Jr., a former general counsel at General Electric Co (GE.N), now at Harvard, said reporting false financial data in a public company is unforgivable.
“There’s no balancing test; you’re gone. It doesn’t matter how valuable you are. If you compromise on that, you become enmeshed in hypocrisy,” he said.
On Holton’s actions, Heineman said, “It’s really quite basic. It’s right down the middle of what you have to do.”
Holston was appointed general counsel of HP in 2007, months after heading up an independent probe into the so-called pretexting scandal in 2006. HP had tried to root out media leaks by hiring private investigators to pose as board members and journalists to obtain their phone records.
Holton conducted the investigation while a partner at law firm Morgan Lewis. A native of Philadelphia, he had done outside legal work for HP prior to the spy probe.
Described as an attorney who combines detail savvy with people skills, Holton shook up HP’s legal department after he came aboard, leading to the exit of some longtime attorneys.
“He’s a hard charging guy and wanted to make changes,” said Guy Kelley, an intellectual property lawyer who left HP’s legal department in 2008 after 20 years.
Hurd had played a role in the spy scandal, including approving the sending of e-mails from a fictitious source in an effort to uncover the media leaks. He later apologized for it.
Hurd’s departure from HP came after a unanimous decision from the board to ask for his resignation.
The 10-member board, seven of whom joined after Hurd did in 2005, made their decision roughly two days before his resignation was announced last Friday. The board had received the results of the sexual harassment probe in the prior week.
John Collard, chairman of Strategic Management Partners, a Maryland-based turnaround management and equity advisory firm that specializes in corporate governance, said the general counsel plays an instrumental role in framing the debate in a situation such as Hurd‘s.
“I‘m sure the board moved forward on this with the advice of counsel, not necessarily at the advice, but with the advice,” he said.
HP used an outside law firm, Covington and Burling, to help with its investigation of Hurd. HP also consulted with APCO, a public relations firm. (Reporting by Gabriel Madway and Dan Levine; Editing by Tiffany Wu and Richard Chang)