The road from hero to villain can be short.  Mark Hurd, the highly successful CEO of the world’s biggest computer manufacturer, was forced to resign earlier this month following an internal investigation of his relationship with a Hewlett-Packard marketing consultant.  According to reports, H-P’s internal investigation found no evidence that Mr. Hurd harassed an actress the company hired to work at corporate marketing events.  It did, however, find that Mr. Hurd had filed inaccurate expense claims relating to meals with the woman, travel and, in one case, fees for a corporate appearance by the actress.

The disputed expenses, which Mr. Hurd claims were mistakes filed by his staff rather than by him personally, amounted to about $20,000 (all of which he paid back)—a trivial amount for a man who in 2008 made $43 million. 

H-P stock dropped significantly following Mr. Hurd’s departure and on Friday, August 13, the first shareholder lawsuit was filed against H-P, alleging that the board of directors breached its fiduciary duties in how it handled Mr. Hurd’s resignation.

The actress, whose credits include bit parts as a barmaid, a housewife and a nurse in assorted B-list movies, retained Gloria Allred, who is best known for representing Nicole Brown Simpson’s family.  The actress’s claims have been resolved “privately.”

Mr. Hurd’s resignation highlights the pivotal role internal investigations play in today’s business climate.  An allegation of wrong-doing prompted an investigation.  The findings of the investigation resulted in the ouster of an acclaimed CEO.  There has now been a “private” resolution of claims by the alleged victim and a very public lawsuit against the company’s board for the way it has handled everything.  Stockholders have lost billions.

Whether an internal corporate investigation involves criminal allegations, civil claims or both, the quality and integrity of the investigation are critical.   Prompt and thorough action is crucial, as it demonstrates the company’s good faith and desire to correct possible mistakes or wrongdoing by employees and, should the company decide to cooperate with the government, often results in lower fines, fewer targeted employees and reduced sentences for those who are targeted. 

While it may be too early to evaluate H-P’s internal investigation process, the investigation itself has been and will be the subject of much scrutiny.  If H-P is to prevail on the claims brought by shareholders last week, it may need to establish that the investigation was handled fairly, effectively and consistent with the board’s obligations to shareholders.

Tags: H-P, Hewlett-Packard, HP, Hurd, internal investigation