Leakers, Plumbers, and Good Governance

Every bank, large and small, has had some experience with information leaks. Leaking information to the media in an unauthorized manner has been a matter of concern since the printing press was invented and ever after. Remember former President Richard Nixonu00e2u20acu2122s imaginatively named u00e2u20acu0153plumbers,u00e2u20ac a task force created to unearth the guilty leakers in the Watergate affair?

The recent Hewlett-Packard leaking event received an extraordinary amount of attention from the press. Not because board member George A. Keyworth II was identified as guilty of leaking, but rather because of the method used to track him down.

While the methods used were unfortunate, the real news became the uncovering and accosting of a leaker. Nearly always, the search for a leaker is unsuccessful. Thus, the really newsworthy event was that Mr. Keyworth was publicly identified through Hewlett-Packardu00e2u20acu2122s u00e2u20acu0153plumbingu00e2u20ac effort.

The method used to identify him has been accused of being inappropriate, or even more likely, allege someu00e2u20ac”illegal. However, the overriding issue for directors is the damage that board member u00e2u20acu0153leakersu00e2u20ac can do to good corporate governance.

As Hewlett-Packardu00e2u20acu2122s former Chairman Patricia Dunn testified, such leaks destroy the boardu00e2u20acu2122s ability to perform its duties appropriately. An independent, responsible board of directors, whose ethical behavior is under close supervision, is an essential requirement for our form of corporate organization.

The Sarbanes-Oxley hearings made clear that a lack of ethical and independent governance on the part of corporate boards was one of the principal weaknesses that resulted in WorldCom, Enron, etc. u00e2u20acu0153Higher standards,u00e2u20ac as Bank of America advertises, were notably absent.

As one who has served on many corporate boards in my lifetime, as well as on the White House staff (under the late former President Gerald Ford), in my experience, trying to identify leakers requires more time and creates more disruption and harm than any other corporate special activity.

We can all understand why the media does not view leakers with alarm. The Wall Street Journal editorialized that u00e2u20acu0153media relations, leaks included, are a big part of an executiveu00e2u20acu2122s job.u00e2u20ac Given that view, we cannot expect much sympathy from the crusading press on this issue.

I believe most leaks are designed to try to influence internal decisions on contested issues. They are also often meant to curry favor from the press and maintain an avenue to the Fourth Estate. (We used to watch for articles that referred to u00e2u20acu0153the capable and effective leadership of Mr. Jonesu00e2u20ac as a sure clue leading to Mr. Jones as the leak.)

Congress could pass a law that makes leaking illegal or gives the SEC the right to investigate and take civil action. But after Sarbanes-Oxley, we have enough regulation to deal with, so letu00e2u20acu2122s hope that doesnu00e2u20acu2122t happen.

My suggestion on how corporations might handle this area would be to create a new best practice that boards would voluntarily put in place themselves. Under this scenario, as a condition of joining a board, each director would agree to an u00e2u20acu0153anti-leakingu00e2u20ac policy. Board members would also agree that, should the boardu00e2u20acu2122s audit committee deem it necessary to examine a directoru00e2u20acu2122s phone logs and e-mails for a specific period, the director would provide the material for examination by outside counsel. If the director refused the request, then, by previous agreement, he or she would be required to resign from the board.

If this provision were a standard good governance best practice, it would fix a lot of leaks without the need for investigations by private detectives.

Of course, some directors might decline to serve on boards with this procedure in place. If so, my guess is that the loss to our economic system would be minimal, and the benefits of maintaining the integrity and honor of the board would far outweigh it.