Hewlett-Packard Co. CEO Mark Hurd abruptly resigned today after the company revealed his secret relationship with a former contractor.  This sent the stock tumbling in afterhours trading.  The company said he falsified expense reports and other financial documents to conceal the relationship and help get the contractor paid for work she didn’t do.

Hurd said it was a “painful decision” to leave but acknowledged there were “instances in which I did not live up to the standards and principles of trust, respect and integrity that I have espoused at HP.”  Hurd will take his standards and integrity with him along with  a $12.2 million severerence payment and nearly 350,000 shares of HP stock worth about $16 million at today’sclosing price.  The company also extended the deadline for exercising options to buy up to 775,000 HP shares.  This  represents the ultimate in irony.

In January of 2006, HP’s board of directors, along with then President Mark Hurd, met to discuss long-term strategies.  A news article leaked about that meeting.  The board chairman, Patricia Dunn, was angered and determined to find out the source of the leak.  The chair of HP’s corporate governance committee, and fellow director, Tom Perkins told Ms. Dunn to simply ask the members of the board of directors who was the source cited in the story and to seek an apology.

Upon learning of Dunn’s plans to go ahead with a plan to apply a process called pre-texting, a process to obtain the private phone records of members of the board via questionable means, Mr. Perkins resigned in protest.  For Dunn, that was not all that bad, as she wanted him off the board anyway.

Ultimately, the source of the leak was found and, under pressure, board member George Keyworth resigned.  However, when news of HP’s tactics became public, a firestorm of activity took place that included SEC filings by HP and an appearance before the US House of Representatives House Energy and Commerce Committee’s subcommittee on investigations.  The subcommittee denounced the methods HP used to find the source of boardroom leaks and expressed alarm over how the company’s leadership could think the practices used in the investigation were ethical.

In the aftershock, additional resignations occurred, including: Patricia Dunn, herself, Senior Council and chief ethics officer, Kevin Hunsaker, General Counsel Ann Baskins, and Anthony Gentilucci, HP’s global security manager.  Additionally, the reputation of the firm as an extremely ethical company has been tainted, perhaps forever.

HP’s President, Mard Hurd, remained but was unable and/or unwilling to explain exactly what happened and what his role was.  It was then announced that Hurd would replace Dunn immediately as chairman of the company.

Business ethics means doing the right thing in a business situation.  However, for many, there exists a concept known as Situational Ethics which is a belief that all truths are relative.  Situational ethics creates a moral environment colored by unlimited shades of gray and implies the notion that one can conquer by genius and strength because there really is no law. 

HP has shown, throughout the decade, a corporate culture steeped in situational ethics, allowing its leadership to wade deeply into the gray areas as long as stock prices continued to grow.  After two high profile ethics lapses, it would be advisable for HP to change course or consider forever marking itself as a case study in poor ethical behavior.