Boeing Fires CEO for Affair With Exec

Boeing Co. CEO Harry Stonecipher, brought back from retirement 15 months ago to boost the aerospace manufacturer's tainted image, has been forced out because of a new ethics scandal involving an affair he had this year with a female company executive.

In a stunning announcement that left the exact circumstances behind the ouster unclear, Boeing said Monday the 68-year-old president and chief executive officer had resigned at the board's request a day earlier for improper behavior while carrying out the consensual relationship.

Chairman Lew Platt said the affair by itself did not violate the code of business conduct at the company, where a string of defense scandals has raised questions about the way Boeing obtains its lucrative contracts. But an internal investigation that started because of an employee's complaint discovered "some issues of poor judgment" involving Stonecipher, who is married.

Platt refused repeated requests to be more specific and did not identify the female executive, who he said remains with Boeing.

"The board concluded that the facts reflected poorly on Harry's judgment and would impair his ability to lead the company," he said.

Attempts to reach Stonecipher were unsuccessful. A woman who answered the telephone at his Florida residence said he was declining comment. She declined to identify herself. The Wall Street Journal reported on its Web site late Monday that Stonecipher said he made no effort to conceal the affair.

"We set -- hell, I set -- a higher standard here," he told the newspaper. "I violated my own standards. I used poor judgment."

Chief financial officer James Bell, 56, will serve as acting CEO until a successor is found but is not a candidate for the permanent job, the company said. Analysts named Boeing executives Alan Mulally and Jim Albaugh as possible choices, along with 3M Co. CEO James McNerney Jr., who is a Boeing board member. Mulally heads Boeing's Seattle-based commercial airplane business, and Albaugh heads its more than $30 billion-a-year defense business.

Boeing insisted the move has nothing to do with its operational performance or financial condition. Bell even praised "Harry's forceful leadership" as leaving the company in strong shape.

Bell, a 32-year veteran of the company who has served as a member of the company's executive council since November 2003, will continue to oversee the company's financial matters.

Wall Street took the news in stride. Boeing shares, which had been trading at 3 1/2-year highs, dropped 8 cents to close at $58.30 on the New York Stock Exchange. They fell another 19 cents to $58.11 in after-hours trading.

"Boeing's primary customers, the airlines and the Pentagon, are still going to keep on buying Boeing's airliners and weapon systems based on performance and price, not on palace intrigues," said Robert Friedman, senior aerospace defense analyst for Standard and Poor's.

Nevertheless, the emergence of another ethical flap is an embarrassing jolt to a company that had been trying to put two years of scandal behind it.

Stonecipher's predecessor, Phil Condit, resigned Dec. 1, 2003, as a result of the defense contracting controversies that ultimately sent two Boeing executives -- ex-Air Force procurement official Darleen Druyun and chief financial officer Mike Sears -- to prison.

Morningstar analyst Chris Lozier said in a note to investors that "the board has done the right thing inasmuch as the firm still needs a moral rudder to return it to its storied reputation."

Paul Nisbet of JSA Research took the opposing view. "It's a board that's become overly sensitized by all the negative publicity about Boeing employees and their ethics, and they reacted more strongly than I think was appropriate," he said.

Platt said on a conference call with analysts and reporters that Boeing executives learned of the affair Feb. 25 after a worker saw correspondence between the two. He said the company's investigation found that some allegations made by that employee were untrue, such as claims that Stonecipher had influenced the woman's career or salary.

The tip to the board included part of a "very graphic" e-mail Stonecipher had written the woman, the Journal reported, citing people familiar with the board's discussions.

However, Platt said, Stonecipher acknowledged the affair and the company concluded that his behavior violated a code which states that Boeing employees will not engage in conduct or activity that might raise questions about its honesty, impartiality or integrity.

"We think Harry is entitled to some privacy concerning the details of this relationship," Platt said, declining to elaborate.

Stonecipher also was dismissed from Boeing's board, which he had been a member of since joining the company from McDonnell Douglas when the two companies merged in 1997.

Rather than fire him outright, however, the company allowed him to resign, thus making him eligible for what Platt called a "standard retirement package that any other employee would get." The company said it will release details later.

Before coming out of retirement to take the top post, Stonecipher received $638,000 in retiree and pension benefits in 2003 -- an amount that would increase with his CEO stint. His hiring agreement called for base pay of $1.5 million and incentives of about $1.8 million in 2004. Exact totals will be disclosed when the company files its annual proxy statement later this month.

The tough-talking son of a Tennessee coal miner, Stonecipher had been credited with helping Boeing to clean up its ethical behavior and with improving its sullied reputation in Washington. The company's stock surged 52 percent during his tenure.

Stonecipher failed, however, to win back the tainted $23 billion air-refueling tanker contract that the Pentagon pulled from Boeing because of conflict-of-interest violations involving Druyun and Sears.

From the Free Republic post:

Pentagon's 'Dragon lady' But now sentenced to prison for favouring Boeing over Lockheed
NYTimes via Electric New Paper | 11OCT04 | New York Times

Posted on 10/10/2004 1:09:16 PM PDT by familyop

She favours Boeing on Air Force contracts for hiring daughter and daughter's boyfriend and, later, to protect daughter, who got a poor performance review
While overseeing contracts, she meet Boeing secretly for $422,000 job there

HE had long insisted that her work decisions were strictly professional.

Then, she failed a lie-detector test.

Finally, Darleen Druyun, the No 2 weapons buyer for the US Air Force, admitted that her weapons-buying decisions were influenced by a desire to curry Boeing's favour for herself and her family.

The career of Druyun, once the most powerful woman in the Air Force, is over.

Last week, she was sentenced to nine months in prison, for having steered billions of dollars in air force contracts for four critical weapons systems to Boeing and for having overpaid the company.

In 2001, when the Lockheed Corp lost a US$4 billion ($6.7b) contract to Boeing to upgrade the electronic controls of the C-130 transport plane - a plane that Lockheed itself had designed and built for the Pentagon since the 1950s - military contractors were stunned.

HARSH BLOW

The person handing Lockheed that harsh blow was Druyun, who had the authority to pick and choose among bids for multi-billion-dollar military contracts.

So strong was Druyun's reputation for morally correct behaviour that no-one questioned her decision.

Today, Lockheed is once again in shock. It turns out that it was competing in a rigged game - one in which Druyun now says she favoured Boeing out of gratitude for its hiring of her daughter and her daughter's boyfriend.

Last year, Druyun had also left her civilian position in the Pentagon to take a job at Boeing.

Druyun's downfall has wide consequences for the US$140 billion Pentagon contracting industry, and its political ramifications lead all the way to the White House, where three top administration officials are under investigation.

In addition, Druyun's actions are now the subject of potential lawsuits and a possible reopening of many of Boeing's contracts.

Analysts predict that Boeing could be subject to an outside monitor and forced to pay substantial fines.

The full extent of Druyun's pro-Boeing bias came as a surprise at her sentencing hearing in court last week.

Previously, Druyun's only known misdeed was that she had negotiated a US$250,000 job at Boeing while overseeing Boeing Air Force contracts.

Court papers now show that Druyun, while still at the Pentagon, met in secret with Boeing executives to protect her daughter, a Boeing employee who had received a poor performance review.

After that revelation, Boeing's former chief financial officer, Mr Michael Sears, who negotiated Druyun's employment contract, was fired.

In her three-decade career, Druyun's reputation for toughness as she rose in the male-dominated Pentagon was so strong that she was nicknamed the 'Dragon Lady'.

Many recounted how generals quivered under her attacks. - New York Times.

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