Another Casualty In The Ongoing Boeing Morality Play

by ANN Senior Correspondent Kevin R.C. "Hognose" O'Brien

A bad run of publicity for Boeing executives has just gotten worse with Chief Executive Harry Stonecipher being asked for, and delivering, his resignation due to "a personal relationship between Stonecipher and a female executive of the company." James A. Bell, CFO, has stepped in as interim CEO. The board has stated that Bell, a three-decade Boeing veteran, is not a candidate for a permanent CEO, and a search has begun.

Stonecipher has also resigned from the Boeing board. Board chairman Lew Platt is expected to take a larger role in day-to-day operations. "The board concluded that the facts reflected poorly on Harry's judgment and would impair his ability to lead the company," Platt was quoted as saying. Stonecipher, who came to Boeing from McDonnell Douglas in 1997 and headed the company until 2002, was called back to the top job in 2003, ironically enough, to restore the appearance of integrity to the company after the 767 tanker scandal which ultimately landed contracting VP Darleen Druyun and CFO Mike Sears in Federal prison and forced CEO Phil Condit to resign, which followed on the heels of the purloined Lockheed Martin satellite-launch bid documents scandal. Now we have a corporate personal-appetites-governance scandal.

Ironically, one of Stonecipher's last public appearances as Boeing CEO was at the rollout of the first 767 Tanker on Feb. 24th in Wichita. That machine and its three sisters are destined for the Italian air force; Boeing has also promoted the machine [see file art] to other allies such as Japan. The implacable opposition of Sen. John McCain makes it unlikely that the USAF will acquire such planes anytime soon; Washington's own senators are ineffective on this issue, being generally opposed to the military and to defense spending (the airframes are built in Washington and only completed in Wichita).

Market analysts were bullish on Boeing under Stonecipher, whom they credit with Boeing's increased visibility and sales of late. Boeing shares have been trading at 52-week highs; after this announcement, shares lost almost $1 in pre-opening trading, but within an hour of market opening most of that had been recovered; the market seems equally bullish on Boeing without Stonecipher.

Stonecipher was not well liked by Boeing employees, and news stories often called him, in quotes, "the most hated man at Boeing." His 1997-2002 regime saw on-again, off-again jetliner projects (at the time, Stonecipher opposed both the Sonic Cruiser and the 7E7/787), the quixotic distraction of the headquarters move to Chicago, mismanagement of labor that led to a militant strike by mild, pocket-protector-wearing engineers, and massive losses and layoffs. It was during that period that the groundwork was laid for the dual problems that would bedevil Condit: the dithering product management that allowed Boeing to lose a commanding sales lead to Airbus, and the loose ethics whose repercussions are still echoing.

Boeing responded to the drum fire scandals by adding a Vice President of Ethics, Martha Ries; one of Stonecipher's first acts on returning was to make all 158,000 Boeing employees sign an ethics pledge. But these band-aids seem to have been directed at managing outside-the-firm perception rather than correcting corporate culture.

Workers and retirees did not welcome Stonecipher's 2003 return -- "It looks like the company is coming unglued," retired VP of engineering Bob Withington, one of the designers of the B-52, said at the time. But Stonecipher tried to extend an olive branch, noting that the employees in the commercial airplane branch of the company "had done great things" under Phil Condit. "I'm so proud of what they have accomplished during this sour market," he told a P-I reporter, and sent a message to Boeing's unions, "We're in it together, and ought to be able to succeed together." But he was unable to win the trust of the unions, and contract negotiations are coming in 2005.

One thing that may change with Stonecipher gone is Boeing's corporate relocation to Chicago, which was driven all along, against all business sense, by Stonecipher's personal antipathy to Seattle. As the Seattle P-I's Bill Virgin noted, he left the city fathers convinced that he held "less than favorable view[s] of the Puget Sound region; as one civic leader said recently, 'He hated this place.'"

The Prediction of the Year award goes to analyst Richard Aboulafia, of the Teal Group, who told the King County, WA, Journal on Stonecipher's return in December, 2003, that "if Stonecipher remains more than a year or so, 'he could easily outstay his welcome.'" Stonecipher's run was fifteen months.

During his tenure at McDonnell Douglas, prior to coming to Boeing, Stonecipher cut so many development and manufacturing jobs that the only way out at the end was to sell a crippled company that could no longer design and build modern jets. With Stonecipher's departure from Boeing, the last vestige of Boeing's purchase of McDonnell Douglas, an all-around disaster, is gone. Prior to that, at General Electric, Stonecipher appears to have had some involvement in a scandal involving an offshore captive insurance company, Electric Mutual or EMLICO, which went paws up leaving the public stuck with about a half-billion dollars in GE asbestos liability.

The Boeing press statement, and an internal Boeing email, a portion of which was obtained by Aero-News, pointed out that the executive in question did not report directly to Stonecipher, whose age is variously reported as 68 or 69 and is married with children and grandchildren, and that the relationship was consensual. (OK, so she reported to somebody that reported, ultimately, to Stonecipher. Aero-News notes that Monica Lewinsky didn't report directly to President Clinton either, but for some reason the president chose to have a "personal relationship" with her and not direct-reporter Madeline Albright. Go figure). The relationship appears to have been conducted clandestinely and was exposed to the board by an anonymous tipster.

The female executive, who is reportedly also married (not to Stonecipher, obviously), and decades younger than Stonecipher, was not named. According to Boeing the affair did not affect the career or compensation of the woman, and she, unlike Stonecipher, has not been asked to resign. This is another example of corporate trimming that offsets all the pretense of Ethics Pledges and VP's of Ethics.

James A. Bell is expected to retire at Boeing's mandatory retirement age of 65, which was waived -- twice -- for Stonecipher. Now interim President and CEO as well as CFO, Bell is a lifelong veteran of the aerospace industry, who joined Rockwell fresh from Cal State-LA in 1972 with an accounting degree in hand, and has served Boeing for 32 years. An interesting sidelight in Bell's corporate biography is that he serves on several boards, including one undertaking that may properly represent what he'll have to do as CEO of one of the world's most public companies: the Joffrey Ballet. At least in the short-term, it appears Bell will have to step very, very carefully.

FMI: www.boeing.com