Members of Boeing's board had barely unpacked on the afternoon of Sunday, Feb. 27, when they got the shocking news. They had just flown...
Members of Boeing’s board had barely unpacked on the afternoon of Sunday, Feb. 27, when they got the shocking news.
They had just flown in that day to Huntington Beach in Southern California for one of six semiannual meetings. Their mood was upbeat. The Department of Defense was leaning toward lifting its ban prohibiting Boeing from bidding on rocket-launch contracts. Relationships with icy politicos in Washington, D.C., were thawing.
However, as the group prepared for dinner, they were told of a new crisis. How to handle it temporarily divided the board and roiled the company’s top echelon for eight days, according to people familiar with the events.
Two days earlier, Boeing’s general counsel, chairman Lewis Platt and its vice president of ethics had received written allegations from an employee that Chief Executive Officer Harry Stonecipher, brought out of retirement in December 2003 to clean up Boeing’s tarnished ethical image, had an ethical problem of his own.
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Stonecipher, 68, and married for decades, was having an affair with a female Boeing executive. There also was a claim — since disproved, according to the company — that the affair had enhanced the woman’s career.
Board members were momentarily stunned. As they began talking, a few became angry. Over dinner, said one Boeing official, there was a tough discussion about the crossroads the company now faced.
The directors generally agreed on the need for an internal investigation. Some members suggested that was enough, because Stonecipher’s personal affair did not affect the corporation.
Others warned that news of the affair was sure to leak, and the company’s refurbished credibility in Washington would be shattered.
Besides, the company had publicly enlisted former Sen. Warren Rudman in 2003 to review ethical practices and policies and had pointedly publicized his recommendations. All employees must sign a code of conduct, and some board members were concerned about the workers’ reaction to news of Stonecipher’s behavior.
These members argued for an external investigation as well. Besides the allegation that Stonecipher had helped the female employee’s career, there was concern that Stonecipher might have abused corporate expenses or the company’s private jet.
On Monday, Feb. 28, Stonecipher appeared before the board and candidly discussed the affair. Stonecipher answered questions and agreed to cooperate completely, as did the woman.
The company hired outside counsel at a California firm that specializes in employment law, said a company official who declined to name the firm.
Two days later, Stonecipher flew to Washington, D.C., and met with former Boeing Vice President Stan Ebner, the company’s retired top lobbyist. The two worked the Pentagon and visited several key senators on Capitol Hill, including one of Boeing’s top critics, John McCain, R-Ariz.
Stonecipher also talked with acting Secretary of the Air Force Peter Teets in a social meeting.
Despite the uncertainty of his position, Stonecipher had several items on his agenda, including winding up the Pentagon’s ban on rocket contracts and continuing Boeing’s effort to revive a deal for building Air Force tanker planes.
But he also addressed other, less prominent business, such as the Boeing-led Joint Tactical Radio System; Boeing had received a stop-work order on the Army’s billion-dollar radio-upgrade contract last month.
When Stonecipher told Boeing officials later on Thursday that the end of the Air Force ban was imminent, the board still had not made a decision on his fate.
So when the Air Force announcement came the next day, Boeing officials faced a bizarre “good news, bad news” situation, said one executive. The company reacted to the Air Force news with buoyant statements, watching the stock price reach its highest point in more than three years.
But behind the scenes there was consternation among company executives and board members. Could the company afford another setback to its image? Would Stonecipher resign voluntarily? If not, what would the board do?
By Friday night, the situation still was unresolved. The investigation had cleared Stonecipher of allegations of helping the female employee’s career and abusing company finances, said two Boeing executives.
But board members had been forced to ride out published reports about former CEO Phil Condit’s personal affairs when he resigned in late 2003.
Some of them were surprised and disappointed about Stonecipher’s behavior at a crucial time when he and the company were “under the microscope.” Stonecipher’s relationship had just begun in January, Platt later confirmed.
Board members and executives were on a constant stream of phone calls through Saturday. On Sunday, board members spoke formally, and decided that they had to send a message about Boeing’s image. They agreed to ask for Stonecipher’s resignation.
In a conference call with analysts yesterday, Platt said, “As we explored the circumstances surrounding the relationship, we just found some things that we thought reflected poorly on Harry’s judgment and would impair his ability to lead the company going forward.”
Though Platt said the company wanted to respect Stonecipher’s privacy, the board decided that it would be candid and would not let the situation be a “discovery” that took the company back into the publicity storm of the past two years, they said.
“We had to get out front,” said one official.
“The board is making a very strong statement about ethics here,” said Rep. Norm Dicks, D-Bremerton, one of the company’s strongest advocates on Capitol Hill. “You feel bad for them, and for Harry, but I think the board did what it had to do.”