Boeing Co.Boeing Co.

Government Contracts and Government Contracts and Conflicts of InterestConflicts of Interest

By McLaws, Fors, Hawkins & GonzalesBy McLaws, Fors, Hawkins & Gonzales

Current SituationCurrent Situation• Air Force official Darleen Druyun reviewed a $21 Air Force official Darleen Druyun reviewed a $21

billion proposal for the Air Force to lease 100 billion proposal for the Air Force to lease 100 Boeing 767 air-borne-refueling tankers.Boeing 767 air-borne-refueling tankers.

• During that time, Boeing CFO Mike Sears During that time, Boeing CFO Mike Sears offered Druyun a job at Boeing.offered Druyun a job at Boeing.

• Sears’ actions violated Boeing hiring policies Sears’ actions violated Boeing hiring policies and elicited scandal at Boeing once again. and elicited scandal at Boeing once again.

• The Board of Directors must now decide The Board of Directors must now decide whether to fire CFO, Mike Sears and Vice whether to fire CFO, Mike Sears and Vice President of Missile Defense Systems, Darleen President of Missile Defense Systems, Darleen DruyunDruyun

HISTORY AND CULTUREHISTORY AND CULTURE

• 1916 – William Boeing started Pacific Aero 1916 – William Boeing started Pacific Aero Products Company which became Boeing Products Company which became Boeing Airplane Company two years later. Airplane Company two years later.

• Boeing grows through government contracts Boeing grows through government contracts during WWI and WWIIduring WWI and WWII

• 1960’s - Contributed to Kennedy’s Space Race1960’s - Contributed to Kennedy’s Space Race

• Major leader in the commercial airline industry.Major leader in the commercial airline industry.

Employees:Employees: the lifeblood of Boeingthe lifeblood of Boeing

• ““To ensure our continued success, we support To ensure our continued success, we support our most critical resource: the people of our most critical resource: the people of Boeing… At Boeing, we inspire and recognize Boeing… At Boeing, we inspire and recognize individual talent, provide job security based on individual talent, provide job security based on performance, and foster a team spirit and the performance, and foster a team spirit and the feeling of personal satisfaction that comes from feeling of personal satisfaction that comes from a job well done.”a job well done.”

- Frank Shrontz, Boeing CEO in 1986- Frank Shrontz, Boeing CEO in 1986• The Lifelong Learning program gives Boeing The Lifelong Learning program gives Boeing

employees the opportunity of advanced employees the opportunity of advanced education and career development. education and career development.

A Rocky Past:A Rocky Past: Scandals at Scandals at BoeingBoeing• 1985 - Boeing is 1 of 7 contractors accused 1985 - Boeing is 1 of 7 contractors accused

of misrepresenting $109.8 million dollars in of misrepresenting $109.8 million dollars in billings to the government. billings to the government.

• 1997 - Boeing attempted to produce a record 1997 - Boeing attempted to produce a record number of airplanes and lost control of number of airplanes and lost control of commercial plants confusing investors commercial plants confusing investors misleading shareholders. Boeing dished out misleading shareholders. Boeing dished out $92.5 million to settle claims.$92.5 million to settle claims.

• 2003 - Lockheed Martin Scandal2003 - Lockheed Martin Scandal• Current - Boeing knowingly underpaid and Current - Boeing knowingly underpaid and

denied promotions to female employees denied promotions to female employees resulting in class action suits.resulting in class action suits.

Lockheed Martin ScandalLockheed Martin Scandal

• During the EELV Low Cost Concept During the EELV Low Cost Concept Validation the Air Force awarded 2, $60 Validation the Air Force awarded 2, $60 million, 17-month contracts to Lockheed million, 17-month contracts to Lockheed Martin and Boeing.Martin and Boeing.

• The two Companies competed for:The two Companies competed for:– future contracts worth up to $2 billion.future contracts worth up to $2 billion.– contracts of 28 missions, scheduled to contracts of 28 missions, scheduled to

occur from 2002 to 2008. occur from 2002 to 2008.

Erskine & BranchErskine & Branch• Prior to 1996 - Kenneth Branch was a Lockheed Prior to 1996 - Kenneth Branch was a Lockheed

Martin engineer working on EELV projects. Martin engineer working on EELV projects.

• 1996 - Branch conspired with Boeing engineer 1996 - Branch conspired with Boeing engineer Kenneth Erskine, offering to provide Boeing with Kenneth Erskine, offering to provide Boeing with Lockheed Martin EELV proposal so Boeing could Lockheed Martin EELV proposal so Boeing could under-bid Lockheed Martin and win contracts. under-bid Lockheed Martin and win contracts.

• 1997 - Erskine recruited Branch from Lockheed 1997 - Erskine recruited Branch from Lockheed Martin offering a higher salary in return for Martin offering a higher salary in return for Lockheed Martin's EELV proposal.Lockheed Martin's EELV proposal.

Success & ScandalsSuccess & Scandals• Oct. 1998 - The Air Force awarded Boeing Oct. 1998 - The Air Force awarded Boeing

with 19 of the 28 EELV projects and $1.38 with 19 of the 28 EELV projects and $1.38 billion. billion.

• Lockheed Martin was awarded 9 projects and Lockheed Martin was awarded 9 projects and $640 million.$640 million.

• Boeing employee revealed information about Boeing employee revealed information about stolen papers from Lockheed Martin's EELV stolen papers from Lockheed Martin's EELV project. project.

• Boeing initiated an internal investigation of Boeing initiated an internal investigation of the allegations. the allegations.

• Aug. 1999 – Branch and Erskine were fired.Aug. 1999 – Branch and Erskine were fired.

RepercussionsRepercussions

• 2003 - Undersecretary of the Air Force, 2003 - Undersecretary of the Air Force, Peter B. Teets announced Boeing would Peter B. Teets announced Boeing would lose 10 of its schedules launchings with lose 10 of its schedules launchings with the EELV project.the EELV project.

• Boeing's total estimated loss of funding Boeing's total estimated loss of funding from the Air Force was in the ballpark of from the Air Force was in the ballpark of $1 billion. $1 billion.

Ethics at BoeingEthics at Boeing

• Senior management formed Ethical Leadership Senior management formed Ethical Leadership Group (ELG) to review the company ethics Group (ELG) to review the company ethics program. program.

• ELG found employees felt betrayed by scandal ELG found employees felt betrayed by scandal and saw the media coverage as “a kick in the and saw the media coverage as “a kick in the gut.” gut.”

• ELG also found employees believed the ELG also found employees believed the company had integrity and pride. company had integrity and pride.

• ELG suggested changes including increased ELG suggested changes including increased training, greater monitoring, and more open training, greater monitoring, and more open communication.communication.

Revamping the Ethical CodeRevamping the Ethical Code

• The 2003 Ethics Challenge reviewed ethical The 2003 Ethics Challenge reviewed ethical decisions made by employees and attempted to decisions made by employees and attempted to show accountability in a culture of openness.show accountability in a culture of openness.

• The Boeing Rudman report contained 16 The Boeing Rudman report contained 16 recommendations to improve structural issues, recommendations to improve structural issues, hiring and training, staffing and investigations hiring and training, staffing and investigations and internal oversight.and internal oversight.

• Office of Internal Governance is established to Office of Internal Governance is established to report directly to CEO, conduct internal audits report directly to CEO, conduct internal audits and monitor ethics and governance. and monitor ethics and governance.

Phil M. ConditPhil M. Condit

• 1965- Joined Boeing as an aerodynamics 1965- Joined Boeing as an aerodynamics engineer on the Supersonic Transport engineer on the Supersonic Transport Program. Program.

• Served in several capacities for 30 yearsServed in several capacities for 30 years• 1997 - Elected to be the Chief Executive Officer and 1997 - Elected to be the Chief Executive Officer and

chairman of Boeing.chairman of Boeing.• While CEO Boeing became the largest exporter in the While CEO Boeing became the largest exporter in the

United States, with revenues of more than $54 billion.United States, with revenues of more than $54 billion.• Condit also holds a patent for the design of a flexible Condit also holds a patent for the design of a flexible

airplane wing, known as the Sailwing.airplane wing, known as the Sailwing.

Mike SearsMike Sears

• 1997 - Mike Sears joined Boeing 1997 - Mike Sears joined Boeing during McDonnell Douglas merger during McDonnell Douglas merger bringing over 27 years of experience.bringing over 27 years of experience.

• Developed and produced the F/A-18E/F Super Developed and produced the F/A-18E/F Super Hornet program, which is now the U.S. Navy’s Hornet program, which is now the U.S. Navy’s front-line strike fighter.front-line strike fighter.

• 2000 – With no financial training, Sears 2000 – With no financial training, Sears became Beoing’s chief financial officer and became Beoing’s chief financial officer and executive vice president.executive vice president.

Darleen DruyunDarleen Druyun

• Darleen Druyun was principal Darleen Druyun was principal deputy assistant secretary for the U.S. deputy assistant secretary for the U.S. Air Force acquisition and management. Air Force acquisition and management.

• Jan. 2003 – Joined Boeing to work on the Jan. 2003 – Joined Boeing to work on the missile defense program. missile defense program.

• It was believed Druyun’s valuable experience It was believed Druyun’s valuable experience and long history with the Air Force and her and long history with the Air Force and her passion for the defense program were key passion for the defense program were key factors in her acquiring a position at Boeing.factors in her acquiring a position at Boeing.

ConclusionConclusion• The government is questioning Boeing’s The government is questioning Boeing’s

trustworthiness and ethical practices.trustworthiness and ethical practices.• The Pentagon Inspector General's Office is The Pentagon Inspector General's Office is

investigating communications between Druyun investigating communications between Druyun and Boeing surrounding the tanker deal. and Boeing surrounding the tanker deal.

• The Board has unanimously voted to fire The Board has unanimously voted to fire Sears and Druyun.Sears and Druyun.

• Condit must announce the resolution to the Condit must announce the resolution to the unforgiving public.unforgiving public.

• To preserve Boeing's future, Condit must take To preserve Boeing's future, Condit must take unprecedented measures to regain unprecedented measures to regain stakeholder trust. stakeholder trust.

Discussion QuestionsDiscussion Questions

1.1.Is a company the size of Boeing held to higher Is a company the size of Boeing held to higher standards? How is this important to public standards? How is this important to public relations practices?relations practices?

2.2.What sort of effects do these events have on What sort of effects do these events have on Boeing now that it has changed its emphasis from Boeing now that it has changed its emphasis from commercial to government projects? commercial to government projects?

3.3.Who are the key constituents that should be Who are the key constituents that should be addressed in this issue? What strategies should addressed in this issue? What strategies should be used to reach these constituents?be used to reach these constituents?

Discussion QuestionsDiscussion Questions

4.4. How will the scandal affect the company's How will the scandal affect the company's ethical code and practices? ethical code and practices?

5.5. If you were Phil Condit, how would you begin If you were Phil Condit, how would you begin to approach this situation? to approach this situation?

6.6. What stakeholder relationships were most What stakeholder relationships were most affected after the Lockheed Martin scandal? affected after the Lockheed Martin scandal? How will you handle repairing these damaged How will you handle repairing these damaged relationships once again? relationships once again?