Boeing is the world’s largest aerospace firm, providing goods and services for military and industry buyers around the world. The company makes jets, helicopters, missiles, satellites, and more, and is the United States’ largest exporter. With 153,000 employees and net earnings exceeding $1. 5 billion in 2005, Boeing is one of the largest corporations in the world. Surely such a well-known and visible firm would not be able to get away with unethical actions. Yet an examination of the last five years reveals a company deeply troubled by immoral and illegal behavior, fostered by a culture that overlooks wrongdoing.
The problems stem from much earlier, but the extent of Boeing’s troubles began to surface in 2002. At that time, Boeing was led by CEO Philip Condit, an engineer with a Ph. D. and 37 years of experience at Boeing. Following its 1997 acquisition of competitor McDonnell Douglas, Boeing experienced problems integrating the two firms’ operations and cultures. A $2. 6 billion loss related to the merger triggered a lawsuit from angry shareholders, who alleged that the firm covered up its true financial condition.
In February 2002, Boeing settled the suit for $92 million but admitted no misconduct.
In 2003, Boeing managers were found to be in possession of documents that were stolen from rival Lockheed Martin. The documents may have given Boeing an advantage in bidding for defense contracts. The Pentagon revoked the resulting order, costing the firm $1 billion in sales, and barred them from bidding on federal contracts for 20 months. Boeing CFO Michael Sears was fired later that same year for illegally hiring an air force officer, Darleen Druyun, who had responsibility for Boeing’s Pentagon contracts.
Druyun purchased $20 billion of aircraft from Boeing just before she left the Pentagon.
Sears and Druyun were later jailed for their roles and the contract was cancelled. Facing a growing crisis, the board of directors forced Condit to resign. His replacement was Harry Stonecipher, the former CEO of McDonnell Douglas, who had stepped aside following the Boeing merger. Stonecipher promised to clean up Boeing. In 2005, the Pentagon cancelled more contracts that were issued by Druyun, worth billions of dollars. Female workers brought a class action sex-discrimination suit, claiming they were underpaid and denied promotion.
The company settled for $73 million but admitted nothing. Stonecipher had an affair with a female subordinate at the company’s annual executive retreat. The relationship was consensual, but Stonecipher was forced to resign for violating the company’s code of conduct, a document he mandated for all employees. Stonecipher’s behavior was “one of the dumbest moments in business,” says Fortune magazine. He was replaced by outsider Jim McNerney, who vowed to clean up Boeing. Sound familiar? McNerney may have a better chance of improving Boeing’s ethics than either of his predecessors did.
For one thing, he is an outsider who isn’t afraid to bring sweeping change. There’s no danger of “business as usual” with someone from outside the firm. Moreover, McNerney’s experience at GE, where he was CEO of their aircraft engine division, and at 3M, where he turned the struggling firm, demonstrates his leadership and ethical character. McNerney is known for his focus on employee development, in contrast to both Condit and Stonecipher, who were more interested in technical capabilities. At the first executive retreat he led, McNerney sounded his warning. I think the culture had morphed in dysfunctional ways,” the CEO stated. “There are elements of our culture that I think we all would like to change. ” He claimed “management had gotten carried away with itself” and executives were “hiding in the bureaucracy. ” Previously, managers ignored others’ mistakes, but McNerney insists on openness and accountability. He also plans to change compensation practices to eliminate illegal financial reporting. Teamwork is another emphasis and McNerney hopes to finally integrate McDonnell Douglas units with their Boeing counterparts.
He says, “[Our problems aren’t] something that happened in a separate part of the company. ” McNerney wants to improve morals and the bottom line at the same time. He believes that improved legal and ethical conduct could increase stock price, boost sales, and improve motivation and morale. For McNerney, the ethical troubles are merely a reflection of more fundamental concerns. He hopes to spark a company-wide examination of Boeing’s fundamental values and reason for being. “The definition of what we are is incomplete,” says McNerney. “What do we do here? Do we all just live in the same building? Or are we going to figure out a way to help make this company greater than the sum of its parts? ”
CASE QUESTIONS 1. Which organizational stakeholders were affected by ethical or unethical behavior at Boeing? Give specific examples. 2. What organizational approach to social responsibility did Boeing appear to use under the leadership of Condit and Stonecipher? How do you think the approach changed under McNerney’s leadership? 3. Are the actions McNerney is proposing likely to improve ethics at Boeing? If yes, explain why. If no, tell what actions McNerney could take that would be effective.