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In 2003, he resigned both posts as news of the twin scandals emerged. The Air Force froze the contract that Druyun had negotiated, precipitating Condit's resignation and retirement.
Condit had joined Boeing in 1965 as an engineer and moved into management in 1973, working on marketing the 727. He completed an MBA at Sloan in 1975 and returned to Boeing, progressing rapidly up the ranks. By 1983, he became VP and General Manager of the 757 division before moving on to other VP posts. In 1996, he moved from President to CEO and a year later was named Chairman.
There is little to indicate that Condit himself was a significant contributor to the governance problems at Boeing. Although he was an engineer by training, he spent much of his time at Boeing in marketing. The hiring manager, Bill Erskine, who had hired Ken Branch in the first place, had just completed ethics training. However, the subsequent denial of the scope of the problem, even at the highest legal levels of Boeing, indicates that the corporate culture did not value ethics at this time, at least not as much as it valued the rocket contract. Condit's immediate resignation may be taken as a sign that he realized he had failed to preserve Boeing's ethical standards, and did not have the degree of control over the company that he thought he had. However, some of the evidence that turned up during the Druyun investigation indicates that Mark Sears' actions where known in other parts of the executive suite. Though it cannot be concluded definitively, it can be inferred that the lack of attention to ethical issues was at least tacitly accepted by Condit.
Compounding this issue is the fact that Condit came to the CEO position when Boeing was making its big push back into the military business. Thus, he may have staked his personal future and reputation with the company on the rocket contract and therefore been willing to overlook the espionage committed by Ken Branch.
Another powerful board member at the time was Harry Stonecipher. He was President and CEO of McDonnell Douglas prior to its acquisition by Boeing. After the acquisition, he remained head of the McDonnell Douglas business, became COO of Boeing and was Vice Chairman of the Board. Stonecipher had a long relationship with the Department of Defense, such that he was hired by Sundstrand, another aerospace firm. His main role there was to repair the relationship between that company and the DoD (Boeing, 2009).
Stonecipher's functional roles put him in charge of many human resources-related tasks, as well as building relationships between the company's myriad stakeholders. As such, Stonecipher was in position to strongly influence governance issues with respect to hiring, in particular with respect to ex-Lockheed staffers like Ken Branch. Moreover, Stonecipher was in charge of McDonnell-Douglas, the firm at the center of the rocket competition. During this competition, Druyun apparently gave Stonecipher, illegally, confidential information regarding Lockheed's bid (Bowermaster, 2005).
Stonecipher replaced Condit as CEO, with a stated mandate to clean up Boeing's governance issues. Yet there is a strong case to be made that Stonecipher had more at take personally in the rocket contract, a stronger relationship with Druyun, and more direct involvement in Boeing's hiring practices through his background in human resources than did Condit. Ultimately, Stonecipher's tenure lasted only a couple of years, before he was forced to resign as the result of a sex scandal.
As of 2002, Boeing had already met most of the requirements of the newly enacted Sarbanes-Oxley. These included having independent, non-employee board members; having a written charter for key board committees and that key board committees are comprised of independent directors (Boeing 2002 Annual Report). Some of these included John E. Bryson, who was a Chairman of the Board. He served on Boeing's Board since 1995 and was on the Compensation, Governance and Nominating Committee. Bryson was President of Edison International, the public utility holding company. Bryson, a lawyer and former environmental activist, Bryson was seemingly unaware of the issues facing Boeing.
The Compensation, Governance and Nominating Committee was entirely comprised of non-employee directors, including Kenneth Duberstein (Chairman of the Duberstein Group, a lobbying firm), Paul Gray (an engineering professor at MIT) and John F. McDonnell (retired, McDonnell-Douglas). The chairman of the committee was Lewis Platt, then President and CEO of Hewlett-Packard. Of these, John F. McDonnell cannot be considered truly independent, as the son of the founder of McDonnell Aircraft Corporation. Duberstein's independence from military work is questionable, as a former Chief of Staff to Ronald Reagan. Only Gray and Platt can reasonably be assumed to have independence on this committee.
Other board members included W. James McNerney (CEO of 3M), Rozanne Ridgeway (former assistant Secretary of State), John Shalikashvili (former Chairman of the Joint Chiefs of Staff) and John Biggs (former CEO of Teachers Insurance and Annuity Association). This high-powered board contains many individuals of strong integrity. Few, however, have any specific knowledge of or skill with respect to governance issues. They appear selected mainly for strategic reasons, evidenced by the number of senior government officials on the board. Overall, the board's composition is not conducive to strict governance.
Corporate Governance Analysis
The presence of a pair of directors lacking independence on the governance committee is a red flag. John F. McDonnell in particular could have had strong motivations to overlook issues pertaining to the McDonnell-Douglas rocket bid. As well, it is conceivable that impropriety with respect to negotiations with the Air Force could have been overlooked by the former government officials on the board. It is worth noting, however, that the Druyun situation occurred without the knowledge of seemingly anybody within the Air Force's purchasing department, including her boss. Therefore it is conceivable that the specific actions that led to Boeing's governance problems were entirely unknown to board members. However, the culture that permeated the company stemmed from the top, and the two top executives in Condit and Stonecipher were not only on the board, but were in a position to know of both of the ethical situations unfolding.
The first response from Boeing with respect to the twin crises was to fire Mark Sears. This was followed by the resignation of Condit. However, the situation was not resolved at that point, for two reasons. One was that the company replaced Condit with Stonecipher, a man who if anything had greater influence over the hiring of ex-Lockheed employees and greater personal stake in the success of the rocket bid. That the board hired Stonecipher could be considered evidence that board members did not grasp the scope of the problem at Boeing.
The scope of the problem was revealed over the coming couple of years. Both Mark Sears and Darleen Druyun were convicted and sentenced for their roles in bilking taxpayers our of billions of dollars in defense contracts in exchange for Boeing's hiring of Druyun, her daughter and her son-in-law. In response to a racketeering lawsuit filed in 2003 by Lockheed Martin, Boeing was forced to investigate the espionage issue further, culminating in the finding of thousands of more pages than originally known. Stonecipher was forced out as the result of a sex scandal.
Stonecipher was replaced by W. James McNerney, the former CEO of 3M who had sat on Boeing's board since 2001 and was a member of the audit and finance committee in 2002. Whereas Boeing completely dropped the ball in hiring Stonecipher to replace Condit, they appeared to do better with McNerney. He began his tenure by launching a series of investigations, both with respect to the specific incidents that had brought the troubles to the company, and with respect to Boeing's governance practices overall.
In 2006, McNerney noted that the reviews revealed that the ethical breaches were isolated incidents, rather than systemic failures. However, he also noted that the corporate culture had led some in the company to "look the other way" with respect to the breaches. Some of the considerations that went into this were cited as wanting to win a contract, fearing retaliation, not wanting to "rock the boat" or lacking courage to speak up in Boeing's command and control culture (Bigelow, 2006).
Under McNerney Boeing created a new office of internal governance. The objective of this office is to create data-mining techniques that can correlate information gathered from a number of different sources. This would allow information from different departments to be put together, revealing potential ethical lapses. McNerney also recognized that the culture is driven from the top, thereby taking personal responsibility, something that his predecessors did not do.
As most of the directors had their terms due within a couple of years of 2002, Boeing was able to turn over its board significantly. Condit and Stonecipher were long gone by 2006, along with Shalikashvili, Platt and Gray. This overhaul removed the weakest link in terms of governance issues (Gray), Shalikashvili's strong military connections, and…[continue]
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