Boeing chairman and CEO James McNerney apologized Tuesday for a series of scandals that forced out two of his predecessors and led the company to pay a record $615 million settlement to the Justice Department.
Appearing at a Senate hearing, McNerney said Boeing takes “full responsibility for the wrongful acts of the former employees who brought dishonor on a great company and caused harm to the U.S. government and its taxpayers.”
McNerney called the June 30 settlement — which ended a three-year federal investigation into the aerospace giant’s defense contracting practices — “tough but fair.”
Coupled with the loss of $1 billion worth of rocket launch contracts taken away by the Air Force, and the scandal’s toll on Boeing’s reputation, “the settlement serves as a stark reminder of the direct impact that unethical conduct can have on our bottom line,” McNerney said.
McNerney, who took over as CEO of Chicago-based Boeing in July 2005, won praise from members of the Senate Armed Services Committee for deciding not to seek a tax write-off worth as much as $200 million from the Justice Department settlement. Senators from both parties had worried that Boeing would seek the tax deduction, thereby diluting the settlement’s impact.
McNerney also recited a list of actions the company has taken to restore its reputation, including a rigorous ethics code and a message that ethics will be woven “into the fabric” at all levels of the company, which employs more than 155,000 people worldwide.
Boeing has increased ethics training and now requires employees to sign a code of conduct and participate in an annual “ethics recommitment” session, McNerney said.
Sen. John Warner, R-Va., the panel’s chairman, praised McNerney’s leadership and called the decision to forego the tax break “an important first step on the path to redemption. Boeing took the long-term approach and made a sound decision.”
Sen. John McCain, R-Ariz., also welcomed the decision.
“The fact is that Boeing did not have to make the decision it made on deductibility, but it did. And when coupled with the internal changes the company has made, what Boeing did here conveys to me how serious the company is committed to truly reforming and starting fresh,” McCain said.
McNerney, a former CEO of Minnesota-based 3M, replaced Harry Stonecipher, who himself had been brought back from retirement in 2003 to erase the taint from a string of defense scandals.
Federal prosecutors have said that two former Boeing employees improperly obtained thousands of pages of secret documents from rival Lockheed Martin in the late 1990s, using some of them to help win a competition for government rocket-launching business.
Boeing also faced a separate investigation for recruiting Air Force official Darleen Druyun while she was still overseeing contracts involving prospective Boeing deals.
The government stripped Boeing of about $1 billion worth of rocket launches for its improper use of the Lockheed documents. Druyun served nine months in prison for violating federal conflict-of-interest laws, while Michael Sears, Boeing’s former chief financial officer, spent four months in prison for his role in recruiting her.
Former CEO Phil Condit resigned in the wake of the Druyun scandal, while Stonecipher was forced out after admitting improper behavior during an affair with a female company executive.
In the wake of all that, Boeing “had literally sunk to its knees from a lofty height,” Warner said, adding that the company “is now making its way back up.”
McCain sharply criticized the Justice Department for allowing Boeing the possibility of a tax write-off.
“It seems to me if you’re going to punish somebody, they should pay the fine or do the time,” he said.