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Ouster returns Boeing to turmoil

Boeing’s stunning announcement that chief executive Harry Stonecipher was forced to resign throws the company back into disarray after a year in which it has clawed back from the worst scandals in its history.
Boeing Holds Annual Shareholders Meeting
Boeing chief Harry Stonecipher was forced out after 15 months on the job.Scott Olson / Getty Images file
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Boeing Co.’s stunning announcement that chief executive Harry Stonecipher was forced to resign over an affair with an employee throws the company back into disarray after a year in which it gradually has clawed back from the worst scandals in its history.

Shareholders, employees and customers of the company can only hope that by taking quick action against Stonecipher for a relatively modest infraction, the company at last can begin to put its problems behind it.

The decision by Boeing’s board Sunday came just two days after the Air Force lifted a ban that had cost the company $1 billion in military business.  The ban was the longest ever against a major Pentagon contractor, imposed after Boeing was caught with thousands of sensitive documents belonging to rival Lockheed Martin.

Stonecipher had come out of retirement in late 2003 to take over Boeing operations after previous chief executive Phil Condit was forced out over another scandal in the company’s defense unit. That scandal ended up sending two people to prison including former chief financial officer Michael Sears, who admitted illegally trying to recruit Air Force procurement officer Darleen Druyun while she was still overseeing Pentagon defense contracts.

Ironically Stonecipher was credited with helping to get the defense unit back on its feet and with turning around the struggling commercial airplane division, which after a long slide finally was surpassed in both orders and sales by European rival Airbus Industrie.

In a conference call with Boeing executives, Wall Street analysts expressed concern that Stonecipher’s departure would leave a hole in the company’s commercial airplane marketing, which had been a major focus for the 68-year-old chief executive.

“He did show some leadership there,” said Cai Von Rumohr, an analyst with S.G. Cowen & Co. “They had been losing more market share then they should have.”

In December Stonecipher replaced the head of the commercial airplane sales team, and Stonecipher himself was known to lobby key customers to close deals. Already this year Boeing has announced firm orders for 121 commercial jets, compared with 272 for all of 2004.

Interim chief executive James Bell, who has said he is not a candidate for the permanent position, is unlikely to carry as much weight in those sales calls, although board Chairman Lewis Platt is expected to step up and take more responsibility in that area, Von Rumohr said.

The tough-talking Stonecipher had a history of rocky relations with rank-and-file employees, and many of them reportedly were happy to see him go. Stonecipher joined the company through the giant 1997 merger with McDonnell Douglas, and he was associated with the waves of layoffs that followed, shrinking the company from a peak of 238,000 employees to its current 160,000.

But Charles Bofferding, executive director of Boeing’s second-biggest union, gave Stonecipher credit for approving an innovative incentive plan that resolved a thorny contract issue with engineers based in Wichita, Kan.

“As his tenure progressed he did work with us,” Bofferding said, adding that Stonecipher turned out to be easier to work with as chief executive than he was in his previous stint with the company, when he was president under Condit.

Some analysts expressed surprise that Stonecipher lost his job over a largely personal infraction. There was no evidence that Stonecipher influenced the pay or career of the executive with whom he began an extramarital affair in January, company officials said.

Affairs between company executives are not specifically forbidden by Boeing’s code of conduct. But Platt said in the conference call that Stonecipher violated a provision in the code of conduct that says, “Employees will not engage in conduct or activity that may raise questions as to the company’s honesty, impartiality, reputation or otherwise cause embarrassment to the company.”

Laura Hartman, a professor of business ethics at DePaul University in Boeing’s hometown of Chicago, said Boeing’s board had to hold Stonecipher to a higher standard specifically because he was brought in to clean up the earlier scandals.

“They hired this guy to be Mr. Clean,” she said. “He’s not supposed to have value problems.”

While an extramarital affair might not be a firing offense for every corporate executive, in Stonecipher’s case it reflected poorly on his ability to represent the company as a paragon of virtue and honesty, said Hartman.

Platt, the Boeing chairman, agreed, noting that Stonecipher was the “strongest supporter” of the company’s code of ethics.

“He drew a very bright line for all employees, let everyone know that even minor violations would not be tolerated,” Platt said. “When one does that, you have to live by that standard.”