Government Contracts and Conflicts of Interest Boeing Co. Government Contracts and Conflicts of Interest By McLaws, Fors, Hawkins & Gonzales

Current Situation Air Force official Darleen Druyun reviewed a $21 billion proposal for the Air Force to lease 100 Boeing 767 air-borne-refueling tankers. During that time, Boeing CFO Mike Sears offered Druyun a job at Boeing. Sears’ actions violated Boeing hiring policies and elicited scandal at Boeing once again. The Board of Directors must now decide whether to fire CFO, Mike Sears and Vice President of Missile Defense Systems, Darleen Druyun

HISTORY AND CULTURE 1916 – William Boeing started Pacific Aero Products Company which became Boeing Airplane Company two years later. Boeing grows through government contracts during WWI and WWII 1960’s - Contributed to Kennedy’s Space Race Major leader in the commercial airline industry.

Employees: the lifeblood of Boeing “To ensure our continued success, we support our most critical resource: the people of Boeing… At Boeing, we inspire and recognize individual talent, provide job security based on performance, and foster a team spirit and the feeling of personal satisfaction that comes from a job well done.” - Frank Shrontz, Boeing CEO in 1986 The Lifelong Learning program gives Boeing employees the opportunity of advanced education and career development.

A Rocky Past: Scandals at Boeing 1985 - Boeing is 1 of 7 contractors accused of misrepresenting $109.8 million dollars in billings to the government. 1997 - Boeing attempted to produce a record number of airplanes and lost control of commercial plants confusing investors misleading shareholders. Boeing dished out $92.5 million to settle claims. 2003 - Lockheed Martin Scandal Current - Boeing knowingly underpaid and denied promotions to female employees resulting in class action suits.

Lockheed Martin Scandal During the EELV Low Cost Concept Validation the Air Force awarded 2, $60 million, 17-month contracts to Lockheed Martin and Boeing. The two Companies competed for: future contracts worth up to $2 billion. contracts of 28 missions, scheduled to occur from 2002 to 2008.

Erskine & Branch Prior to 1996 - Kenneth Branch was a Lockheed Martin engineer working on EELV projects. 1996 - Branch conspired with Boeing engineer Kenneth Erskine, offering to provide Boeing with Lockheed Martin EELV proposal so Boeing could under-bid Lockheed Martin and win contracts. 1997 - Erskine recruited Branch from Lockheed Martin offering a higher salary in return for Lockheed Martin's EELV proposal.

Success & Scandals Oct. 1998 - The Air Force awarded Boeing with 19 of the 28 EELV projects and $1.38 billion. Lockheed Martin was awarded 9 projects and $640 million. Boeing employee revealed information about stolen papers from Lockheed Martin's EELV project. Boeing initiated an internal investigation of the allegations. Aug. 1999 – Branch and Erskine were fired.

Repercussions 2003 - Undersecretary of the Air Force, Peter B. Teets announced Boeing would lose 10 of its schedules launchings with the EELV project. Boeing's total estimated loss of funding from the Air Force was in the ballpark of $1 billion.

Ethics at Boeing Senior management formed Ethical Leadership Group (ELG) to review the company ethics program. ELG found employees felt betrayed by scandal and saw the media coverage as “a kick in the gut.” ELG also found employees believed the company had integrity and pride. ELG suggested changes including increased training, greater monitoring, and more open communication.

Revamping the Ethical Code The 2003 Ethics Challenge reviewed ethical decisions made by employees and attempted to show accountability in a culture of openness. The Boeing Rudman report contained 16 recommendations to improve structural issues, hiring and training, staffing and investigations and internal oversight. Office of Internal Governance is established to report directly to CEO, conduct internal audits and monitor ethics and governance.

Phil M. Condit 1965- Joined Boeing as an aerodynamics engineer on the Supersonic Transport Program. Served in several capacities for 30 years 1997 - Elected to be the Chief Executive Officer and chairman of Boeing. While CEO Boeing became the largest exporter in the United States, with revenues of more than $54 billion. Condit also holds a patent for the design of a flexible airplane wing, known as the Sailwing.

Mike Sears 1997 - Mike Sears joined Boeing during McDonnell Douglas merger bringing over 27 years of experience. Developed and produced the F/A-18E/F Super Hornet program, which is now the U.S. Navy’s front-line strike fighter. 2000 – With no financial training, Sears became Beoing’s chief financial officer and executive vice president.

Darleen Druyun Darleen Druyun was principal deputy assistant secretary for the U.S. Air Force acquisition and management. Jan. 2003 – Joined Boeing to work on the missile defense program. It was believed Druyun’s valuable experience and long history with the Air Force and her passion for the defense program were key factors in her acquiring a position at Boeing.

Conclusion The government is questioning Boeing’s trustworthiness and ethical practices. The Pentagon Inspector General's Office is investigating communications between Druyun and Boeing surrounding the tanker deal. The Board has unanimously voted to fire Sears and Druyun. Condit must announce the resolution to the unforgiving public. To preserve Boeing's future, Condit must take unprecedented measures to regain stakeholder trust.

Discussion Questions Is a company the size of Boeing held to higher standards? How is this important to public relations practices? What sort of effects do these events have on Boeing now that it has changed its emphasis from commercial to government projects? Who are the key constituents that should be addressed in this issue? What strategies should be used to reach these constituents?

Discussion Questions How will the scandal affect the company's ethical code and practices? If you were Phil Condit, how would you begin to approach this situation? What stakeholder relationships were most affected after the Lockheed Martin scandal? How will you handle repairing these damaged relationships once again?