Outside view: Costly ethical lapses
The following editorial appeared in the Chicago Tribune last Thursday:
Boeing Chairman and CEO James McNerney gave a speech last month about how important ethical behavior is to the bottom line. McNerney said that “pockets” had operated within the company with the attitude that they had to “win at any cost.” Given the turbulent last three years at the nation’s second largest military contractor, Boeing could give an entire tutorial on this topic. And now Boeing can calculate just how high is the cost of doing corrupt business:
“Boeing has tentatively agreed to pay $615 million to the government to settle two federal criminal investigations.
“It lost $1 billion worth of government rocket-launch contracts when it was banned from military bidding for a year.
“Boeing’s former chief financial officer, Michael Sears, was sentenced to four months in prison for violating federal conflict-of- interest law.
“Air Force procurement officer Darleen Druyun, who negotiated a job at Boeing while still working for the government, was sentenced to nine months in prison for violating federal law.
“Former CEO Phil Condit resigned amid the company’s ethics scandals.
Yes, for Boeing, the cost has been appropriately high. The $615 million penalty alone equals nearly a quarter of its net profits in 2005. The agreement with the federal government will resolve probes into Boeing’s stealing of a competitor’s rocket program secrets and the hiring of Druyun while she was in a position to help Boeing get a lucrative Air Force air tanker deal.
The company does catch a couple of breaks. The settlement will allow Boeing to avoid criminal charges, a critical detail for a military contractor doing business with the government. The company won’t have to formally admit wrongdoing, although it must take responsibility for what its employees did. If the result is a company scared straight, it’s all to the good. Boeing will be on a kind of probation for the next two years. If there are any ethical slip-ups, criminal charges will be back in play. This threat of deferred prosecution has gotten the desired results – that is, a change in behavior – in other high-profile corporate cases.
Boeing won’t be branded a felon. The goals in a case like this should be to prosecute the guilty individuals and make sure the company pays a stiff price so its behavior changes – not to kill the company and penalize thousands of innocent employees. Those goals have been accomplished.
Boeing’s culture, McNerney said in the speech to the Conference Board, enabled the unethical behavior. “Too many people who thought something ‘didn’t feel right’ failed to raise a red flag. … They wanted to win a contract, they feared retaliation, they just didn’t want to rock the boat, or they lacked the courage to speak up in a command-and-control culture.”
The new leadership vows that those days are over at Boeing, a company that learned winning at any cost can carry a very high price.