Boeing Co.
Government Contracts and
Conflicts of Interest
By McLaws, Fors, Hawkins & Gonzales
Current Situation
• Air Force official Darleen Druyun reviewed a $21
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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
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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
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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
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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
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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
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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
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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
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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
1.Is a company the size of Boeing held to
higher standards? How is this important to
public relations practices?
2.What sort of effects do these events have on
Boeing now that it has changed its emphasis
from commercial to government projects?
3.Who are the key constituents that should be
addressed in this issue? What strategies
should be used to reach these constituents?
Discussion Questions
4. How will the scandal affect the company's
ethical code and practices?
5. If you were Phil Condit, how would you
begin to approach this situation?
6. What stakeholder relationships were most
affected after the Lockheed Martin scandal?
How will you handle repairing these
damaged relationships once again?