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Boeing fires CEO for affair with executive
Updated: 2005-03-08 09:33

Boeing Co. CEO Harry Stonecipher, brought back from retirement 15 months ago to boost the aerospace manufacturer's tainted image, has been forced out because of a new ethics scandal involving an affair he had this year with a female company executive.

In a stunning announcement that left the exact circumstances behind the ouster unclear, Boeing said Monday the 68-year-old president and chief executive officer had resigned at the board's request a day earlier for improper behavior while carrying out the consensual relationship.

Chief Executive Harry Stonecipher looks on during a news conference in Madrid on February 17, 2005. Boeing Co. fired Stonecipher, saying his affair with a female executive broke company rules and damaged his leadership abilities. Picture taken on February 17, 2005.
Chief Executive Harry Stonecipher looks on during a news conference in Madrid on February 17, 2005. Boeing Co. fired Stonecipher, saying his affair with a female executive broke company rules and damaged his leadership abilities.[Reuters]
Chairman Lew Platt said the affair by itself did not violate the code of business conduct at the company, where a string of defense scandals has raised questions about the way Boeing obtains its lucrative contracts. But an internal investigation that started because of an employee's complaint discovered "some issues of poor judgment" involving Stonecipher, who is married.

Platt refused repeated requests to be more specific and did not identify the female executive, who he said remains with Boeing.

"The board concluded that the facts reflected poorly on Harry's judgment and would impair his ability to lead the company," he said.

Attempts to reach Stonecipher for comment were unsuccessful. His telephone number is unlisted and Boeing spokesman John Dern said the company did not know his whereabouts.

Chief financial officer James Bell, 56, will serve as acting CEO until a successor is found but is not a candidate for the permanent job, the company said. Analysts named Boeing executives Alan Mulally and Jim Albaugh as possible choices, along with 3M Co. CEO James McNerney Jr., who is a Boeing board member. Mulally heads Boeing's Seattle-based commercial airplane business, and Albaugh heads its more than $30 billion-a-year defense business.

Boeing insisted the move has nothing to do with its operational performance or financial condition. Bell even praised "Harry's forceful leadership" as leaving the company in strong shape.

Bell, a 32-year veteran of the company who has served as a member of the company's executive council since November 2003, will continue to oversee the company's financial matters.

Wall Street took the news in stride. Boeing shares, which had been trading at 3 1/2-year highs, dropped 8 cents to close at $58.30 on the New York Stock Exchange. They fell another 19 cents to $58.11 in after-hours trading.

"Boeing's primary customers, the airlines and the Pentagon, are still going to keep on buying Boeing's airliners and weapon systems based on performance and price, not on palace intrigues," said Robert Friedman, senior aerospace defense analyst for Standard and Poor's.

Nevertheless, the emergence of another ethical flap is an embarrassing jolt to a company that had been trying to put two years of scandal behind it.

Stonecipher's predecessor, Phil Condit, resigned Dec. 1, 2003, as a result of the defense contracting controversies that ultimately sent two Boeing executives — ex-Air Force procurement official Darleen Druyun and chief financial officer Mike Sears — to prison.

Analysts appeared split over the decision to get rid of Stonecipher.

Morningstar analyst Chris Lozier said in a note to investors that "the board has done the right thing inasmuch as the firm still needs a moral rudder to return it to its storied reputation."

Paul Nisbet of JSA Research took the opposing view. "It's a board that's become overly sensitized by all the negative publicity about Boeing employees and their ethics, and they reacted more strongly than I think was appropriate," he said.

Platt said on a conference call with analysts and reporters that Boeing executives learned of the affair Feb. 25 after a worker saw correspondence between the two. He said the company's investigation found that some allegations made by that employee were untrue, such as claims that Stonecipher had influenced the woman's career or salary.

However, Platt said, Stonecipher acknowledged the affair and the company concluded that his behavior violated a code which states that Boeing employees will not engage in conduct or activity that might raise questions about its honesty, impartiality or integrity.

"We think Harry is entitled to some privacy concerning the details of this relationship," Platt said, declining to elaborate.

Stonecipher also was dismissed from Boeing's board, which he had been a member of since joining the company from McDonnell Douglas when the two companies merged in 1997.

Rather than fire him outright, however, the company allowed him to resign, thus making him eligible for what Platt called a "standard retirement package that any other employee would get." The company said it will release details later.

Before coming out of retirement to take the top post, Stonecipher received $638,000 in retiree and pension benefits in 2003 — an amount that would increase with his CEO stint. His hiring agreement called for base pay of $1.5 million and incentives of about $1.8 million in 2004. Exact totals will be disclosed when the company files its annual proxy statement later this month.

The tough-talking son of a Tennessee coal miner, Stonecipher had been credited with helping Boeing to clean up its ethical behavior and with improving its sullied reputation in Washington. The company's stock surged 52 percent during his tenure.

Stonecipher failed, however, to win back the tainted $23 billion air-refueling tanker contract that the Pentagon pulled from Boeing because of conflict-of-interest violations involving Druyun and Sears.

He had been expected to retire by his 70th birthday in May 2006.

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