According to the Wall Street Journal and an AP report out today, Boeing will pay $615 million in fines to settle charges of defense contracting fraud that were highlighted in a Justice Department investigation. No criminal charges as a result. A person familiar with the settlement confirmed the accuracy of the report to the Seattle Times. More from The Times.
Boeing will pay what The Journal termed "the largest financial penalty ever imposed on a military contractor for weapons-program improprieties," but it will not face criminal charges or make any admission of wrongdoing. The deal would bring to a close government investigations the company has faced on two fronts. One involves contracts tainted by the illegal recruitment of Air Force procurement official Darleen Druyun, which led to the 2003 firing of both Druyun and Boeing Chief Financial Officer Michael Sears and the resignation of CEO Phil Condit. Druyun and Sears served prison time. The other scandal involved Lockheed Martin documents improperly acquired by Boeing when the companies were competing for government rocket launches in the late 1990s.
After this, and the Stonecipher Stench, Boeing had really better stay clean, or its name will be mud. Or is the M.O. now simply to hide the skullduggery better?
Posted by Matt Rosenberg at May 15, 2006 10:46 AM | Email ThisBoeing was a clean company, mostly. McDonnell-Douglas, at least in its latter stages, was a dishonest company, topheavy with managers who were what my mother used to call "sharpers," i.e., swindlers, edge-players.
When the merger happened, there were so many managers, they froze promotion and plugged in legacy McD-D managers into all management vacancies. The result was the infestation of the clean company with the cancer of the cheating mentality. And, since the McD-D managers were sharpers, they excelled at outmaneuvering the Boy Scout Boeing managers. Thus, the clean company became dirty.
If Condit had been smart, he would have let the dying McDonnell-Douglas collapse on its own and then cherry-pick just the parts Boeing wanted, instead of taking on the whole putrid mass. But Condit was not smart.
Posted by: Legast on May 15, 2006 06:48 PMBoeing has a lot of smart, dedicated, hard working people and I'm sure the pride there has been tainted. They build dam good airplanes but the administration cannot be trusted in my opinion.
Posted by: Jim on May 15, 2006 08:24 PMEisenhower was worried about exactly this type of issue, the too close relationship of defense contractors and the military procurement system, and that the nations defense needs be met in the most efficient cost effective manner possible.
The system is currently structured in such a way that makes this kind of stuff the way to do business. If you don't schmooze the right people you're not going anywhere.
The procurement business needs to be much more metric based in nature. Does the product meet requirements, does it work, based on measured data, and input from the end user, out of all the items that meet and exceed requirements which is the lowest cost and can the vendor met all delivery schedules?
Posted by: JCM on May 15, 2006 08:57 PMWith that said, I'd take Boeing any day of the week over the corruption and fraud being committed every day down in King County. Surveys done of King County in the 90s found significant percentages of employees admitting that they were pressured to commit illegal acts in the course of doing their jobs. And I don't for a second think that things have improved one bit, but only gotten worse and county management become more arrogant in their belief that they can get away with anything.
I know of acts myself that should have landed people in jail, but instead will likely result in promotion and raises for those involved. I also know of whistleblowers retaliated against and pushed out of their positions where they affected (blocked) the county's wholesale selling out of the taxpayers.
Making Gregoire governor is their crowning achievement and they are likely going to succeed in opening up elections to even more fraud and abuse under the ruse of reform.
If there was a single law enforcement agency with one iota of interest in doing a real investigation of King County and governments in general, I believe it would set a new standard in discovery of wrongdoing. I also tend to believe, though, that corruption in government is so bad, and the abuses of whistleblowers so obvious to anyone in the know that could expose it, that no law enforcement agency is willing to open that "can of worms" in fear of the massive loss in public confidence that would occur as a result.
Boeing is not perfect, that is obvious. But I have a strong belief that the fight between those with integrity versus those without is doing far better at Boeing than in governments like King County.
And don't forget that fines like the $615 million from Boeing, come out of Boeing's pocket. Those fines reimburse investigation costs and create motive for law enforcement to investigate. Unfortunately, another reality of government corruption and fraud is that the taxpayers are always on the hook for financial restitution, which is another disincentive for law enforcement to investigation and prosecute. They know that they will have to cover the costs incurred or shift them to taxpayers somewhere else. Governments always have someone else's wallets to rob to pay for their wrongdoing.
Posted by: MJC on May 15, 2006 09:54 PMGuys like Condit and Stonecipher couldn't survive surrounded by ethical subordinants. Their over the top misdeeds finally put them down. And those that turned a blind eye to advance themselves are still there, waiting for their turn. And lets not forget I.A.M. 751, who are more than willing to sell out for a buck. Birds of a feather principle wise. Well, they still need someone to place that "made in America" nameplate on the mostly foreign made 787. Think further: Japan fully in control of not only Boeing wing technology, but COMPOSITE wing technology, bought and paid for by the American taxpayer via the B-2 program.
Origato goizimashitaaaaaaaaaa!
Posted by: Stephen Ramsey on May 16, 2006 07:30 AM1) The new CEO has made ethics a major focal point:
http://heraldnet.com/stories/06/05/03/100bus_corliss001.cfm
and
http://www.signonsandiego.com/news/business/20060428-9999-1b28boeing.html
2) This culture shift, spelled out well in the above links I think, is supported by the talk outgoing general counsel Doug Bain gave to company execs in January emphasizing the need for this change.
http://seattletimes.nwsource.com/html/businesstechnology/2002772424_boeingtranscript31.html
and
http://blogs.wsj.com/law/2006/01/31/boeings-top-lawyer-rips-into-his-company/
Lastly, the purge of Condit, Stonecipher, and Sears (Condit's chosen successor until his demise) by the Board of Directors, coupled with the initiatives the new CEO McNerney is pushing, seem clear indicators that the Board is taken the prudent step of leading the cleanup.
Not that one should expect such errors to occur, but they are not unheard of to happen at some point in a large, aged company like Boeing, competing in a competitive industry. The key is always how the company responds. It seems in this case, even before they hired Judge Luttig (another Board decision) to replace the retiring Bain, that the company was on the right track to correct its admittedly serious ethical mistakes.
That and all this doesn't even mention that Boeing has cleaned up its dormant and struggling Commercial Airplane division after the setbacks of the 90's and early part of this century (which many obersvers have blamed on Condit and Stonecipher). Now Boeing is pummeling Airbus pretty good, with the 777 pounding the A340 in sales and the 787 way in the lead of the A350. The A350 even appears headed for a costly, belated redesign after the first year of head to head sales against the 787. Not to mention the delays and tepid sales in the A380 program.
As some commenters seemed to support, and as I know from the Boeing workers I've talked to, I know it is popular at times in the Seattle area to beat up the big corporate beast, but in this case it truly seems unfounded.
Posted by: Eric Earling on May 16, 2006 12:20 PM