Boeing Dismisses CEO Over Affair

Boeing Co. said Monday that it dismissed President and Chief Executive Harry C. Stonecipher, who had come out of retirement to restore the company’s tarnished reputation, after it learned he was having an extramarital affair with a female executive.

The company’s board demanded Stonecipher’s resignation after concluding that his relationship with the executive represented poor judgment on his part and “would impair his ability to lead.� Stonecipher, 68, has been married for 50 years and has two children and two grandchildren.

Boeing took an unusually tough stance because Stonecipher had led a sweeping reform of the Chicago-based aerospace giant as it tried to recover from a Pentagon contracting scandal that sent two Boeing executives to jail.

“He drew a very bright line for all employees,� Boeing Chairman Lewis Platt said during a conference call with reporters Monday. “He let everyone know that even minor violations would not be tolerated, and when one does that, you have to live by that standard.�

Among Stonecipher’s initiatives: requiring all 159,000 Boeing employees to attend half-day ethics sessions and sign pledges to abide by a code of conduct he helped draft, which declares that employees should avoid doing anything that would embarrass the company. Boeing is the largest private employer in Southern California with 35,000 workers.

The company named its chief financial officer, James A. Bell, 56, as interim chief executive. Platt said that Boeing would look both inside and outside for a permanent replacement.

No action was taken against the woman involved in the relationship, the company said.

The tough-talking Stonecipher wasn’t universally admired by Boeing employees, who viewed him as a relentless cost-cutter focused too narrowly on the bottom line. He also was criticized for what some employees saw as overreaching as he sought to burnish the company’s image.

“He had all of us go through a recommitment-to-ethics day, but for what?� said one employee who agreed to be interviewed on condition of anonymity. “There is a lot of anger here.�

Stonecipher would have celebrated his 50th year in the aerospace industry this summer. He is the second Boeing CEO to resign under pressure in 15 months. His predecessor, Phil Condit, quit in December 2003.

At that time, Boeing was in the midst of two scandals. Last fall, the Air Force’s former top acquisition official, Darleen Druyun, pleaded guilty to seeking a Boeing job while negotiating a $23-billion Pentagon deal to buy aerial refueling tankers from the company. She also admitted that she favored Boeing on several other multibillion-dollar deals because the company gave her daughter and son-in-law jobs.

Druyun is serving a nine-month prison term. Boeing’s former chief financial officer, Michael Sears, was sentenced last month to four months in prison for improperly recruiting Druyun to accept the $250,000-a-year post. Boeing had fired Druyun and Sears in November 2003, after an internal probe uncovered their improper job talks, and Condit resigned the next month.

Five months earlier, the Air Force had suspended Boeing from vying for rocket contracts after federal prosecutors accused two former mid-level managers of stealing Lockheed Martin Corp. documents during the bidding for such a contract. A criminal trial in the case is scheduled to begin this month. The Air Force has since lifted Boeing’s suspension.

After he took over, Stonecipher sought to mend fences with the Pentagon and Congress. As recently as Thursday, Stonecipher was making the rounds on Capitol Hill, having private meetings with senators he wanted to convince that Boeing wasn’t run, as he once put it, by a “bunch of crooks.�

Stonecipher also wanted to revive Boeing’s flagging aircraft business. It had lost its position as the world’s largest commercial aircraft maker to Europe’s Airbus, and last year Stonecipher committed Boeing to developing a highly fuel-efficient 787 jetliner, its first new plane in a decade.

Most financial analysts gave Stonecipher high marks. “It’s a shame. He did an awful lot for the company,� said Jon B. Kutler, president of Jefferies Quarterdeck, an aerospace investment bank. “He’s a no-nonsense guy who provided leadership at a critical time.�

Boeing stock climbed steadily after he became CEO, and hit a 3 1/2-year high last week. In response to his ouster, the stock fell 8 cents Monday to $58.30 on the New York Stock Exchange.

Stonecipher, who could not be reached for comment, submitted his resignation late Sunday. The board asked for it on Saturday after an internal probe was completed Friday.

Platt, former chairman and chief executive of Hewlett-Packard Co., said Boeing began the probe 11 days ago after an employee wrote to him and several others about correspondence between Stonecipher and the female executive that the tipster felt violated the company’s code of conduct.

Platt said Boeing brought in outside counsel to look into the allegations. The investigators interviewed Stonecipher and the executive, who said that they began their consensual relationship in January.

Boeing executives declined to identify the woman other than to say that she was a longtime employee who did not report directly to Stonecipher.

Stonecipher didn’t have any undue influence on the executive’s compensation or position with the company and investigators didn’t find that company resources were used improperly, Platt said.

“I can tell you it’s not the fact that he was having an affair. It’s not a violation of our code of conduct,� Platt said. “But as we explored the circumstances surrounding the affair we just thought there were some issues of poor judgment that impaired his ability to lead going forward.�

Office romances aren’t unusual. In a recent survey of 734 executives by online executive search firm TheLadders.com, 43% said they had been involved in an affair with a colleague. And of those, half said they were married at the time.

Boeing’s reaction to Stonecipher’s dalliance may signal a new attitude in corporate America toward such romances. But Lalitha Naveen, a professor of finance at Georgia State University and an expert on CEO succession plans, said Boeing’s board, already embarrassed by various scandals, may have been particularly sensitive to any ethical misconduct.

The dismissal brought to an end a storied career.

A son of a Tennessee coal miner, Stonecipher started working for General Motors Corp.’s aircraft-engine unit as a lab technician in 1955. After graduating from college in 1960, he worked for General Electric Co.’s aircraft-engine business, moving up the ranks to become head of its commercial and military transport unit in 1984.

He changed jobs in the late 1980s and was instrumental in getting Sundstrand Corp. back in good graces with the Pentagon after the company pleaded guilty to overcharging on defense contracts.

In 1994, Stonecipher was named chief executive of struggling McDonnell Douglas Corp. and in 1997 engineered its sale to Boeing. He became chief operating officer at Boeing before retiring in June 2002. The retirement didn’t last long.

“I’ve done this before,� Stonecipher said in December 2003 when he was named Boeing’s CEO, “and that’s why I’m back.�

Stonecipher will receive nearly $700,000 annually from his pension. He also has more than 1.8 million shares of Boeing stock, valued at $103 million based on current market prices.