Boeing, Boeing, Gone
Boeing's
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sudden -- and very public -- ouster of CEO Harry Stonecipher reveals just how prickly its board has become in the wake of its high-profile ethics scandals.
In fact, some observers believe the board may have overreacted by quickly disclosing that Stonecipher had a consensual affair with another Boeing employee, even though she neither reported directly to him nor received favorable treatment as a result of the affair.
"This was a brutal revelation, and could have been done more quietly, but because of the sensitivity of the board after the procurement scandals, they appear to have gone overboard," said Paul Nisbet, analyst at JSA Research, an independent aerospace research company. (Nisbet doesn't own shares of Boeing, and JSA does no business with companies its analysts cover.)
Jeff Pittsburg, analyst with Pittsburg Research, said Boeing's board appeared to have panicked. "They moved so fast on it," he said. "There could have been a transition period here. I mean, he didn't steal money." (Pittsburg owns no Boeing shares, and his company does no investment banking.)
Boeing Chairman Lew Platt said Monday that having a consensual affair doesn't specifically violate the company's code of conduct, but that Stonecipher had violated the code's prohibition on activity that would embarrass the company or impugn its integrity. In an interview on the cable television news channel
CNBC
, Platt also said Stonecipher needed to be held up to a particularly high standard because he was at the helm of the company.
Ironically, Stonecipher's focus since stepping out of retirement and returning to Boeing in December 2003 had been on restoring its reputation after two scandals erupted related to government defense contracts. In one, the Air Force suspended Boeing from bidding on rocket launches after the company was found in possession of confidential bidding documents from rival
Lockheed Martin
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. In the other, former Pentagon acquisitions official Darleen Druyun negotiated a Boeing job while overseeing military contracts. Stonecipher made frequent trips to Washington to meet personally with Pentagon officials and lawmakers. He also was a staunch advocate of company procedures aimed at preventing future ethical lapses.
Last Friday, Boeing passed a major landmark when the Air Force lifted the rocket launch suspension.
Despite Stonecipher's sudden departure, Boeing will not have to scramble to start a search for a new executive. The board was already doing that because 68-year-old Stonecipher's return was only temporary. On Monday, the company said it would accelerate that process and was looking at candidates inside and outside Boeing.
In the meantime, James Bell, the company's CFO, is taking the reins as interim CEO, while Chairman Platt assumes an "expanded role" in his capacity as non-executive chairman.
Analysts said Stonecipher's ouster is unlikely to change the outlook for Boeing's business, but uncertainty surrounding a potential successor could dampen gains in its shares, which last week hit their highest levels since before the Sept. 11 terror attacks on optimism about its commercial jet business. The company recently announced a string of orders from overseas airlines. When it reported its fourth quarter, it also offered a bullish forecast for 2006 commercial deliveries.
"The stock's going to be dead in the water, for the simple reason that investors don't know who they're going to get" to succeed Stonecipher, Pittsburg said.
Shares were off 38 cents, or 0.6%, at $58.00 Monday afternoon.
On the short list of potential candidates mentioned by analysts Monday were two at Boeing: Alan Mulally, head of the commercial airplane unit, and James Albaugh, who leads the company's defense business.
Byron Callan, a Merrill Lynch analyst, wrote in a research note that if Boeing passes over these two, it would likely mean the end of their careers at the company. "Once a decision is made regarding the new president and CEO, either or both of these individuals would likely be out of the running for the top leadership position at the company," Callan wrote. "While it is possible that they stay, it is also possible that one or both departs. This will raise the issue of who will ultimately run Integrated Defense Systems or Commercial Airplanes." (Merrill Lynch does and seeks to do business with companies covered in its research reports.)
Citigroup Smith Barney's George Shapiro speculated the company might also look at Jim McNerney, the CEO of
3M
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, who also sits on Boeing's board. (Citigroup Smith Barney does and seeks to do business with companies covered in its research reports.)
As Boeing seeks to move away from its scandal-tainted past, its sensitivity to anything that even looks ethically questionable could make the CEO search difficult, observers said.
"I think the biggest challenge is finding a successor that is squeaky clean," JSA's Nisbet said.
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