Harry Stonecipher resigns at the board's request over a consensual relationship with a female executive.
By Times Staff
Published March 8, 2005
CHICAGO - Boeing Co. CEO Harry Stonecipher, brought back from his St. Petersburg retirement 15 months ago to boost the aerospace manufacturer's tainted image, has been forced out because of an ethics scandal involving an affair he had this year with a female company executive.
While leaving 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.
Chairman Lew Platt said the affair did not violate the code of business conduct at the company, where a string of defense scandals has raised questions about the way Boeing gets its lucrative contracts. But an internal investigation that started because of an employee's complaint discovered "issues of poor judgment" involvingStonecipher, who is married.
Platt 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. Reached at their $1.6-million home in St. Petersburg's Bayway Isles, his wife, Joan, refused to comment.
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.
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.
The tough-talking son of a Tennessee coal miner, Stonecipher had been credited with helping Boeing clean up its ethical behavior and with improving its sullied reputation in Washington. The company's stock surged 52 percent during his tenure.
Wall Street took the news in stride. Boeing shares, which had been trading at 31/2-year highs, dropped 8 cents to close at $58.30 on the New York Stock Exchange. They fell 19 cents to $58.11 in afterhours 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 to prison.
Stonecipher had been chosen as the CEO precisely because of his reputation as a leader above reproach. At the time, he and his wife, whom he met as a teenager in Tennessee, were settling into retirement in their waterfront home in southern Pinellas County. He had spent his life in the aviation industry and retired from Boeing as vice chairman in 2002.
Analysts were 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 that Boeing executives learned of the affair Feb. 25 after a worker saw correspondence between the two. He said the company's investigation found 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 his behavior violated a code that 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.
Stonecipher also was dismissed from Boeing's board, which he had been a member of since joining the company from McDonnell Douglas when the companies merged in 1997.
Rather than fire him, however, the company allowed him to resign, thus making him eligible for what Platt called a "standard retirement package." The company said it will release details later.
Most large companies ban romantic relationships between a manager and anyone who reports directly to him or her, said Lee Esrig, director of external relations at the not-for-profit Ethics Officer Association in Waltham, Mass. If colleagues believe the junior employee will receive favorable treatment, it can destroy morale and productivity.
On the other hand, companies tend to allow relationships among equals and between those who do not directly report to one another, as long as they are disclosed. "Oftentimes the company can do something to address the situation, (such as) assign one employee to a different project," said Esrig, a Tampa native who was Honeywell Corp.'s first full-time ethics and compliance officer.
Ron Hill, dean of the college of business at the University of South Florida St. Petersburg and its Bank of America professor of corporate social responsibility, said the real concern for companies should be relationships between unequal parties, not just those between managers and their direct reports.
"If someone is the head of an organization, there are always inequities in power," he said. "A person at a much, much higher level may have even greater sway" over a partner's career.
--Times staff writers Kris Hundley and Scott Barancik contributed to this report, which includes information from the Associated Press.
