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Originally published March 8, 2005 at 12:00 AM | Page modified March 8, 2005 at 1:01 PM

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With Stonecipher ouster, Boeing faces CEO dilemma

The ouster of Boeing Chief Executive Harry Stonecipher leaves a gaping hole at the top of a company that is, for the second time in 15 months...

Seattle Times aerospace reporter

The ouster of Boeing Chief Executive Harry Stonecipher leaves a gaping hole at the top of a company that is, for the second time in 15 months, unprepared to replace a leader driven out by scandal.

The official explanation of zero tolerance for an illicit, consensual affair was greeted skeptically by some observers. And who will ultimately lead Boeing's major divisions is unclear.

Alan Mulally, Seattle-based chief executive of Boeing Commercial Airplanes, is considered the leading internal candidate to replace Stonecipher. If he gets the top job, who'll take over Boeing's operations here? And if Mulally is passed over, will he move on and raise the same question?

Other possible candidates include James Albaugh, head of Boeing's defense operations, and James McNerney, a board member and CEO of 3M.

Boeing's board, caught off guard by events, needs to move quickly to find a new CEO. With Airbus soon to launch its A350 rival to the 787 on the commercial side, and Congress still needing reassurance that the company is an upstanding corporate partner on the defense side, Boeing cannot long fly on automatic pilot.

"The board should be further along in having a succession plan by now," said Loren Thompson, a military analyst at the Lexington Institute, a Washington, D.C., think tank. "This could have been a heart attack instead of a scandal."

Boeing surprised employees and investors early yesterday with the news that the board had sought and received Stonecipher's resignation over the weekend. In a media conference call and in messages to employees, Chairman Lewis Platt explained the sequence of events:

A Boeing employee sent an anonymous letter to three board members Feb. 25, accusing Stonecipher, 68, who is married, of conducting an affair with a woman executive who does not report directly to him. Platt said the informant cited correspondence between the two.

An investigation ordered by the board concluded Stonecipher had indeed begun a consensual affair in January. The probe also concluded that Boeing business operations were unaffected, that the woman's career and compensation were not influenced and that there was no improper use of expense accounts or company property. But the board decided it would have zero tolerance on breaches of ethics.

"It's not because he had a relationship," Platt insisted. "Harry was the staunchest supporter of the code of conduct. He drew a very bright line for all employees.

"He let everyone know that even minor violations would not be tolerated. When one does that, you have to live by that standard."

As justification for the forced resignation, Platt cited only a catchall line from the company's code of conduct: "Employees will not engage in conduct or activity that may raise questions as to the company's honesty, impartiality, reputation or otherwise cause embarrassment to the Company."

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"As we looked into the relationship, we felt that were certain details disclosed, it would cause embarrassment to the company," Platt added. Company spokespeople refused to elaborate on the rationale.


ELLEN M. BANNER / THE SEATTLE TIMES

Alan Mulally: CEO of Boeing Commercial Airplanes is mentioned as a leading inside choice.

That response left some people thinking there must be more behind the decision than an affair — that perhaps Stonecipher's ouster is linked to the long-running, still simmering Pentagon procurement scandal or to some personal feud within the company.

"A lot of people are wondering if the punishment fits the crime," said Charles Bofferding, executive director of the Society of Professional Engineering Employees in Aerospace.

"If you fired everyone who had an affair, there'd be no company left," said Rudy Hillinga, a retired Boeing sales director in Europe. "It can't be the reason."


JOHN LOK / THE SEATTLE TIMES

James Albaugh: Head of Boeing's Integrated Defense Systems.

"Stonecipher was known as a straight-shooting guy who created many enemies," said Adam Pilarski, an analyst with consulting firm Avitas. "I'm positive there was a lot of animosity towards him."

In the near term, Chief Financial Officer James Bell has the reins of the company as interim CEO while also retaining his CFO title. Platt, as chairman, also will take on an expanded role.

In particular, Platt said he and Mulally would have to do more of the globe-trotting visits to potential customers that Stonecipher has been doing since December, when he shuffled the sales team in the commercial-airplanes unit.

Stonecipher was just back from a trip to Europe; Platt has just returned from an eight-day trip to the Middle East.

Bell, while highly regarded on Wall Street, is a numbers guy with lots of financial expertise but little experience in running operations. He isn't a contender to take the top job permanently.

That only underlines how temporary the transition needs to be. So what's the succession plan?

Pilarski recalls December 2003, when Stonecipher was called in to take over after former CEO Phil Condit had resigned.


AP

James McNerney: 3M CEO is mentioned as a top outside candidate.

"It's like they didn't learn last time. When Condit was let go, they brought a guy out of retirement. That's not a sign of a well-run organization," he said. "Now it happens again, and again they don't have a clear vision."

Yesterday, Platt insisted that Boeing has a robust succession plan that only needs to be accelerated given the unexpected turn of events.

In an interview last year in Seattle, Stonecipher said he had a little black book in his briefcase with a list of the candidates to succeed him. At that time, he was planning to retire in spring 2006.

The top name on that list may well be McNerney, a member of the Boeing board that just ousted Stonecipher.

McNerney was one of the three high-powered GE executives — he headed its aircraft-engine division — tapped as contenders to succeed Jack Welch, eventually losing that race and leaving in 2001 to become chief executive of 3M.

According to several sources, McNerney was offered the position of Boeing chief executive in 2003 but turned it down because he wanted more time at the helm of 3M.

After all the scandals at Boeing, the board must be tempted to bring in outside leadership talent. A 3M spokeswoman said yesterday: "Mr. McNerney has said he's very happy at 3M and has no plans to leave in the foreseeable future."

Internally, Boeing has two major candidates, Mulally and Albaugh, the chief executive of the defense and space side of the business.

Albaugh's chances are perhaps fatally spoiled by his closeness to the procurement scandal involving Air Force official Darleen Druyun, which Boeing is still trying to free itself from.


Interim CEO James Bell has job for now.

Although Albaugh has not been accused of wrongdoing, he personally negotiated a North Atlantic Treaty Organization contract with Druyun in 2002 just two days before the fateful meeting at which then-CFO Michael Sears offered a job to Druyun, starting the scandal that led directly to Phil Condit's resignation.

There are likely to be other internal candidates on the short list for consideration.

But if anyone is promoted above the heads of Mulally and Albaugh, that would inevitably heighten the possibility that either or both of those division heads would leave Boeing.

Mulally is away in Asia all week, visiting customers in China and South Korea.

The local candidate got one perhaps surprising endorsement, from a former McDonnell Douglas vice president, John Wolf, now retired in Bellevue.

"A lot of the scandal has come from people coming in from outside, namely from McDonnell Douglas," Wolf said, alluding to Stonecipher and Sears, who were executives at that company before Boeing acquired it in 1997.

"It's a very good time for Boeing to pick one of its good inside candidates ... a person like Alan Mulally."

Dominic Gates: 206-464-2963 or dgates@seattletimes.com

Alicia Mundy and Luke Timmerman contributed to this report.

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