Risk & Compliance

Revolving Doors

Boeing was already investigating its Lockheed scandal when the Michael Sears case hit. And then there had been the Raytheon situation.
Roy HarrisDecember 16, 2003

The last thing Boeing Co. needed this winter was another ethics scandal. Not long before, the company had endured one involving improper use of some Raytheon Co. documents. And it was only just in July of this year that Boeing commissioned Warren Rudman, the former senator and ethics expert, to lead an internal review of another troubling situation, involving Lockheed Martin Corp.

As CFO Michael Sears was being dismissed for allegedly discussing a Boeing job with an Air Force official involved in the KC-767A airborne tanker deal, Rudman’s study was under way. The study involved the strange case of 25,000 pages of Lockheed documents found in Boeing’s possession during an unrelated Boeing-Lockheed competition.

In July, the Air Force stripped Boeing of $1 billion of potential revenue to penalize it for the transgression, which involved the 1998 space-launch competition for the evolved expendable launch vehicle (EELV) contract. Two Boeing employees have been charged in the case. A Justice Department investigation is also being conducted, and Boeing has been sued by Lockheed.

Recently, Boeing asked Rudman to extend his probe to look at whether Boeing had adequate policies and procedures for the hiring of former government officials to govern the so-called “revolving door” that defense contractors often use to broaden the expertise of their executive ranks.

On Hold at Boeing

Rudman tells CFO.com that the part of his review related to the Lockheed-EELV case is completed and awaiting release by Boeing. He notes that rather than covering ethics in a broad sense, his study had been “very well defined by the board” to cover only the EELV case. Later, Boeing increased the scope of the study to include the policies in place for hiring former government officials and a look at Boeing’s new office of internal governance. At no point did his review look at Boeing Capital Corp., including its tanker-leasing arrangement dealings with the Air Force. “I’m totally unaware of that,” he says.

A spokeswoman for Boeing confirms that the original study by Rudman is completed but hasn’t been made public. “We are assessing the schedule for public release of the Rudman review in light of the additional work that Boeing has asked of Senator Rudman,” she says. The second phase of the study is continuing.

The revolving-door questions were raised by Boeing in response to the job discussions that Sears allegedly had with Air Force official Darleen Druyun. Over a 33-year government career, Druyun had often been involved with contracts involving Boeing and McDonnell Douglas, where Sears was working when the two companies merged in 1997. Indeed, one press report noted that she had referred to herself as “godmother of the C-17,” the cargo plane McDonnell developed for the Air Force in the early 1990s.

Notable Connections

Rudman himself has two notable defense-industry connections, in addition to significant experience in matters of ethics. (A former Senate ethics committee chairman, he is also on the Conference Board Commission on Public Trust and Private Enterprise.) Since January he has been lead director of Raytheon — something Boeing mentioned when it named him to head its review in July. Boeing and Raytheon spokesmen see no problem in the same person filling the roles at competing companies. “There was no ethical conflict here whatsoever,” says Rudman. “The Raytheon matter was long since settled,” he adds. In the case, Boeing was found to have misused Raytheon documents connected with a missile-defense competition that Boeing had inadvertently obtained. (After the Air Force determined that there was impropriety, Boeing dropped out of the competition, and Raytheon won the contract.)

Asked what he would have done had his work for Boeing brought him in contact with information that the director of a competitor shouldn’t have, Rudman answers: “I would have recused myself at once.”