Wednesday, February 1, 2006
The "scared straight" speech given by Boeing general counsel Doug Bain (from the Seattle Times here) to the company's top executives about significant legal (and moral) problems at the company is certainly striking for its candor, and Peter Lattman on the Wall Street Journal Law Blog has a thorough recap (here) of the highlights (and lowlights) of the talk. Bain mentioned a number of instances in which Boeing's conduct falls well short of the type of ethical, much less legal, standards expected of a corporation, particularly one involved in sensitive government defense contracts. One particular part of the speech caught my attention, concerning the contacts between former Boeing CFO Michael Sears and top Pentagon procurement officer Darleen Druyun that led to the aborted hiring of Druyun even though she had not recused herself from Boeing contract awards and admitted she favored the company, which was where her daughter also worked. One would expect a chief financial officer to know the requirements for negotiating with a government official, and that one must adhere to fairly strict guidelines. Yet, Sears described his meeting to recruit Druyun as a "non-meeting," as recounted by Bain:
On October 17, 2002, Mike Sears [then chief financial officer of Boeing] flew in a company airplane down here to Orlando and met with Darleen Druyun [then chief acquisitions officer for the Air Force] and offered her a job. The question everyone keeps asking is, why? The rules on dealing with government employees are not hard. In fact, during the meeting Darleen told him, 'I have not recused myself from Boeing business.' As best we can figure out, Darleen told Mike in Orlando that she had just received a handshake offer, which she had accepted, from Lockheed Martin. It's my personal belief that Mike then went into a sales mode. He not only wanted to make sure that he got Darleen; he wanted to make sure that Lockheed Martin did not. The next day, Mike sent an e-mail that said "I had a 'non-meeting' with Darleen Druyun." If this were all we were facing, we might have been able to deal with it better. But there were a lot of other events that came out. It turned out, in August 2002 Mike had had Darleen come to Chicago and even though the R word was never used, the prosecutors say 'This looks like a recruitment meeting.' So maybe the Oct. 17 conversation was not a one-off. During the month of September, there was a string of e-mails between Mike and Darleen's daughter, who was employed as an HR person in St. Louis. The e-mails clearly are negotiations for Darleen coming to work for us. Again, if this is all we were dealing with, we might have had a different issue. However, in the year 2000, Darleen sent a copy of the résumé for her future son-in-law to Mike, asking for his assistance in getting him a job. Mike merely sent on the resume, did not ask for anything to be done. But the people who received it assumed Mike was going to say 'Make it happen' — and they did. A few months later, this had worked, Darleen sent the résumé of her daughter to Mike. Same thing happened. Mike sent the résumé along, and the people made it happen. All this stuff came together when Darleen was sentenced and she said 'I might have favored Boeing in awarding contracts' because of the favors Boeing had done for her in hiring the son-in-law and the daughter.
So, the cultural questions: How come nobody said to Mike, 'What in the hell do you mean by a non-meeting'? How come in the year 2000 nobody said, 'Should we really be hiring the relatives of our chief procurement officer for the largest customer we have on the defense side?' It also raises the question, Do we have a culture of silence — don't ask the tough questions?
Both Sears and Druyun ended up being sentenced to federal prison. Bain is right that a culture of "getting it done" at any cost can land a company in serious trouble, such as the investigations of Boeing being conducted by two United States Attorney's Offices. What can possibly impel a senior corporate officer to describe a conversation with a government official who makes decisions regarding the award of contracts to the company, or its competitors, as a "non-meeting" on the assumption that a wink-and-a-nod will make it go disappear? Maybe Boeing can change, and Bain's speech is certainly a start in addressing the issue of corporate accountablilty beyond simply asserting that these are mere "agency costs." (ph)