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TEACHING NOTE

Boeing Corporation

The Challenge of Being Ethical and Competitive OVERVIEW


The Boeing case provides a difficult situation where the welfare of the company is hijacked by the misdeeds of a few. The case focuses on a recent scandal involving insider information. This scandal is representative of a systemic problem in the military contract industry. Sharing classified and confidential information between Pentagon agencies and military contractors was fairly commonplace throughout the early 1980s. Senate and federal investigations into this industry brought the practices to light, but the industry seems to still be struggling with the practice. The case shows the tension in business between successful competition (bidding for contracts worth billions of dollars) and ethical integrity. Although Boeing had in place several programs to promote and enforce ethics, the need to succeed in winning contracts seemed to win out too often. This raises questions of culture and whether a corporation is walking the walk and not just talking the talk. Considering the possible penalties, it would appear that Boeing is serious about walking the walk, but this may not have filtered down to all levels of management. Discussions about different moral theories, such as categorical imperative, utilitarianism, situational ethics, and character ethics would also be appropriate with this case. The role of government in enforcing ethical behavior is also raised by this case. Finally, the case can be used to raise questions of how public relations can be used to foster better ethical behavior, and not only to restore the reputation of Boeing.

TEACHING STRATEGIES
Before giving out the case, you might want to provide a series of ethical dilemmas, ranging from personal responsibility to corporate responsibility, to see how students react to each situation. Each dilemma should have a strong economic incentive to act unethically to represent some of the pressure represented in this case. Another activity could be to have students list the companies they think are ethical and unethical by reputation. Ask them why they feel this way, and what contributed to their opinion about these companies. Also ask whether they thought the companies could

overcome the negative reputations, or lose their positive reputations. How?

DISCUSSION QUESTIONS
1. Should Phil Condit also resign? What would be accomplished by this action? Quite often the CEO is a victim of corporate misbehavior, even if he/she wasnt directly responsible. In this case, Phil Condit did resign. Rather than resigning, and exiting the organization, should Condit have used his voice to try to rectify the problems? Was he a scapegoat, or was resigning the easiest way out of a difficult situation? 2. Can Boeing expect to have 100% compliance with its ethics policy? Most of the employees are following the guidelines, but it only takes a couple of employees to have an enormous impact on the companys reputation and relationship with the Pentagon. This is the real dilemma for Boeing. In human behavior, it is nearly impossible to expect 100% compliance with anything, let alone ethical behavior. This is obviously compounded by the thousands of employees in the several divisions under the Boeing umbrella. 3. Other than the Pentagon, who are the key constituents that should be addressed in this issue? What communication strategies should be used to repair relationships with these constituents? A stakeholder analysis to identify key constituents would be helpful here. Identifying stakeholders according to relationships with the organization, level of threat or support, and level of impact would help students develop a communication strategy. The strategies to repair relationships should include the Page Principles: Tell the truth; Prove it with action; Listen to the customer; Manage for tomorrow; Conduct public relations as if the whole company depends on it; A companys true character is expressed by its people; and, Remain calm, patient, and good humored. 4. How can Boeing do more to increase employee commitment to ethics? Obviously a series of programs and messages isnt doing enough. Boeing needs to consider deeper cultural questions. If employees still believe that profitable contracts are more important than ethical behavior, the programs wont work. Enron had a very large handbook on ethics and social responsibility, and it didnt help much. 5. Is it fair to punish a whole company because of the actions of a few individuals? Does it matter if the individuals are upper management or line employees? This should be a good question about power, structure, and impact. Many line employees feel that they are held to one standard while upper management can get away with a lot more. Does the Boeing solution, where senior-level officials were fired, help in this case?

WHAT REALLY HAPPENED


Phil Condit resigned on Dec. 1, 2003, a week after Darleen Druyun and Mike Sears were fired. The resignation was a surprise to the financial, aerospace, and military contract industries. He said he quit to try to prevent the company from getting bogged down after a year of controversies. Harry Stonecipher, the 67-year-old former president and CEO of Boeing, was brought in as the new chief operating officer. The Pentagon put a hold on the $27.6 billion air tanker deal, and continued the suspension for bidding on military contracts indefinitely. An independent ethics review, once again chaired by former Sen. Warren Rudman, found some areas of weakness in Boeings hiring procedures, and made 10 recommendations to prevent significant problems. Rudman recommended further training, better safeguards, stricter oversights, periodic internal audits, and conflict of interest reviews before offering jobs to top officials. Stonecipher began making weekly trips to Washington to convince lawmakers and the Pentagon that Boeing wasnt run by a bunch of crooks. On April 14, 2004, Druyun struck a pleaded guilty to charges related to the conflict of interest case. Part of the deal protected her daughter, Heather McKee, from further investigation. On November 15, 2004, Mike Sears pleaded guilty to deceiving the government by offering a job to a Pentagon official during negotiation of defense contracts.