Boeing warned of $10bn penalty over scandals

Aircraft giant's law officer lambasts senior managers on ethical issues
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The Independent Online

Top executives at Boeing have been given an astonishing dressing down by their chief law officer, who warned that any further slips could cost the group up to $10bn (£6bn) in penalties.

After the recent scandals at the aircraft, aerospace and defence giant, Wall Street had been preparing for a fine of around $500m from the Department of Justice, but Doug Bain, Boeing's general counsel, raised the possibility that the company could face a penalty of 10 or even 20 times as much if there are any more mistakes.

Boeing has been reeling since the revelations in 2003 that it used stolen trade secrets to beat rival Lockheed Martin to a US rocket contract, and that it recruited a senior government official when she was in charge of allocating multi-billion-dollar contracts for the US air force.

Two executives, including the finance director, were jailed over the recruitment affair, and two chief executives have departed in the fallout. Jim McNerney, hired from the industrial conglomerate 3M as chief executive last July, has demanded a change of culture from the top to the bottom of the company.

Managers are being required to run ethics training for employees and Boeing has introduced a code of conduct to be signed by every worker each year.

The company is in talks with the Department of Justice and several US attorneys as it attempts to avoid indictments for economic espionage, violation of conflict-of-interest laws, conspiracy and fraud. And it has become clear that the investigation, and Boeing's attempt to settle it, has reached a delicate stage.

In what was being spun by the company as a "candid assessment of a worst-case scenario", Mr Bain told Boeing's annual "leadership meeting" of 260 senior managers last month that unless they began to take ethics issues more seriously, the company would face prosecution and also the loss of significant new business.

"There are some within the prosecutors' offices who believe Boeing is rotten to the core. They talk to us about pervasive misconduct and they describe it in geographic terms spanning from Cape Canaveral to Huntington Beach, to Orlando, to St Louis to Chicago," said Mr Bain. "Fortunately, not all prosecutors view us this way, but there are enough to make it difficult."

He flayed managers for holding their tongues for two and a half years when internal Lockheed Martin documents were circulating inside Boeing. And he asked why no one challenged the former chief financial officer, Michael Sears, over his secret recruitment meetings with Darleen Druyun, the procurement official for the US air force.

The leaked speech offers an extraordinary glimpse into a company still in crisis management mode and sets out details of other internal investigations. It reveals that 15 managers have been sacked for misconduct ranging from fiddling expenses to bullying their colleagues.

And it includes an admission that Boeing's miserable reputation leaves it facing big fines over what might otherwise be less important corporate misdemeanors. The company expects to be "hammered", Mr Bain said, over its use of a gyroscope component in civil aircraft sold to China, which did not have an export licence.

"An awful lot of this is about image - on both sides," said Richard Aboulafia, a defence analyst at Teal Group, a consultancy. "The contracting part of the Department of Defense needs to stay in Congress's good graces, and Boeing needs to make clear it is acting in an ethical way. This is the defence industry. There are few providers and one customer. If there is an onerous settlement, it will come back to haunt the customer."