Boeing CEO calls settlement 'tough but fair'

W. James McNerney Jr., Boeing Co.'s chairman, CEO and president, yesterday called the government's $615 million settlement over two federal ethics laws violations "tough but fair."

In an effort to restore the aerospace company's reputation and regain the government's trust in doing business with it in the future, he also told congressmen he had put in place a robust ethics and corporate compliance program.

The settlement, issued June 30, included a $50 million criminal monetary penalty and $565 million to resolve civil claims rising from Boeing's improper acquisition of documents from Lockheed Martin Corp. related to rocket launch service contracts, and Boeing's hiring of former senior Air Force acquisition official Darlene Druyan while she was overseeing billions of dollars in Boeing contracts for the Pentagon.

The settlement was the largest of its kind by the Defense Department with a defense contractor.

Paul McNulty, U.S. deputy attorney general, testified at the hearing that the Justice Department decided to enter into an agreement with Boeing and not seek criminal charges against the company because it voluntarily cooperated in the investigations, acknowledged responsibility for the conduct of its employees and terminated the wrongdoers. What's more, the company took remedial action and implemented its ethics and compliance program.

McNulty also said Boeing's hiring of another former Air Force official was still under criminal investigation. He declined to name the former Air Force general who no longer works for Boeing.

McNerney, who was hired in July 2005, testified yesterday before the Senate Armed Services Committee on the aerospace company's settlement agreement with the federal government. As part of Boeing's ethics and compliance program, all employees must sign the company's code of conduct annually and participate in yearly ethics recommitment sessions, he said.

The company also has created an office of internal governance that monitors and tracks potential conflicts of interest in hiring and provide oversight of ethics and compliance concerns for its top leaders, he said. McNerney called the company's ethics and compliance efforts the "silver lining of this dark cloud in our history."

Boeing, the Defense Department's second-largest contractor, ranks No. 15 on Washington Technology's 2006 Top 100 list, and last year had nearly $912.7 million in federal IT prime contract work. The Chicago-based company has about 155,000 employees and had 2005 annual revenue of $54.8 billion.

McNerney, former chief executive officer of 3M Co., replaced Harry Stonecipher, last year after Stonecipher's resignation over his improper behavior in having an affair with a female executive.

"Boeing is fully committed to operating at the highest levels and standards of ethics and compliance," McNerney said at the end of his testimony. "I will continue to do everything in my power to ensure that the company never finds itself in a situation like this in the future.