The combination of a weak operating position and repetitive scandals at Boeing (NYSE:BA) finally took down the company's chief executive and chairman, as Phil Condit resigned early this morning, effective immediately.
The ethics scandal that broke last week, potentially stalling a multibillion-dollar Pentagon proposal to acquire as many as 100 767 refueling tankers, cost Condit's money man, CFO Michael Sears, his job. If this were the only issue facing the company, it might be enough by itself for the board to show Condit the door. But Boeing has seen multiple embarrassing and costly scandals, painting a picture of a company that has lost control of its internal compass.
Last week Boeing disclosed it has discovered that Sears had negotiated to hire an Air Force acquisitions official while she was still in a position to influence military contracts involving Boeing. That official, Darlene Druyun, came to work at Boeing in January, but her employment with the firm was also terminated last week. The tanker deal has already been signed into law, so its basic terms will be unaffected. But Congress, if it smells a rat, could call for additional hearings and delay actual execution of the deal for an extended period of time.
This disaster follows another substantial ethical misstep, as Boeing lost more than $1 billion in rocket contracts when the Air Force determined that company employees had stolen proprietary documents from contract competitor Lockheed Martin (NYSE:LMT) back in 1998. Boeing apologized, fired the employees, and is apparently improving its internal controls. The question facing Condit is why they got to be so bad in the first place. One scandal can be blamed on a single failure, rogue employees, or even a company-wide lapse. Several such events, however, indicate that the problems are more systemic.
The thread in these two major lapses at Boeing is that both involve the U.S Air Force. With current commercial aircraft sales soft, Boeing has had to depend on military contracts for a far greater component of its business in recent years. Whether these lapses cast a shadow over Boeing as a business partner to the military remains to be seen, but I'd venture that Boeing's board viewed Condit's ouster as a signal to the military that it will not tolerate wrongdoing. It remains to be seen whether the Air Force finds the sacrifice sufficient.
Read what other Fools are saying about Condit's resignation on the Boeing discussion board .
