Running head: LEADERSHIP ETHICS AT BOEING W. James McNerney, Jr. and Leadership Ethics at Boeing: Changing the Culture Starts with Leadership Development Stephen A. Kluckowski Dowling College Abstract W. James McNerney, Jr. became CEO of Boeing in 2005 at a time when Boeing was embroiled in numerous scandals, including one which involved his predecessor related to an inappropriate relationship with a subordinate in violation of Boeing’s Code of Conduct. The choice of Mr.
McNerney at that time was a good one given his well-deserved reputation as an ethical leader with strong beliefs in instilling values into a company’s culture, and his previous success at 3M where he was able to successfully modify 3M’s culture while improving its profitability and market value. Mr. McNerney focused on Boeing’s leadership development programs to instill an ethics-centric culture at Boeing, and tying compensation to compliance. He also made a business case for ethics at Boeing: integrity in business dealings can be seen as a differentiator to potential customers. W. James McNerney, Jr. nd Leadership Ethics at Boeing: Changing the Culture Starts with Leadership Development Since becoming CEO of Boeing in 2005, W. James McNerney has sought to change the culture at Boeing in the face of numerous scandals involving the company. This paper will examine: the causes of the ethical shortcomings at Boeing in recent years; how Mr. McNerney is responding to the challenge of overcoming a corporate culture which had taken a win-at-any-cost approach in doing business prior to his arrival; and whether Mr. McNerney possesses the necessary characteristics to be an effective leader at Boeing in successfully transforming the company’s ulture. In determining whether he possesses the necessary characteristics to be an effective leader, I will evaluate Mr. McNerney in terms of “The Five Temptations of a CEO,” written by Patrick Lencioni: does Mr. McNerney focus on results; does he hold his management team accountable; is he afraid to make decisions; does he encourage productive conflict; and, is he open about his weaknesses? In 2003, three Boeing executives were charged with stealing proprietary information from a rival, Lockheed Martin, and violating federal procurement laws.
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A year later, Boeing became involved in an influence-peddling scandal in which it was shown that Boeing leadership was involved in influencing the bidding process for a US government contract involving a program to produce the next-generation of aerial refueling tankers (Pae, 2003). The CEO at the time, Phil Condit stepped down, and the CFO was fired when it was uncovered that they were involved in offering employment to the Air Force procurement staffer involved in the bidding process, in violation of Boeing’s code of ethics.
At the time of Condit’s resignation, Steve Ellis of Taxpayers for Common Sense noted that Condit “created a culture where this type of activity was routine” (Pae, 2003, ??10). Condit’s successor, Harry Stonecipher, was also forced to resign a year later when he too violated Boeing’s code of conduct when his affair with a subordinate came to light (Czarnecki, 2006). It was in this context that James McNerney accepted the position of CEO at Boeing in mid-2005. Based on his successful track record as a leader, James McNerney was a good choice for Boeing to lead it through very challenging times, and to affect a change in its culture.
Mr. McNerney had led various divisions of GE during his 18 year career. Even though he wasn’t chosen to succeed Jack Welch when he retired in 2001, Mr. McNerney was a highly sought after leader, and took the CEO Job at 3M, a company that had always hired its CEO from within (Ford, n. d. ). At the time, there was some concern that his GE background (increasing efficieny and discipline) would not mesh well with the 3M culture of innovation; but, he was able to effectively communicate to 3M employees, and ultimately prove to them, that his goal was to improve the existing culture, not replace it (Ford, n. . ). Within 3 years, the company’s stock price rose 38% (Ford, n. d. ). In taking the Boeing job, he again faced similar cultural change issues. Given not only the number of scandals, but also how high up in the leadership ranks they reached, there appeared to be a systemic ethics problem at Boeing, which had become part of its culture. To understand what that culture was, it is necessary to examine the history of the company and the environment in which it operated. Boeing was founded as Pacific Aero Products Co. by William Boeing in 1916 in Seattle, Washington and became The Boeing Airplane Co. n 1917. That same year, the company took its first order from the US Navy, which ordered 50 seaplanes which were all delivered within a year (Boeing Company ??? The shared heritage, n. d. ). Today, Boeing has grown to be “the world’s leading aerospace company and the largest manufacturer of commercial jetliners and military aircraft combined” (Boeing Company ??? About us, n. d. ). Boeing also operates NASA’s Space Shuttle and International Space Station. Boeing employs over 160,000 people across 70 countries worldwide (Boeing Company ??? About us, n. d. ).
To have successfully grown to its current size in only 90 years, it is self-evident that Boeing has had strong and forward looking leaders in the past. They were also risk-takers and highly competitive. To succeed in obtaining lucrative government contracts, relationships with civilian procurement staffers within the Department of Defense were necessarily cultivated, as were relationships with lawmakers in Congress. A win-at-all-costs approach was no doubt institutionalized in such an environment; and, reinforced through career advancement and increased compensation.
Large government contracts were the rewards for past ethical digressions, most of them never revealed or uncovered during two World Wars, the Korean War, the Vietnam War and the two Gulf Wars, and even the “Space Race”. When James McNerney accepted the CEO Job at Boeing in mid-2005, his primary challenge was to deal with the adverse consequences of the scandals, by resolving the criminal charges filed against Boeing, and to assure the U. S government that unethical behaviors would not occur in the future.
During his first year as Boeing CEO, global settlements were reached with the US Department of Justice and the attorneys general of California and Virginia resolving the both scandals. The company had already lost 1 billion dollars of Air Force contracts as it was banned from bidding on satellite-launching contracts (Kelley, 2003), but Boeing also agreed to pay a total of $615 million dollars as damages and fines as part of the settlement, which amount Boeing voluntarily chose not to take as a tax deduction (Pope, 2006). To assure the government that Boeing was taking teps to prevent future unethical behavior, McNerney announced that Boeing’s leadership development programs would emphasize ethics and compliance (Testimony of W. James McNerney, 2006). In testimony to Senate Armed Services Committee on the Boeing-U. S. Government Global settlement, Mr. McNerney admitted that the scandals had “caused an immense amount of introspection at Boeing. How could a company with a history of reliability and a self-image of unquestioned integrity have made these mistakes? ” (Testimony of W. James McNerney, 2006, ??7).
He told the committee that Boeing was “strengthening” (??9) its culture in three ways: 1) increasing companywide ethics awareness, training and oversight (Boeing created a new organization, the Office of Internal Governance which would report directly to the CEO); 2) opening up the culture “by creating a work environment that encourages people to talk about the tough issues and to make the right decisions when they find themselves at the crossroads between meeting a tough business commitment and doing the right thing” (Testimony of W.
James McNerney, 2006, ??17); and, 3) by “driving ethics and compliance through our core leadership development model…. Ethics and compliance must be–and must be seen to be–a central part of the whole system of training and developing leaders, and the whole process of evaluating, paying, and promoting people” (Testimony of W. James McNerney, 2006, ??18).
Therefore, in setting forth steps Boeing undertook since the ethical lapses in their dealings with the US government, CEO McNerney was communicating the reasons for the unethical behavior of some of Boeing leadership in the past – that the need to meet financial goals at any cost had been part of the culture, and that the behavior of leaders helped shape the culture. However, he has made clear in statements and interviews that emphasizing how leaders can lead with ethics and integrity does not necessarily mean not executing and performing. There shouldn’t be an either-or consideration here. Something done unethically hurts our ability to perform. We are in a business. A business must make a profit to continue operating. The only way to make a profit and to operate long-term is to conduct our work ethically and compliantly” (McNerney interview, Boeing Frontiers, 2005, ??7). And Boeing has done well since James McNerney became CEO. In his first year, Boeing’s stock price increased 32%. Even though the commercial airline industry is currently struggling, Boeing’s 2008 1st quarter earning rose 38%, which exceeded nalysts’ estimates and which was despite delays in delivery of its new airplane, the 787 Dreamliner, which continues to sell well (Boeing Strong, 2008). While 2nd quarter earnings per share announced last week declined, with 236 billion dollars of back orders to be filled, the future continues to look bright for Boeing (Boeing Company news release, 2008). With all of his successes throughout his career, Mr. McNerney remains humble. He is often described by observers as “soft-spoken” and “arrow-straight” (Czarnecki, 2006, ??3), “understated” (Sachdev, 2006, ??5) with a “low key style and a lack of arrogance” (Ford, n. . , ??6). As such, he appears not to have succumbed to Temptation Number 1 in Patrick Lencioni’s book, “The Five Temptations of a CEO” (1998). His focus is on results, and not his own ego. Another characteristic of James McNerney which makes him an effective leader is accountability (Lencioni, 1998). As he was a Boeing board member since 2001, he (and other board members) did hold the two deposed CEOs who preceded him accountable for their ethical lapses. While at 3M, he chose not to bring a cadre of GE management with him (Ford, n. . ), which shows he was not interested in popularity. Given the concerns that existing 3M executives had when he arrived to lead the company (Ford, n. d. ), he showed leadership courage in choosing to tackle this challenge without the safety net of familiar colleagues. In doing so, he held himself accountable to improve the culture at 3M. At Boeing, he has tied executive compensation to ethical leadership, thus making executives accountable for compliance at the company.
Likewise, James McNerney has not fallen victim of Temptation Number 3 in Lencioni’s leadership fable (choosing certainty over clarity) (1998), as is exemplified by his career path. After failing to get the GE job after Jack Welch retired, it was clear that he should move on, even though he had an 18 year history with GE, and was certain to maintain his career there, and perhaps even get another chance should Jeffrey Immelt falter. When he went to 3M, he had a clear vision of where he wanted to take the company, and in 4 years, he had accomplished his mission.
Likewise, in his 3 years at Boeing, McNerney decisively resolved the pending charges against Boeing, by reaching a prompt settlement with the government and instituting systemic changes in the way leaders were developed at Boeing, to emphasize ethics and compliance. Another characteristic which CEO McNerney possesses and which makes him an effective leader is his belief in productive conflict. In interviews, he often makes mention of encouraging employees to speak openly about problems. Command-and-control structures are good in some situations like the battlefield, but they can make people mute because they are used to taking orders. What you want is everyone’s best ideas” (Sachdev, 2006, ??18). Finally, Mr. McNerney has shown that he is not invulnerable (Lencioni, 1998). In discussing delays in the 787 Dreamliner project, he has not shied away from admitting to making mistakes in outsourcing a large amount of work to global partners on the project. “We perhaps underestimated the difficulties in some of our partnerships we have….
We will try to recover and learn from that” (Boeing and China to cooperate, 2008, ??5). In addition, as leader of Boeing, he was not reluctant to admit to Congress that Boeing’s culture was responsible for ethical lapses (Testimony of W. James McNerney, 2006). While other leaders may have tried to limit the blame to individual actors, Mr. McNerney’s honest assessment implicated Boeing’s entire being. In analyzing all of these positive personal characteristics of James McNerney, there is no question why he has been so successful.
He is genuine, he is self-aware, and he communicates his values and expectations often. According to CEO McNerney, “it all gets back to leadership attributes ??? expect a lot, inspire people, ask them to take the values that are important to them at home or at church and bring them to work” (Colvin, 2006, ??15). He makes clear that ethics and values are closely tied to overall business strategy. As he testified before the Senate Armed Services Committee on the Boeing-US Government Global settlement: “ultimately, our goal is to make ethics and compliance a clear competitive advantage for Boeing.
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