December 2005/January 2006 
Volume 04, Issue 8 
Leadership Message

Ethics and compliance 'are all about the future'

Boeing Frontiers recently caught up with Boeing Chairman, President and Chief Executive Officer Jim McNerney after a trip to Washington, D.C., where he and Bonnie Soodik, senior vice president of Internal Governance, met with U.S. government officials on ethics and compliance. Both talked with Boeing Frontiers on the subject, which McNerney calls one of his top priorities.

Jim McNerneyQ: Jim, many employees feel that we have successfully addressed the ethical issues of the past few years and that it's time to move on. After all, Boeing in total has been known as a highly ethical company. Can we put it behind us?

McNerney: Boeing is very fortunate to have so many employees who care a lot about both their own and their company's integrity. But we're operating in a higher gear and in a world that's different from what it was a decade ago or even a few years ago. Even if Boeing had never had a single ethics violation, today's general business environment would still drive an ongoing, major focus on ethics and compliance. The reality is that there are many more regulations, there is much greater scrutiny, and in this world of instant communication there's far more opportunity for mistakes to occur and far less time to correct them if they happen. Boeing is not alone in this. All companies are under the microscope and need to refocus on ethics and compliance. Boeing is fortunate to have the Office of Internal Governance to ensure our processes are right.

Q: Bonnie, in which areas have you seen the most progress for ethics and compliance?

Soodik: We've seen great improvement across the board—in terms of awareness, our education and training initiatives, and all our processes. Much of the progress is due to the fact that we had a strong foundation to start from and we've been able to learn from our mistakes and turn them into opportunities for improvement. For example, the Administrative Agreement (see story below) has been a great baseline for us in establishing a stronger ethics and compliance program. But we didn't stop there; we used it as a place to start, and we've already moved beyond it. The commercial export violations also highlighted an area of weakness, and we've used those mistakes to ensure that we have a better system in place as we support the 787.

Q: You both periodically visit Washington, D.C., to talk with ethics and compliance officials in the U.S. government. What are you hearing from them?

McNerney: We're hearing a lot of good feedback, and I'm pleased about that. Most of the people I've met with have commented on the significant improvements we've made in our ethics and compliance program. Of course, there's always room for improvement, but we've made good progress in a short time. The approach Boeing developed in creating the Office of Internal Governance is very impressive.

Q: Bonnie, what makes the Boeing approach to ethics and compliance distinctive?

Soodik: The key to our internal governance program is that we have a single organization that can integrate the data from various sources, translate it into meaningful information and then use that information to avoid potential mistakes. The goal is to view the data from multiple perspectives, not piecemeal or in a vacuum, and from that gain new insight. Before OIG was formed, we weren't comparing the data that was gathered from the various Bonnie Soodiksources we have, such as the Law department, Security, Audit, Human Resources and Ethics. As an integrated organization, we can add much more value to the company, and this can give Boeing a great advantage.

Q: Jim, everybody feels a constantly increasing pressure to perform and to help increase the company's profitability...

McNerney: Yes, that's what continuous improvement is all about.

Q: What would you say to someone who might consider the pressure to perform and to "make the numbers" greater than the pressure to perform ethically and compliantly?

McNerney: 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. You should speak up if you're aware of something wrong. Boeing offers a broad array of resources to help people make ethical decisions and to report possible violations. Please use these resources. You'll be doing our company a favor, and you'll be doing the right thing.

Q: Do you see this need for intense focus on ethics and compliance ever abating?

McNerney: Never. Your last question just reinforces that. We all need to understand that there's more work to be done and that ethics and compliance are critical to our continued success. We live in a more complex and more demanding world than ever. In the aftermath of 9/11, Sarbanes-Oxley and corporate scandals, good intentions are no longer sufficient. As with any process, "escapes" can happen, and we have to minimize them. We need to have a superior ethics and compliance program, which I think we're getting with OIG, and we need the continued commitment of our Boeing men and women to do the right thing, the right way—every day.

Q: Jim, you've said that leadership development and "creating positive energy around ethics and compliance" are two of your priorities—and that they are linked. Can you expand on this?

McNerney: Sure. I plan to make leadership development a focus across the company because I believe that as we strengthen our leadership capacities, we can have a positive impact on the company's overall performance. As I've said before, better leaders make better companies. And effective leadership, at all levels of an organization, is based on a foundation of trust, integrity and escape-free compliance. As we turn up the gain in leadership-development training, we will embed in it an equal emphasis on how leaders can lead with ethics and integrity.

Q: How do you think we're doing at building leadership so far?

McNerney: At Boeing, the ethics and compliance programs have changed significantly in the last few years to support strong leadership development. The OIG team is developing an industry-leading approach that gives us a solid infrastructure and an effective system of checks and balances. It's the combination of strong leadership and efficient processes that can give us an edge.

Q: What would you like Boeing people to do?

McNerney: Shift into a proactive mindset and remember that it's all about the future. I'd like for us to think ahead, maintain a self-critical view and be willing to apply the lessons we as a company have learned from whatever mistakes happened in the past—regardless of whose fault they were. Defensiveness about the past will only get in the way. We need to take every opportunity to make Boeing the most ethical company around. And not just because we have to. I'd think we'd all want to do this, because it's the right thing to do.

Administrative Agreement: What's behind the baseline

Q: What is the Administrative Agreement, and what does it cover?

A: The Administrative Agreement is a companywide agreement between Boeing and the U.S. Air Force. Signing of the agreement last March resulted in the Air Force lifting the suspension of the Boeing launch businesses. There are five key areas of the agreement: increased management involvement, procurement integrity, training and awareness, hiring and employment procedures, and investigation practices. The focus of the Agreement is to increase management involvement and oversight of ethics and compliance issues and to ensure that Boeing processes and procedures are implemented consistently throughout the company.

Q: What part of the business does the Agreement cover, and how long will the Agreement be in place?

A: The Agreement is between the U.S. Air Force and The Boeing Company. It affects all Boeing businesses and employees, including consultants and subsidiaries. The business unit and functional leaders are responsible for ensuring that all measures of the Agreement are implemented. The Compliance Integration organization, a function of the Office of Internal Governance, has oversight responsibility for monitoring company compliance.

The Agreement will be in place for at least three years, and its ultimate duration will be determined based on the final resolution of the U.S. Attorney's investigation of the Evolved Expandable Launch Vehicle matter.

Q: How will Boeing ensure compliance by all employees?

A: Education and awareness programs have been strengthened to ensure that employees understand their obligations to comply with policies and procedures as well as all laws and regulations. In addition, tracking and reporting systems have been put in place to monitor compliance. An Administrative Agreement Implementation Team composed of companywide representatives meets weekly to track the status of all actions outlined in the Agreement. The Compliance Integration team also works closely with George Babbitt of BearingPoint, the Boeing Special Compliance Officer who serves as an independent monitor of Boeing's compliance with the Administrative Agreement.

Q: What is a Special Compliance Officer?

A: The Special Compliance Officer is an independent monitor, retained by the company, to work with the Boeing team to monitor, assess and periodically report to the Air Force and Boeing management on the company's compliance with the Agreement.

Q: What will happen if the company violates all or part of the AA?

A: As with virtually all agreements of this type, the Air Force reserves its rights to revisit the lifting of the suspension or to impose additional penalties in the event Boeing fails to comply with the Agreement.


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