Boeing under Phil Condit

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Case Details:

Case Code : BSTR098
Case Length : 14 Pages
Period : 1992 - 2004
Organization : Boeing Inc
Pub Date : 2004
Teaching Note : Available
Countries : USA
Industry : Aerospace Industry

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"I am proud of the strategies that have transformed Boeing into the world's largest aerospace company. I will watch the progress of Boeing with great pride."

- Phil Condit, chairman and CEO of Boeing in December 2003.1

"I don't think Phil Condit per se was involved in the controversy regarding the tanker negotiations. I just think that in order to stanch any further unease with the Pentagon in current and future contracts, and any concerns that internal controls were weak, Phil Condit had to fall on his sword."

- Robert Friedman, senior aerospace defense analyst for S&P Equity Group in 2003.2

"His seven-year reign was marked by a flawed strategy, questionable acquisitions, manufacturing controversies, and the ethical lapses at the company that jeopardized important contracts with the government."

- BusinessWeek in early 2004.3

Condit Steps Down

In December 2003, the board of The Boeing Company (Boeing) announced that it had accepted the resignation of chairman and CEO, Philip Condit (Condit). Condit's resignation came close on the heels of a management shakeup in late-November that year, in which the company's CFO, Michael Sears (Sears) and the vice president and deputy general manager of the Missile Defense Systems unit, Darleen Druyun (Druyun), were fired for alleged misconduct in a Boeing deal involving the Pentagon.4

Announcing the firings to the company's employees, Condit was reported to have said, "Accountability begins at the top".5 The year 2003 was a difficult one for Boeing. In mid-2003, Boeing was sued by competitor, Lockheed Martin,6 for possessing proprietary information belonging to Lockheed Martin. This resulted in Pentagon canceling contracts worth over $1 billion awarded to Boeing and the company was also banned from bidding for defense projects in July 2003. Later in the year, Boeing's tanker deal with the US Air Force came under scrutiny for the alleged misconduct of Boeing's officials, resulting in the firings, and later, the stepping down of Condit. The biggest blow to Boeing however, was that arch-rival Airbus Industrie (Airbus)7 overtook it in the delivery of aircraft for the first time in 2003.

 Condit was not held personally responsible for any of the problems of Boeing, and both he and the board insisted that his resignation was voluntary. "I offered to resign as a way to put the distractions and controversies of the past year behind us,"said Condit.8 However, analysts felt that there was more to it than met the eye.

An old friend of Condit who spoke to him soon after the resignation was reported to have said that Condit was 'distraught'. Not many found the resignation surprising either and had been expecting it for some time. "Given the issues at the company, it shouldn't have been a total surprise," said Marcy Yeamans, an analyst with Banc One Investment Advisors.9 Harry Stonecipher (Stonecipher), a former Boeing vice chairman and COO, who had headed McDonnell Douglas10 when it merged with Boeing in 1997, was brought out of retirement to take over as the president and CEO of the company. Lewis Platt (formerly of Hewlett-Packard) was appointed as non-executive chairman. Condit was to continue up to March 2004 to oversee the transition.

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3] The Best and Worst Managers - The Fallen Managers - Phil Condit, BusinessWeek, January 12, 2004.

4] Headquarters of US Defense Department is called as Pentagon.

5] Boeing, Boeing, Gone, The Economist, December 3, 2003.

6] Lockheed Martin was the top defense contractor in the world in 2003. It was formed in 1995 after merger of Lockheed Corporation and Martin Marietta Corporation. It manufactured a number of high-tech products including missiles, planes, submarines and communication satellites.

7] Airbus Industrie, based in Toulouse, France, was formed in 1970 by a consortium of British, German and French airplane companies backed by their respective governments. It was a strong competitor to Boeing.

8] Boeing CEO Phil Condit resigns under pressure,, December 3, 2003.

9] Boeing CEO Phil Condit resigns under pressure,, December 3, 2003.

10] McDonnell Douglas was a leading manufacturer of military and commercial aircraft. Military aircraft accounted for the major portion of the company's revenues and the company was one of the largest defence contractors in the US.


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