|Harry Stonecipher was forced to resign as Boeing's CEO because of what the company calls an improper relationship with a female executive.|
NEW YORK (CNN/Money) -
Boeing CEO Harry Stonecipher resigned Monday, just over a year after he took the top job at the embattled aircraft maker and defense contractor, due to what the company said was an improper relationship with a female executive.
The company said Chief Financial Officer James Bell, 56, would serve as president and CEO on an interim basis, while Chairman Lew Platt assumes more executive duties.
The statement from Boeing said the board asked for and received the 68-year-old Stonecipher's resignation after an investigation by internal and external legal counsel into the personal relationship between Stonecipher and the executive, who was not identified.
The company said she did not report directly to him, and that the relationship was consensual and had no effect on the conduct of Boeing's business. But it said the relationship violated Boeing's code of conduct.
"The Board concluded that the facts reflected poorly on Harry's judgment and would impair his ability to lead the company," said a statement from Platt.
One analyst said he believes that because questions about Boeing company ethics in recent years have cost it a chance to capture some military contracts, the company's board had no choice but to take a hard line.
But Cai Von Rumohr, SG Cowen aerospace analyst, said the move was bad news for the company, given Stonecipher's record over his brief tenure.
"I think under other circumstances it's possible this is something the board might have overlooked," Von Rumohr told CNN. "They're gonna get good points for that. But I think the issue is that Harry had done enough good things in terms of commercial (aircraft) marketing and cash redeployment that it will be difficult to maintain that momentum in this transitional period."
Shares of Dow component Boeing (down $0.32 to $58.06, Research) were off less than 1 percent in midday trading.
In a phone call with analysts and reporters, Platt said the company was alerted to the relationship by a letter from an anonymous employee who had apparently seen correspondence between Stonecipher and the female employee. Platt said that Stonecipher admitted to the affair when first confronted by Platt.
Platt said the affair did not violate the company's code of conduct in and of itself, but that the board believed the relationship violated the code about hurting the company's reputation.
"We felt if details were disclosed it would cause embarrassment to the company," Platt said.
Stonecipher will get the normal retirement package to which he would have been entitled with no additional payments to encourage his resignation, Platt said. But he did not detail the amount of severance or separation pay he will receive.
Boeing's most recent proxy statement showed that Stonecipher had a base pay of $1.5 million as CEO, and annual incentives equal to up to 120 percent of base pay, or an additional $1.8 million.
On top of that he had already started to draw $631,000 a year in pension payments during his first retirement from the company, pension payments he continued to receive even as he was being paid to be CEO. That annual pension payment will increase slightly due to his additional year of service to the company.
The Boeing biography of Stonecipher said that he is married, with two children and two grandchildren
Stonecipher was named head of Boeing on Dec. 1, 2003, when his predecessor Phil Condit resigned in the wake of a scandal involving Michael Sears, then the company's chief financial officer, illegally hiring an Air Force procurement officer. While Condit never faced criminal charges in that case, Sears was sentenced to four months in prison last month.
That was not the only scandal at the company. The U.S. Air Force on Friday reinstated Boeing's eligibility to vie for billions of dollars in satellite-launch contracts for the military, ending a suspension imposed after it was caught with a competitor's documents.
"This was a very difficult decision for the board given Harry's strong performance," Platt said. "The board felt this was a right and necessary decision, given the circumstances. We have fought hard to restore our reputation."
Platt said the woman was a long-time Boeing employee and that she is still with the company, although he does not know if she plans to stay.
Stock has done well
Stonecipher had been CEO of two previous defense contractors, Sundstrand and McDonnell Douglas. He came to Boeing when it bought McDonnell Douglas in 1997. He retired in June 2002, but stayed on the board of Boeing.
When he came out of retirement in December 2003 at age 67 to assume the top job, his comments suggested he intended an extended stay.
"We're not here on an interim basis," he said. "I have a lot of work to do before I start looking for a successor. I didn't come here to start looking for a successor."
But Platt said Stonecipher had been intending to leave in May 2006, which had prompted the board to discuss a succession plan, including possible candidates to be CEO. He said that while there is a plan in place, there had not been discussions with any of the potential candidates. Both internal and external candidates will be considered, Platt said.
Platt said that while Boeing will look for a CEO who can serve more than a few years, the board isn't necessarily looking for someone to serve a decade or more, as he said the demands on the CEO led to greater turnover than in the past.
That trend was supported by a survey released Monday by outplacement firm Challenger, Gray and Christmas that found 103 CEO changes announced in February, up from 92 in January and the most since February 2001.
Boeing has not recaptured the lead in production of commercial aircraft that it lost under Condit. But it had seen its stock rally 52 percent since he took over, the third best performer among Dow industrial components in 2004, as its earnings per share increased to $2.31 from $1.00 in 2003. Last month, it said it expected 2005 and 2006 sales to top Wall Street expectations.
For Scandal Inc. news, click here.
To check Boeing stock, click here.