Working to be THE BEST

Improvements bolster commitment to ethical standards of business

While The Boeing Company has long maintained a commitment to high ethical standards in all aspects of doing business, lapses in ethical business conduct discovered by the company last year have prompted a renewed dedication to ensuring compliance with company policies and procedures, and regulatory requirements.

Boeing, determined to restore complete confidence among its customers, employees and other stakeholders, is making significant improvements in its processes and training by implementing internally driven initiatives and incorporating recommendations from four independent reviews.

These external reviews, initiated by Boeing in connection with the U.S. Air Force's inquiry into the 1998 Evolved Expendable Launch Vehicle competition and the subsequent suspension of Boeing's expendable launch businesses, examined the company's ethics and compliance practices as well as its training and awareness initiatives. The assessments also examined company hiring practices for former U.S. government employees and policies and procedures relating to internal investigations.

Based on its internal reviews and the findings from the external evaluations, Boeing focused on making improvements in five key areas: management involvement, hiring and employment practices, procurement integrity, employee training, and law department investigation procedures.

MANAGEMENT INVOLVEMENT

Responding to the serious nature of the violations, Boeing senior leadership began taking measures to address the issues immediately. Beginning in July 2003 and less than one week after the suspension was announced, Boeing Integrated Defense Systems held the first Ethics Recommitment Day, which involved 80,000 employees worldwide stopping work on a single day to focus on ethics and procurement integrity. When asked about the cost of such an activity, IDS President and CEO Jim Albaugh responded, "If we can prevent even one employee from making the wrong decision in the future, then this is worth every penny."

Last October, IDS took the added steps of establishing the Compliance Review Board and the Compliance Assessment Team. Senior IDS leaders comprise these councils, which meet regularly to ensure the implementation of compliance goals and to oversee systemic correction of any compliance issues.

To increase senior management oversight and underscore the company's heightened emphasis on ethics and compliance issues, Boeing in November established the Office of Internal Governance, under the leadership of Senior Vice President Bonnie Soodik. Reporting directly to Boeing President and CEO Harry Stonecipher, the OIG provides regular updates to the Boeing Executive Council and Board of Directors on company ethics and compliance activities. The Compliance, Corporate Audit, and Ethics and Business Conduct organizations comprise the OIG, whose mission is to ensure the culture and people of Boeing demonstrate the highest standards of business conduct and compliance.

"We want to be recognized as an industry leader in ethical behavior. The changes we've made--and will continue to make--will help to demonstrate that commitment. We intend to set new industry standards for operating with integrity," Soodik said.

HIRING, EMPLOYMENT PRACTICES

The internal investigations that resulted in the dismissals of former Chief Financial Officer Mike Sears and former executive Darleen Druyun heightened the company's focus on its hiring and employment practices. Over the last several months, Boeing has initiated new policies and procedures to ensure that all employees are fully aware of their ethical obligations, and to minimize potential conflicts of interest. Visibility of employee work histories, particularly for individuals formerly employed by competitors or the U.S. government, also has increased.

Since Sept. 22, 2003, all new hires have been required to go through an employee orientation that includes, as a condition of employment, a personal certification that he or she does not possess any inappropriate proprietary documents from another company and will not attempt to obtain any while a Boeing employee.

New procedures also prevent employees recently employed by competitors from being placed in certain key positions that could create even an appearance of impropriety. These procedures explicitly require that managers review the prior three years of work history for employees being considered for key positions. To help managers identify potential conflicts of interest, Boeing will issue new SecureBadges by the end of 2004 to nearly 20,000 U.S.-based, nonsubsidiary employees who have joined Boeing within the last three years.

To improve the process of recruiting and hiring government employees, Boeing now requires government officials who are potential candidates for Boeing positions to provide proof that they have disqualified themselves from making decisions about Boeing business before any employment discussions with Boeing may begin.

PROCUREMENT INTEGRITY

Companywide improvements to policies, procedures and training on the use of non-Boeing data and to ensure compliance with the Procurement Integrity Act have been enacted to ensure effective controls and compliance monitoring are in place.

A new enterprisewide procedure, "Trade Secrets and Restrictions on Acquisition and Use of Third-Party (non-Boeing) Proprietary Information," defines lawful acquisition and use of non-Boeing proprietary information. The procedure applies to all Boeing employees, contract and contingent labor, and consultants who may come in contact with non-Boeing proprietary information.

The most significant changes in the area of procurement integrity relate to U.S. government capture and proposal teams. Team members must now receive training on the rules, regulations and procedures governing access to or use of restricted third-party information.

For competitive U.S. government procurements valued at more than $500 million, the program/capture manager must maintain a roster of all team members. Before anyone can be added to the proposal or capture team, the manager must follow a compliance checklist and verify that each candidate member meets all requirements, including having certified that he or she does not possess and will not obtain or use a competitor's proprietary information. Employees must be excluded from these ($500-million-plus) proposal/capture teams if, within the last three years, they have helped a Boeing competitor on the same or a directly related procurement.

TRAINING

Training and awareness continue to be vital to ensuring that Boeing lives up to high standards of corporate integrity. Highly visible initiatives such as the signing of the Boeing Code of Conduct and Ethics Recommitment Days are intended to raise awareness among employees.

Most employees must take new and updated training courses, such as recent offerings on the handling of trade secrets and competitive intelligence, and on procurement integrity. In addition, curriculum at the Boeing Leadership Center has been enhanced to emphasize ethical business conduct.

While these courses are designed to help managers, training for all employees is critical. "It's important to keep in mind that ethical misconduct can happen at any level of the company. The perception may be that this is just a management issue, but the reality is that we all are accountable and must take responsibility for operating with integrity and restoring our company's reputation," said Martha Ries, vice president of Ethics and Business Conduct.

LAW DEPARTMENT MEASURES

To support the changes being made throughout the company and to respond to recommendations made in the external reviews, the Law department has implemented new and revised policies and procedures to improve the handling of investigations by its organization. A new position of Chief Counsel, Investigations, has been created to oversee all investigations conducted by the Law department.

In addition, a new procedure requires mandatory referral of significant matters to the Law department. A revised departmentwide internal investigations procedure also has been adopted. These procedures are now in place, and training for Law department employees and appropriate members of referring organizations begins this month.

THE WAY AHEAD

For more than a year, Boeing employees have been working to implement these and other changes. Yet more work lies ahead.

"Ethical conduct can't be about checking a box. It requires the continuous attention of our senior leadership and diligence on the part of every employee to keep doing what is right," Soodik said. "We have great people, and now we have an improved system for supporting them in making informed and ethical decisions."