PAUL GIGOT: Welcome to THE JOURNAL EDITORIAL REPORT. The Boeing Company, like many American companies, does not usually fire people for having consensual affairs with fellow staff members, as long as one partner does not report to the other. But this week the Boeing board of directors made headlines by forcing out its president and CEO, Harry Stonecipher, for having an extramarital affair with an employee -- an affair that broke no specific company rules, but which the Board felt might put Boeing in an embarrassing and damaging situation. The Board's decision raises questions about how standards are changing in the post-Enron world, and it shows how company directors are under pressure to act on things they once might have swept under the rug.
Here to discuss all this are: Dan Henninger, a columnist and deputy editor of the Wall Street Journal editorial board; Dorothy Rabinowitz, columnist and member of the editorial board; and Kim Strassel, a senior editorial page writer.
Kim, had you been in that room with the Boeing director, would you have agreed with their decision? Would you have voted with them to ask for Mr. Stonecipher's resignation, and why?
KIM STRASSEL: I think I would. And the reason I would was actually probably expressed best by Mr. Stonecipher himself, who said upon leaving, in the end this isn't about the affair itself, it's about the judgment of Harry Stonecipher. Let's remember that Boeing is in a very specific situation. It's not like most companies. The last CEO was forced out because of major ethical and moral scandals, and Mr. Stonecipher was brought in for one purpose, which was to restore the reputation of the company and try to save it from future embarrassment. And whether or not caring about his private affair is right or wrong, it certainly does bring embarrassment on the company.
PAUL GIGOT: Those scandals though, that you talked about were very real, were procurement scandals. That is, they were about the business of Boeing. This scandal is an indiscretion, is about personal behavior. How do -- if you're a director, are you supposed to distinguish between those kinds of ethics?
KIM STRASSEL: Well, again, maybe if this had happened at a different company. But as I said, it would be different if he hadn't gone in, been brought in specifically to save Boeing from future embarrassment. And this is the guy who came in, set up a new code of conduct, set up a new ethics system, and asked all of his employees to abide by certain new rules and to not do anything that would cast Boeing in an unfavorable light. And I think that in the end, for the Board to have then just sort of winked at this and not done anything would have sent a bad message to shareholders, would have sent a bad message to his clients, the government, and also a bad message to employees themselves, who weren't -- they kind of felt as though senior management had got them into this last ethical problem. And to turn around and then just sort of let the top senior guy, just sort of wink at him as all this happened, it wouldn't have flown well with morale.
PAUL GIGOT: Dorothy, do you agree with Kim about this?
DOROTHY RABINOWITZ: I don't really, because it reminds me of all of this paroxysms of virtue that sweep through America. This is very much in the American grain, all or nothing at all. They didn't really have to sweep it under the rug with a wink and a nod. You have to have the courage perhaps sometime to take a more moderate view of this, say, "Harry, this is not a good thing to do." But this kind of sweeping has to do with this effort to show, we are holier than thou. Everywhere there are these enormous efforts to show we are more virtuous than this company, we are more virtuous than that. And it cannot help reeking as hypocrisy. Whatever reasons you establish for this, the special nature of the problem, it's a very extreme position to take.
PAUL GIGOT: Dan, there's also this issue of the obligations of the corporate directors. I mean, they have to look out for the interests of the shareholders, who are the owners. The stock of Boeing had gone up 50 percent on Harry Stonecipher's watch. He had really righted the ship after those difficult days. He was doing a great job selling Boeing aircraft after some difficult times. What about the interests of shareholders here?
DAN HENNINGER: Well, the interests of shareholders are paramount. And I think the role of the CEO in a big public company like this is unique. The CEO is not just one of the boys. I think you can go so far as to say the CEO today of a company like this has to be the shepherd of his flock. They are a public face. They are exposed to a public exposure when something like this happens, and it can damage the company from top to bottom.
It may not seem fair, and we may not want to assign this standard to anyone else in the company. But the CEO in the age we live in, I think, has to -- I mean, this is what they give him all this money and all these stock options for -- you have to be special. And this is part of it, and if there is a problem with ethics in corporate America today I think it has to go top down from the CEO. And because of the uniqueness of his position, you can't expose yourself to this danger.
PAUL GIGOT: So the CEO doesn't have to be just Caesar, he has to be Caesar's wife now.
DOROTHY RABINOWITZ: Kim, you pointed out that Harry Stonecipher himself had set up, he set up a system of telling all. There's something intrinsically wrong with this ratting process. I mean, don't you really think that this guy who picked up this e-mail, this very explicit e-mail that Mr. Stonecipher sent, and reported it -- can anybody really imagine that this is done for the highest good of the company and not with utter and complete malice? I mean, you could make an argument for how terrible Stonecipher's behavior were if he were having his assignations in a Boeing, for example, with this woman, and somebody took a picture. But there's something really ugly about the extent of this moral scourging.
KIM STRASSEL: But this is also the reality of today. I mean, you cannot commit anything to e-mail without the worry that it is going to come out at some point. And you can argue, too, that this is the tail -- I mean, this is the beginning of what could be a lot worse. When these e-mails come out, it's going to be extremely embarrassing. And I think that they will come out.
PAUL GIGOT: Another point here is the responsibility of the directors and the pressure they're under to hold CEO's accountable. You know, there's been settlements recently and cases, WorldCom and Enron, where the directors have been personally financially responsible, having to pay out of their own pocket. In the WorldCom directors, 10 directors, 18 million dollars out of their own pocket until the case collapsed on a legal technicality. But suddenly they are under pressure to be very tough on CEOs. So if you get one of these cases and they don't fire the CEO, they have to think what responsibility am I going to be under? Who's going to look at me? And will I be financially culpable if we don't do it?
KIM STRASSEL: Well, you get back to this question, too, of restoring reputation, which goes exactly to this. I mean, in today's environment where everyone is concerned about corporate conduct, when you set out to restore reputation it's a long-term process. And I think that gets to why Boeing had to do what it had to do. You have to look good every step of the way. You can't just turn your head for one little thing. You're going to take the black mark away from your name. You've got to be diligent, or you risk losing all the credibility you've been trying to build up.
PAUL GIGOT: Okay, last word, Kim. Thanks. Next subject.