America’s Worst Directors: Kenneth Duberstein Of Boeing: Update

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Kenneth F Duberstein has been a Boeing (NYSE: BA) director since 1997. Prior to joining the board, he was, among other things, White House Chief of Staff in 1988 and 1989 and a lobbiest.

Duberstein is Boeing’s lead director, the first among the equals who are outside directors. He also serves as Chair of the Governance, Organization and Nominating Committee and a member of the Compensation Committee. Duberstein has been on the board during a period of both senior management ethics problems and severe operating issues. He was on the board when hapless W James McNerney Jr became CEO in 2005.

The ethical tone of a public corporation is set by the CEO and the board. Chief executive Harry Stonecipher left in 2005 after it was discovered he had an inappropriate relationship with a female employee. Stonecipher replaced Phil Condit who unexpectedly resigned in 2003 amid scandals involving unethical conduct in Boeing’s military contracting practices. CFO Micke Sears left in 2003 after the board uncovered information that he had engaged in unethical and improper discussions with an Air Force official about her employment with Boeing. At that time, she was still helping negotiate a tanker deal between Boeing and the Air Force.

McNerney tenure has been flawed primarily be the many delays in the delivery of the 787 Dreamliner, one of the more humiliating chapters in American manufacturing history over the last decade. Despite the problems, the Boeing board compensated McNerney $19,444,000 in 1999 and $52,432,000 over the 2007 to 2009 period. McNerney’s compensation rose each year during the period. It is impossible to imagine how the board could have justified this.

Duberstein holds only 52,183 stock units in Boeing which is below the holdings of three other directors. His compensation in 2009 was $310,500.

Boeing’s 2009 EPS was lower than it had been in any of the previous five years, and shareholders have paid for it. Over the longer term, Boeing shares have risen from $60 in 1997 when Duberstein joined the board to $71 recently. That move has substantially underperformed the DJIA.

Boeing has been one of the worst run large American companies over the last decade, and Duberstein has been front and center as a board member over that entire period.

Update: (1/26/2010) Boeing Q4 revenue $16.6B vs $17.9B, Boeing Q4 EPS $1.56 vs $1.75, Stock drops 3.1% in premarket

Douglas A. McIntyre