Disclaimer: I work for Boeing’s business competition. Nothing in this post is intended to be a blanket condemnation of Boeing, but it does (and has) condemned some of Boeing’s corporate leadership. I don’t maintain, either, that this could never happen here. Also, this is less about Boeing as a company than it is about an incidence of corruption and abuse of power in government acquisition. I don’t maintain, either, that the Pentagon is the sole repository for this kind of corruption. It is, however, where this particular boil festered.
Now, on to the story. Darleen Druyun first popped into visibility, as far as most of the public is concerned, when she was tried and convicted of violating federal law for conducting discussions and making agreements for future employment with Boeing while being employed by the government in a capacity where she could influence and even execute acquisition decisions in Boeing’s favor. This is sort of a deliberate understatement, so I’ll let some of the media elaborate:
Druyun, 57, was sentenced last fall after violating federal conflict of interest laws by negotiating a $250,000-a-year job with Boeing, the Pentagon’s second largest contractor, while managing the Air Force’s federal contracts. Druyun admitted to favoring Boeing in at least four separate contract negotiations, in exchange for jobs for her daughter and son-in-law.
Some more media information can be found in the usual places. The current soiree (courtesy of the inaccurately yclept poster MattBastard) is over erasure of names of various other people who may or may not have some culpability in this whole mess. My position: release all of the names, and if you feel you need to, do a press release providing context. Ostensibly we’re all adults, here.
Background on the story: the USAF badly needed to update its fleet of aging (up to 45 years old) KC-135 tanker aircraft, but (as I recall) Boeing discovered a way to cut the Pentagon’s up-front costs while simultaneously increasing its profits by leasing modified 767 aircraft to the Air Force. The details of the deal can be found here. Conspiracy theorists will delight in finding Paul Wolfowitz in the midst of the negotiation, but probably despair that Donald Rumsfeld put the brakes on this program about a year ago.
Now, this notion of saving money now by leasing is fairly new (in my experience) to military acquisition, but old hat in the sense that lease-purchase agreements on automobiles are fairly common. This part of the deal isn’t immediately objectionable, although it is distinctly out of character and sort of begs for a ferreting-out of particulars. What crosses the line into outright violation of the law is this:
In October 2002, at the height of the tanker negotiations, Druyun and Sears met secretly at an airport in Orlando to talk about her proposed Boeing job and the F-22 fighter which Boeing was involved in.
"Right there, on that one day, in that one 30-minute meeting, a violation of federal law occurs, because they’re negotiating employment and they’re doing business at the same time," says McNulty.
How much did Boeing’s top executives know about the meeting and the illegal negotiations? One Email that Sears sent to "The Office Of The Chairman" of Boeing said: "Had a ‘nonmeeting’ yesterday . . . Good reception to job, location, salary. Recommend we put together a formal offer.”
In November 2002, Druyun accepted an offer to be deputy general manager of Boeing’s missile defense systems — with a $250,000 salary and a $50,000 signing bonus.
I’d guess the thinking here is that Druyun didn’t have a hand in acquisition of missile defense systems, therefore this wouldn’t really attract much attention. Oops. The crime?
Earlier this year, Ms. Druyun pleaded guilty to conspiracy to violate Title 18, Section 208(a) of the U.S. Code, which governs acts affecting personal financial interest. Ms. Druyun negotiated employment with the Boeing Corporation while employed as an Air Force acquisition official.
This is really the best summary of the case I’ve seen:
A Growing Military Contract Scandal
When the Lockheed Corp. lost a $4 billion contract to Boeing in 2001 to upgrade the electronic controls of the C-130 transport plane — a plane that Lockheed itself had designed and built for the Pentagon since the 1950s — the tight-knit world of military contractors was stunned.
The person handing Lockheed that harsh blow was Darleen A. Druyun, the No. 2 weapons buyer for the Air Force, with the authority to pick and choose among bids for multibillion-dollar military contracts. So strong was Druyun’s reputation for hard work and rectitude that no one questioned her startling decision.
Today, Lockheed is once again in shock, but for different reasons. It turns out that it was competing in a rigged game — one in which Druyun, who left her civilian position in the Pentagon last year to take a job at Boeing, now says she tilted in Boeing’s favor out of gratitude for its hiring of her daughter and her daughter’s boyfriend. Lockheed is now talking to its lawyers, and the Pentagon and its extensive network of military suppliers is caught up a scandal that only grows by the day.
The career of Druyun, once the most powerful woman in the Air Force, of course, is over. Last week, she was sentenced to nine months in prison, for having steered billions of dollars in Air Force contracts for four critical weapons systems to Boeing and for having overpaid the company as well.
And that’s just one of the many contracts Druyun had authority over. Druyun herself confessed to favoring Boeing:
But it turns out that the tanker deal wasn’t the only "gift." At her sentencing, Druyun stunned the Pentagon when she admitted swinging two other contracts Boeing’s way, together worth another half billion dollars.
She also admitted that the family jobs "influenced her government decisions" and she "took actions which harmed the United States."
Nine months in low-security prisongulag* in the Florida panhandle. Is that justice?
The aftermath has been telling. The Boeing executive who hired her, Michael Sears, has been fired and is currently serving a six-month sentence. And less obviously, CEO Harry Stonecipher has been removed, overtly for having an inappropriate sexual relationship with another employee, but I can’t help but think that this scandal and one or two others may have had something to do with it.
And somewhere in there you’ll notice Druyun claimed she was negotiating with Lockheed Martin for a job at the same time. I’d say: improbable. Druyun wrote a letter (curiously, nearly all mention of that letter seems to have been expunged from the LMT message board on Yahoo, along with the ID and posts of the guy who copied them to the message board) that was extremely scathing of Lockheed Martin management. If anyone knows where I can get a copy of that, please let me know so I can post it. I’d never seen anything like that; it kind of took my breath away, even as a former employee. And my first thought was something like: is she fishing for a job with Boeing?
*You’re welcome, Iron Lungfish.
Update: Constant reader st points us toward the Office of the Inspector General’s report on the tanker issue, which makes for interesting reading but heavily redacted. Let’s see the document with everything but the competition sensitive stuff exposed, ok? Also, here’s a recent statement before a subcommittee of the Senate Armed Services Committee, made by Inspector General Arland Jones, about two months ago. Also interesting reading, but gets more into which programs were affected.
“Nine months in low-security prison in the Florida panhandle. Is that justice?”
Let’s start with 5-10 years, and adjust:
1) Swindled/attempted to swindle the government out a huge some of money. That should be a reduction in sentence.
2) Didn’t use the word ‘gulag’ – again, worth a reduction in sentence.
3) Didn’t trash the Constitution – that’s worth an increase in sentence.
4) Didn’t directly kill a large number number of people – again, that’s worth an increase in sentence.
In the end, it’s a toss-up.
Wait, I’m confused … what does Boeing have to do with Amnesty Int’l calling Gitmo a “gulag”???
[Runs away, pelted by stones.]
Anderson, that’s such an evil crime that anybody who dares to forget it deserves the harshest of penalties(Until, of course, the AI report on Iran or Syria is needed to justifay an invasion).
It also fit in with the trend in criminal justice, that this woman got less for what she did than I’d get if I tried to do one-hundredth as much.
Yes, this is typical. “Civilized” criminals rarely get hard time.
Thanks for the breakdown. I actually heard Comptroller General Anthony Gamboa give a presentation on the two large protests before GAO that resulted from the Druyun debacle; when he explained the position the government had taken in each (that Druyun actually hadn’t had much decisionmaking authority despite being, y’know, in charge of the procurement) that dapper little man actually couldn’t describe it without snorting with laughter.
Oh, and as posted on the other thread, here is the link to the heavily redacted DoDIG’s report.
Thank you, Slarti for taking the effort to satisfy my curiosity (and indulging my laziness;)). Hopefully the redacted names are revealed before the tin-foil crowd fills in the blanks.
Full accountability is the first step to restoring confidence in corporate – and governmental – institutions. (paging Paul Martin and the Liberal party of Canada…) Of course, as you and Barry pointed out, wrist-slaps for corporate criminals are far too common and do little to bolster the confidence of the general public.
For my next request…
An open thread on Tom “Psychotherapy Is For Nazis” Cruise and The “Church” of Scientology (if the collective is willing to face the possibility of litigation from the acolytes of L. Ron Hubbard).
PS – my moniker only recently became inaccurately yclept;) I like to think I’ve mellowed with age – although I’m sure there are those in certain quarters where I’m more well-known who would do a classic Danny Kaye spit-take to hear me say that.
Hey, if folks are going to start pestering slarti for post requests, let’s not forget that he still owes us a Phantom Tollbooth thread.
tony[bastard]dismukes’ wish is my command, but it’s going to have to wait for me to reread whilst taking notes.
“Introducing Darleen Druyun….”
Well, if you say so.
🙂
Now, this notion of saving money now by leasing is fairly new (in my experience) to military acquisition, but old hat in the sense that lease-purchase agreements on automobiles are fairly common. This part of the deal isn’t immediately objectionable,
Actually, I think that any time the government uses leases to acquire equipment the deal merits very careful examination, and is almost surely a bad idea.
A lease is basically a way to borrow money from the vendor. Now, the United States Government can borrow money from the financial markets more cheaply than any other entity in the world. (generic snark about Bush deficit here). When it starts borrowing from Boeing instead something very funny is going on. I will say CBO and OMB appear to have been on the ball, as the $22 billion figure looks about right.
This story is one reason Europe collectively shrugs when the US comes complaining about Airbus subsidies.
I didn’t imagine that I was the only one who knew about this, Gary, but if you’re doing this to self-tootle, consider it already done. Note to self: search Gary’s blogs before posting.
Yes, I agree. Which is why I said: This part of the deal isn’t immediately objectionable, although it is distinctly out of character and sort of begs for a ferreting-out of particulars.
Except, well, this isn’t a civilian aircraft we’re talking about here, and we don’t typically shop for military prime contractors overseas. I understand the sentiment, but it doesn’t apply here. What might be comparable is if we subsidized our steel industry so that it’d be price-competetive overseas. Or instead of placing supports on sugar prices, we paid the sugar industry to lower their price.
Boeing has gone downhill since Schrontz retired and Condit took over the reins. The best way to spit on Condit’s awful legacy would be to move its HQ back to Seattle, for a start.
While Rumsfeld may have had and exercised formal authority to cancel the deal, it takes a little chutzpah to actually give him credit for it. As best we can tell (given all the redactions) Rumsfeld was pushing this deal as hard as anyone (at the very least he certainly was not objecting to it). In this case, McCain was *the* reason the deal did not happen.
What does it say about a company and politics today when the company is willing to move its HQ from a place where it has long-standing history and community ties half-way across the country simply (AFAICT) to be in (or near) the district of the Speaker of the House of Representatives?
I suppose crazier things have happened, but if that had any element of truth to it, Lockheed and a whole host of other companies would also have relocated to Chi-town. Also, I think it would’ve been smarter had they relocated to Phoenix, but chasing the Armed Services Commission chairman around is probably more dicey.
Re the leasing aspect, it’s worth noting that leasing is not just a financing vehicle but one that’s designed to put depreciation deductions where they’re most valuable, which means that there’s some foregone tax revenues built into the deal along with the financing costs. Since nobody would be taking depreciation on the aircraft if the government bought them outright, the foregone tax revenue is another piece that ought to be figured into the total cost of the leasing deal.
That sound you just heard? My eyes glazing over. My brother used to be a tax accountant, but we never talked shop. Mostly, you know, because he was about as disinterested in missiles as I was in tax law.
Why? It’s not as interesting as statistics, but it’s up there. Of course, I’m reading the book ‘SAS Proc Tabulate by Example’, and just finished with most of ‘Cody’s Data Cleaning Techniques Using SAS Software’. Which, despite the title, does **not** qualify me to work in high-level accounting 🙂
Mostly, you know, because he was about as disinterested in missiles as I was in tax law.
Speaking as a fellow geek, you were clearly the one who got the brains and good looks in your family 😉
Anarch, if I weren’t quite so far over in the hetero direction…
Not trying to get technical on you, Slarti, just noting that there’s more $ for the contractors floating around in this deal than are immediately obvious.
Come on now, DaveL, a good geek should be stone ugly. That way, he’ll be less distracted by non-geek interests, like women (or men, or ^H^H^H^H^H let’s not go there).
Anyway, what’s geeky about tax law? Fascinating stuff, I tell you, fascinating.
Or at least it beats ERISA, which is the rest of what I do.
I think I’ll go shoot myself now. Or maybe look for some non-geek interests, like getting out on the water for a while. For those of you unfortunate enough to live in one of the other 49 states, it’s a holiday here today.
DaveL,
True, they get a depreciation deduction, but isn’t it also the case that on a sale they would take a deduction for Cost of Goods, effectively telescoping all the depreciation into one year? The implications of the two deals for taxable income are not altogether clear to me.
Sorry, slarti and Anarch, but you guys have no idea how interesting this stuff is.
(Actually, the very fact that it’s sleep-inducing to sensible people is what makes it fertile ground for such a vast number of scams, which in turn makes it sort of interesting. You didn’t know there were paradoxes in accounting, did you?)
Amazing day when I agree w/ C. Bird. Yes, Boeing hdqtrs should be moved back to Seattle. Xerox proved that splitting up the corp in this fashion is not cost efficient. Besides, the word in the legal community was that Condit moved b/c wife no. 3 d/n like running into 1 & 2 and Condit d/n like living in a community property state in case he decided for no. 4.
For anyone interested in the government/military relationship with defense contractors, you may like to check out “The Weapons Acquisition Process: An economic Analysis” by Merton J. Peck and Frederic M. Scherer (1962) and “The Weapons Acquisition Process: Economic Incentives” by Frederic M. Scherer (1964) both from Harvard’s Graduate School of Business Administration. Dated, but good analysis of early Cold War period and why the industry operates the way it does.
Bernard, I would think that Boeing would be selling the planes and deducting COGS either way, but in the leasing deal, there would be a special-purpose entity holding the planes and spinning out depreciation deductions to its owners. But I could be wrong about that.
Actually, what annoys me most is the interesting aspect of this. It sort of implies tax law of considerable complexity.
DaveL,
You could be right also.
Actually, what annoys me most is the interesting aspect of this. It sort of implies tax law of considerable complexity.
If that’s intended to suggest that we need simpler tax laws, I agree, but measuring business income is going to be fairly complex no matter what. GAAP ain’t simple.
IOW, I’ve been to tax arcana, and didn’t like it much.
I think tax law is interesting, but then I would, wouldn’t I. And Slarti: 😉
Mr. Yomtov–
“You didn’t know there were paradoxes in accounting, did you?”
Hmm–I wonder if Mel Brooks could be persuaded that there’s a good musical to be made out of this idea?
“My brother used to be a tax accountant, but we never talked shop. Mostly, you know, because he was about as disinterested in missiles as I was in tax law.”
<pedant> if he’s disinterested in missiles, that would certainly make him a fair interlocutor for a discussion of them, just as you would be for a discussion of tax law; possibly, however, you are uninterested in the virtues of being disinterested. </pedant>
The idea is rather older. Page 190 of Stefan Kanger’s, regarding early story conferences in 1934 for what eventually became A Night At The Opera: Groucho:
“Stefan Kanger”
Stefan Kanfer, actually.
Oh, jeez. “Page 190 of Stefan Kanfer’s Groucho, regarding early story conferences in 1934 for what eventually became A Night At The Opera.”
If Kalmar and Ruby had come up with “Springtime for Hitler” then we really would have some paradoxes to worry about.
I’m a lunatic fan of both Brooks (“You can do it, Bloom. You’re an accountant!!”) and the Marx Brothers, so I’m not surprised their ideas are that similar.
Say a prayer for Anne Bancroft.
“If Kalmar and Ruby had come up with ‘Springtime for Hitler’ then we really would have some paradoxes to worry about.”
Up to a point, but, after all, Chaplain was writing The Great Dictator in 1938, and, after all, Duck Soup, the film prior to A Night At The Opera, was made in 1933 and to some degree drew from source material from Hitler, Mussolini, and European fascism and militarism in general, although as Kanfer notes, it draws even more strongly from George Barr McCutcheon Graustark and Anthony Hope’s Ruritania.
Me: it’s sleep-inducing to sensible people
Hilzoy: I think tax law is interesting,
Given these premises, what is the conclusion?
Sensible people value their sleep?
Of possible interest is this Fingleton article on Boeing in Japan. Fingleton is infamous for peddling economic bunkum about Japan. Indeed, Fingleton presents Boeing’s current problems as problems shared by all US manufacturers, but Slarti and others may find some interesting nuggets (or conversely, idiotic statements that need correction. Hey, I’m easy to please)
Red Flags: This has to do with comments upthread about Boing moving its corporate headquarters from Seattle to Chicago –
WHENEVER A COMPANY EITHER MOVES ITS CORPERATE HEADQUARTERS OR CHANGES ITS NAME IT IS TIME TO SELL ITS STOCK.
Either of these two actions are a clear indication that the management of said company is completely out of good ideas.
Ken, good idea.
Maybe so; I was hardly defending Boeing’s arsenal of good ideas. I was simply questioning the leap to conclusions that was encapsulated in the notion that the move was to put them next to the House Speaker.
Hmmm…I just love how the author of this topic loves to include all the data of all the facts (note of sarcasm). Wasn’t the biggest contract ever to be rewarded (Joint Strike Fighter) given to Lockheed Martin and not Boeing? Hmmmm….think long and hard about that one!
Another fact – Darleen Druyun verbally accepted a job with Lockheed Martin. She did not accept it in writing though. Instead she decided at the last minute to work for Boeing. Either way it seems to me she would have still dealt with worldwide criticism with joining either company. It’s a damned if you do…damned if you don’t situation. She would have still received backlash with working for Lockheed over the JSF contract that she awarded to Lockheed.
Maybe, maybe not. We’ll never know, now, will we? BTW, if you can find me something to the effect that Druyun solicited Lockheed Martin for a job, please do post it. Plus, there’s this:
Druyun later admitted to having shown Boeing favoritism over Lockheed, which is kind of a no-no.
While I’m doing that, please give careful thought to what your point might be. Please don’t forget that Druyun admitted to favoring Boeing; she did not admit to favoring Lockheed. While considering the facts in evidence, a side trip way way over into the realm of speculation may be entertaining, but doesn’t get us anything more than unanswered questions.
“BTW, if you can find me something to the effect that Druyun solicited Lockheed Martin for a job, please do post it.”
Lockheed Martin approached her about a job. She verbally accepted it over the phone. I know she did this because as soon as the conversation was done she told me about it the same day. I told her she was crazy to accept the job with Lockheed Martin and that she hadn’t even heard from Boeing or other companies yet.
I have even seen a copy of the formal offer letter that Lockheed Martin then mailed to her after the conversation.
Dateline August 08 2007
Unable to find anything new on the career of the Dragon Lady Dryun, we request any reader to forward late info on this issue.
It may not be surprising to find that she is living confortable on her government retirement and medical benefits. All this while disabled veterans of the past wars must rely on public support in order to just stay alive.