Boeing Investments Win Potent Friends
Condit resigns abruptly before possible investigation?
By J. LYNN LUNSFORD
Staff Reporter of THE WALL STREET JOURNAL
Although it is under fire from many quarters for perceived ethical shortcomings, Boeing Co. may still have a large reservoir of goodwill in Washington that its newly appointed chairman and chief executive, Harry Stonecipher, can count on to help rebuild the reputation of the aerospace company.
Like other big contractors that do much of their business with the Pentagon, Chicago-based Boeing has hired or given consulting contracts to several former top government officials. But more than most of its peers, the company also has invested heavily in funds run by venture-capital firms that either employ or are advised by well-connected Washington insiders who could conceivably carry the Boeing message to decision makers.
In recent years, Boeing has committed to invest around $250 million in 29 or so venture-capital funds scattered around the world, the company said. One of its biggest commitments -- some $20 million -- is to Trireme Partners of New York. A principal in Trireme, which invests in homeland-security technologies, is Richard Perle, a former Reagan administration assistant secretary of defense who until March was chairman of the Defense Policy Board, which is a group of former high-level military officials and security experts that advises the defense secretary. Boeing's other big financial commitment -- again $20 million -- is to Paladin Capital Group, a Washington, D.C., firm that runs a homeland-security investment fund. R. James Woolsey, a former director of the Central Intelligence Agency and a member of the Defense Policy Board, is a principal at Paladin.
Messrs. Perle and Woolsey couldn't be reached for comment. Mr. Woolsey in March told The Wall Street Journal that he rejected any notion that contractors used their relations with Defense Policy Board members to influence Pentagon decisions. "I cannot recall a single contractor matter coming before the [advisory] boards I sit on," he said at the time.
Boeing says that it is making investments in funds run by Trireme, Paladin and other outfits in order to get access to new technologies that could be incorporated into profitable military or commercial products. "We aren't looking for someone who is going to give us access. We are looking for technology," said Miller Adams, vice president of technology planning and acquisitions for the Phantom Works, the Boeing technology unit that made the investments.
But as questions surrounding Boeing's dealings in Washington take center stage at the Pentagon and Capitol Hill, these kinds of relations are coming under scrutiny. Ken Boehm, chairman of the National Legal and Policy Center, a nonprofit government watchdog group in Washington, said that such investments in funds whose backers are also influential Washington insiders present an "appearance" problem. "How many ways can companies find to influence the government? The answer is, 'Quite a few,' " he says. "There are big gaps in the ethics rules, and whenever there is a gap, that's what people do."
To be sure, other defense contractors also have plenty of former defense and intelligence officials on their payrolls, but Boeing's peers apparently haven't invested as aggressively in venture-capital firms. A spokesman for Los Angeles-based Northrop Grumman Corp. said it invests in venture-capital funds "from time to time," although he said such activity was "not anywhere to the size and scale" of that described by Boeing. "We invest in small companies that provide access to key technologies that are specific to areas that are important to us," he said. He declined to say how much money the company invests in such ventures, nor could he provide a list of them. A Lockheed Martin Corp. spokesman said the company sometimes invests in venture outfits, but he wasn't able to provide details on the size and scope.
In the case of Trireme Partners, communications began in February 2002, when Trireme approached Phantom Works with an opportunity to invest in its new fund. Boeing says its due diligence found Trireme had a strong technical team and a good financial track record. Boeing says none of its interactions with Trireme involved contact with Mr. Perle.
Suspicions about Boeing's use of its network of Washington contacts have been inflamed by dozens of e-mails obtained and released by Sen. John McCain (R., Ariz.), a critic of a Boeing deal with the Air Force to lease and sell 100 aerial tankers. That $17 billion deal is being reviewed by the Pentagon in light of recent management turmoil at the company. While Boeing was seeking to persuade lawmakers that the deal was a good one, it had under contract as consultants two current members of the Defense Policy Board and a former member, the e-mails showed.
Boeing has been building its military business at a time that commercial aviation markets are in a slump. But the company is struggling to rebuild its reputation with the U.S. government after almost a year of negative developments on Pentagon contracts. Last month, Boeing fired its chief financial officer and another top executive for allegedly unethical conduct. And this week the company's chairman and chief executive, Phil Condit, resigned.
Mr. Perle stepped down as chairman of the Defense Policy Board in March after questions were raised over whether he had violated ethics laws by representing companies, including telecommunications company Global Crossing Ltd., that had dealings with the Defense Department. The Pentagon's inspector general determined that Mr. Perle hadn't violated the law and he remains on the advisory board as a member.
In August, Mr. Perle, in his capacity as a member of the American Enterprise Institute think-tank, co-wrote an opinion piece that appeared in The Wall Street Journal arguing in favor of the Boeing tanker deal. He said that without the deal, "projecting and sustaining air power would not be possible." Some Boeing critics had questioned whether the company had ghost-written the op-ed piece. Boeing said yesterday that it had briefed Mr. Perle in his capacity at the American Enterprise Institute but that it "neither authored, nor placed" the piece, but did fact-check it.
Write to J. Lynn Lunsford at lynn.lunsford@wsj.com
Updated December 5, 2003 |
