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Longtime readers of my blog know that I am a longstanding Boeing (NYSE:BA) partisan. Apart from having flown on just about every model of Boeing jet ever made (save the military ones), they were an important customer for my dad when he was an aerospace subcontractor in the 1960s and 1970s, and I've always admired them for their endurance and the core role they have played in the creation and growth of the aviation and space industries. 

Things Are Getting Better

The last few years have been hard on us BA fanboys, watching Airbus emerge from a niche player to a real competitor to a contestant with Boeing for the leadership of the business, and standing by as Boeing proposed, then withdrew, a sequence of interesting commercial aircraft that didn't make it beyond the drawing boards. 

On the upside, Boeing has significantly improved its internal processes, created the economical 787 and an updated 747 just in time to catch $150/barrel oil, and has slowed (if not ceased) developing a 737 successor because it still has a huge backlog in 737 orders, all as China and the rest of Asia discover the wonders of air travel and start expanding their fleets.  

Or Are They?

But recent news implies that the internal problems that brought about Boeing's eventual loss of a critical USAF tanker project have not yet been exorcised. Military.com is running the first in a series of articles from Aviation Week's Defense Technology International that suggest that in the selection of Boeing to supply a new combat search-and-rescue helicopter (the the kind of helos that yank soldiers, sailors, airmen, and Marines out of dangerous situations) the interests of contractors have been placed ahead of the needs of the people in the field:

The story that emerges from this study reveals how the acquisition was skewed in favor of certain helicopters from the very beginning by lawmakers and Pentagon officials, regardless of the requirements set forth by the Air Force’s own CSAR experts.

 

If true, Boeing is going to take some heat, and rightfully so. Nothing comes before passenger safety in commercial aviation, and nothing should come before the needs of the people in uniform in defense procurement. 

But if these charges have some value, I would hope that the "lawmakers and Pentagon officials" involved in the process get skewered at the same time. 

We will learn more about the veracity of these allegations soon, but it does not take someone imaginative to think that at the very least hearings are in the offing. Congressional and Defense Department Inspector General reviews are apparently already under way. 

China and the Corporate Social Contract

This lends some perspective to the challenges businesses face in China. Collusion between the regulators and the regulated to distort what should otherwise be clear commercial and technological choices is by no means unique to the PRC. It also underscores that simply pointing to the competition and saying "but everybody does it" is morally bankrupt. 

There are foreign-invested companies in China who seek to do good via acts of philanthropy or corporate social responsibility. The reaction from multinational enterprises in the wake of the Sichuan earthquakes has been huge, rapid, heartfelt, and highly commendable.

But one has to question the value of corporate community largesse when it is but a fig-leaf on a company's failure to operate by its implied social contract, which begins with its responsibility to "first, do no harm." 

A number of government officials in China have publicly reacted to the queries of enterprises and CSR consultants about what civic acts of kindness are most appropriate in China by noting that CSR misses the point. The first and most important obligation of companies in China is to hire lots of people, pay them well, and pay their taxes, all while behaving in a way that benefits society rather than damages it. 

Simply put, if we seek a more open, more transparent China, our obligation as foreign enterprises is to lead the way. Don't come to Rome and do as the Romans. It may demand some sacrifices. It may mean you lose some big contracts. But in the end, it is better both for your company and for China. 

What Happens in Seattle Doesn't Stay in Seattle

Boeing may be completely innocent of the allegations covered in the story in DTI. As a Boeing fan, I hope so. (It is worth pointing out, in the spirit of fairness, that Airbus parent EADS has come under scrutiny in Europe for a series of alleged offenses, most recently for alleged stock trading improprieties on the part of senior executives.)

But if it is not, company executives must recognize that its modus operandi in its home country will affect the way it is perceived overseas. Eventually its conduct in China would come under scrutiny, by authorities either in China or elsewhere: surely, the thinking will go, a company that engages in improper collusion with government officials in its own country would feel free to do so elsewhere, right? 

Perceptions matter. In a country that will need over 2,000 commercial aircraft in the next two decades, Boeing cannot afford such headaches. The company needs to do everything possible to clear up the matter of CSAR helicopters as soon as possible, lest it damage its prospects at home and abroad.

Source: Boeing: Helicopters, Corporate Conduct, and China's Social Contract