Raytheon CEO’s copy controversy tarnishes record

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BOSTON (AP) – William Swanson’s record in 33 years at Raytheon Co. was unblemished. The engineer joined the defense contractor fresh out of college and rose to chief executive, building a reputation as a leader with impeccable ethics who was eager to take on the worst problems.

“He begs for bad news, particularly if you can give him bad news in time to bring resources to bear to correct the problem,” said James Fetig, a former Raytheon spokesman.

“The only time he gets mad is if you fail to tell him the bad news,” Fetig said

For Swanson, bad news arrived last week, but it didn’t come from a subordinate.

The Waltham-based company’s board denied Swanson a pay raise this year, cut his stock compensation next year by 20 percent, and issued a statement citing “deep concern” over his admitted failure to properly credit others for the folksy business advice in his booklet, “Swanson’s Unwritten Rules of Management.”

The board’s penalties amount to about $1 million for an executive whose 2005 compensation was more than $7 million. It will hit the 57-year-old hard emotionally, acquaintances said.

“I think that to have made a mistake of that nature would eat him alive inside, because he works so hard at trying to do the right thing and avoiding mistakes,” said Fetig, who had daily contact with Swanson for four years.

“It’s nothing that he would ever do on purpose,” Fetig added.

Swanson declined to be interviewed for this story.

Tony Velocci, a journalist who covered Raytheon and frequently interviewed Swanson over 15 years for Aviation Week & Space Technology, said of Swanson, “There’s no ego there.”

Velocci, now the magazine’s editor, first learned a few years ago about Swanson’s rules before they had been widely distributed. When Velocci asked for a copy during an interview, “it was almost like he was embarrassed that anybody knew it existed,” Velocci said.

The flap over Swanson’s booklet wasn’t the only recent ethics problem at Raytheon, which makes weapons such as the Tomahawk and Patriot missiles and is the nation’s fifth-largest defense contractor.

Two months after Swanson became CEO in 2003, Raytheon disclosed that the Securities and Exchange Commission was investigating alleged accounting violations at the company’s aviation unit, Raytheon Aircraft Co., from 1997 to 2001. A year ago, Raytheon paid $12 million in a settlement with the SEC – without admitting or denying wrongdoing – and its chief financial officer was suspended and replaced. In March, Swanson’s predecessor as CEO, Daniel Burnham, agreed to pay a civil fine and return part of his 2000 bonus in a tentative deal related to the probe.

Swanson goes out of his way to ensure Raytheon pays for its errors, Fetig said. After discovering design mistakes in a radar system being developed for the United Kingdom, Swanson decided that Raytheon should eat the costs from the flaws itself rather than charge customers, Fetig said.

Swanson won an award in 2004 for encouraging diversity in the company’s work force, and he has turned Raytheon’s “MathMovesU” program into a personal crusade. The campaign seeks to improve math and science education among U.S. middle school-aged students and Swanson frequently delivers speeches on the program, and has promotes it in public appearances.

If not for the flap over the booklet, last week’s Raytheon annual shareholders meeting would have given Swanson a chance to bask in his accomplishments.

Debt from an acquisition binge, which hurt Raytheon’s stock before Swanson took over as CEO, had been cut to its lowest level in 10 years. Raytheon’s backlog of contracts stood at a company-record $34.7 billion. Raytheon’s stock was up to its highest level in nearly seven years.

Swanson listed those accomplishments in a speech to shareholders, But he also offered an apology for problems caused by the booklet to Raytheon’s shareholders, board, management, 80,000 employees and the authors he failed to properly credit.

Similarities between rules in Swanson’s booklet and W.J. King’s 1944 book, “The Unwritten Laws of Engineering” were reported by The New York Times on April 24 after a blogger compared passages from King’s book with the Swanson rules. At least 16 of the 33 aphorisms in Swanson’s booklet are similar or identical to the adages published by King.

“This was an error in judgment on my part which I sincerely regret,” he said, according to a prepared text of his speech at the meeting.

Swanson admitted he should have credited King, but has said he sought to share credit for the ideas generally in the booklet’s introduction, writing, “This is really a product of experiences over the better part of a lifetime, of people I have learned from, and things I have heard and read.”

Raytheon had distributed more than 300,000 free copies of “Swanson’s Unwritten Rules of Management” inside and outside the company since 2004, earning Swanson rave reviews from such business icons as Warren Buffett and Jack Welch.

Distribution was halted after the plagiarism questions arose.

In announcing its financial penalty against Swanson, the board expressed confidence in Swanson’s continued leadership. Warren Rudman, who retired as Raytheon’s lead director after last week’s board meeting, said the panel’s investigation found no intentional wrongdoing.

“It was a mistake, a serious mistake, but not one that dealt with moral turpitude,” Rudman, a former U.S. senator from New Hampshire, said in a phone interview.

“I think people who have known him for 25 years, and deal with him and look at his whole life, recognized this was not something he would do intentionally,” Rudman said.

S.P. Kothari, a professor at MIT’s Sloan School of Management, said the flap could affect Swanson’s leadership.

“In the back of his mind, he may have a fear that there might be someone who would question his authority,” Kothari said.

Mary Anne Sudol, an industry analyst at Caris & Co., said the affair is likely to blow over. The board, she said, “sent a message (to Swanson) that actions have consequences, but at the same time, we think you’re doing a fine job as CEO – end of story.”

AP-ES-05-07-06 1537EDT

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