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CEO gets $1m slap for misuse of maxims
The action, which will reduce Swanson's compensation by roughly $1 million this year, came at a closed-door board session just before Raytheon's annual shareholders meeting in Arlington, Va.
A financial sanction for an ethical violation is highly unusual in the corporate world, said Paul Hodgson, senior associate at the Corporate Library, a research firm in Portland, Maine. ''I can't remember another instance where a board has taken an action like this to admonish a chief executive by cutting his pay," he said.
At the same time, Hodgson said the move was largely symbolic given Swanson's robust $7 million pay package in 2005, which included stock, a bonus, perks, and other pay. ''A bigger hit would be to just pay his salary and to freeze his other compensation," he said.
Raytheon stock inched up 6 cents, or 0.13 percent, yesterday to $45.87 on the New York Stock Exchange. With earnings up and defense orders flowing in, shares in the Waltham-based company have been trading at their highest levels in the decade despite the plagiarism episode.
At the sparsely attended shareholders meeting yesterday, Swanson expanded his explanation of why multiple passages from other writers appeared in his popular ''Swanson's Unwritten Rules of Management," saying staff members had compiled the book from a presentation he had made at Raytheon five years ago.
Swanson, 57, said that he gave notes and other materials that he had saved over the years -- including a copy of ''The Unwritten Laws of Engineering," published in 1944 by University of California at Los Angeles engineering professor W.J. King -- to his staff in 2001 to prepare the presentation. The presentations, and the later book, which contained at least 16 passages lifted from King, helped cement Swanson's reputation as a common-sense leader inside and outside the company.
''It's clear to me now that this file contained Professor King's book, as well as other published material that was incorporated into the presentation," Swanson said. ''It was this presentation that eventually evolved into the 'Unwritten Rules' booklet. I would like to take this opportunity to specifically acknowledge that I did not properly check the source material for that presentation and did not confirm the appropriate attribution of the material. This was an error in judgment on my part which I sincerely regret."
Swanson last week took responsibility for not crediting King but said he could not specifically recall how the book of aphorisms had evolved. The New York Times first reported on the cribbed phrases on April 24 after a California blogger, Carl Durrenberger, compared passages from Swanson and King. Raytheon has distributed more than 300,000 copies of the Swanson book free since 2004.
Swanson's explanation for the origin of the rules has evolved significantly since the booklet was first published. In interviews after its release, he talked about how the rules had grown out of scraps of wisdom he picked up as he rose through the ranks at Raytheon.
The company yesterday acknowledged that some of the rules in Swanson's booklet were taken from other sources that weren't credited after the Boston Herald reported additional passages were identical or similar to those previously published by Defense Secretary Donald Rumsfeld in 2001 and the humorist Dave Barry in 1998.
Pam Wickham, a Raytheon spokeswoman, said Swanson had chosen to issue ''a blanket apology" yesterday rather than ''go one by one." She added, ''There is wide recognition that a variety of sources were used for this booklet" beyond King. Swanson, who is also Raytheon's chairman, would not discuss the matter further yesterday, she said.
Raytheon directors, while concluding Swanson's failure to credit other sources was ''inadvertent," said they determined he was ultimately responsible and had to be held to a high standard of conduct. In a statement, board members said they had expressed to Swanson their ''deep concern over the disclosures" while reaffirming their continued confidence in his leadership.
By denying him a raise in 2006, the board froze Swanson's salary at the $1.1 million he was paid last year. Swanson's 2005 compensation also included a $2.6 million bonus, $215,459 in perks such as use of company aircraft and cars, $171,397 in other compensation, and restricted stock valued at $2.9 million.
Swanson would have been eligible for a larger restricted share grant this year, but the board cut that grant by 20 percent. Restricted shares can't be cashed in right away; they are collected over three years if a company meets its financial goals. Swanson's full pay package for 2006 won't be disclosed until the company files its next proxy statement early next year.
''In the case of an inadvertent mistake, the board doesn't have many options," Raytheon's outgoing lead director Warren B. Rudman, a former US senator from New Hampshire, said in an interview. ''And the board thinks the financial sanction is appropriate."
Raytheon directors may have been trying to make a statement about the importance of executive integrity in the aftermath of financial reporting abuses at Raytheon and other companies in recent years, suggested Jon Kutler, chairman of Admiralty Partners of Los Angeles, an investment firm for the aerospace and defense industry.
''On a personal level, I think it's a bit excessive," Kutler said. ''Investors will wonder why the focus was on an issue like this rather than financial performance. But for the board, it's really an integrity issue."
Board members also may have been sending a message to employees at Raytheon and other companies, said W. Michael Hoffman, executive director of the Center for Business Ethics at Bentley College in Waltham.
''It really says something about the commitment Raytheon has to its corporate ethics program," Hoffman said. ''It shows that there are no double standards, that no one is exempt from discipline no matter how high an office he holds within the company."
Robert Weisman can be reached at weisman@globe.com. 
© Copyright 2006 Globe Newspaper Company.
