Boeing 737 Max: New CEO must transform company’s entire culture
From my long-time friend, Michael Stumo:
A Boeing 737 Max crash killed my daughter. Boeing’s board and CEO don’t inspire optimism.
Since the death of my daughter in the Ethiopian Airlines crash, I’ve learned more about aviation than I ever dreamed, and how Boeing let safety slip.
I never noticed who ran Boeing until their plane took my daughter’s life. Now I know more than I ever dreamed about aviation safety, and I know that a bad board of directors can cost lives.
Boeing has become a personal issue for me since my daughter, Samya Rose Stumo, died March 10 in the crash of a Boeing 737 Max 8 operated by Ethiopian Airlines. Samya was charismatic, intelligent, beautiful and caring. Since the crash, our family — and many other victims’ families — have endured grief, exhaustion and depression while adjusting to new, diminished lives.
David Calhoun started as the new CEO of Boeing this week. However, he has been part of a problematic board for the past 10 years of bad decision making at Boeing. He is thus partly responsible for 346 lives lost after two crashes on the 737 Max.
Might Calhoun save the company? Only if he replaces executive and board management with new leaders focused on product performance, innovation and safety rather than simply generating cash for shareholders.
My family and I have learned more than we ever wanted to know about the design, certification, regulation and production of commercial airplanes. Boeing’s change of management is not new, but its officials must chart a new course and tell shareholders to accept a cut. The company must focus on rigorously instituting best performance practices befitting a national champion aviation and defense company.
Concerns about Boeing’s board
Calhoun must decide whether Boeing will continue to be a dividend rock star, or become a performance and safety champion. Will it compete with companies interested in massive investor payouts, or instead compete with members of its own industry, like Airbus and Lockheed Martin, to produce the most innovative and safe aircraft?
These changes are crucial. But I’m concerned that Boeing’s board of directors remains the source of its problems.
To start with, Calhoun comes from a background working under Jack Welch at General Electric — when the company transitioned from making great products toward a finance-oriented approach. Other Boeing leadership also came from GE, including board member Mike Zafirovski and former CEO W. James McNerney. In response to a 2014 comment from McNerney about Boeing employees "cowering" while he was CEO, one machinists union labor leader said, “The Jack Welch style of anti-personnel management is still alive and well at Boeing.”
In 2011, Calhoun and the rest of Boeing’s board faced a challenge from an Airbus aircraft. To save money, they chose to build the 737 Max by using an old frame design rather than develop a new aircraft.
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From 2016 to early 2017, Boeing fired engineers and reduced its commercial airplane workforce by almost 8,000. In the first few months of 2017 alone, Boeing cut 1,332 engineering and technical jobs from its Washington state workforce.
One engineer, who was laid off after the Max was certified, told Bloomberg, “They were targeting the highly paid, highly experienced engineers. Over time, that’s eroded the company’s ability to successfully design and manage programs.”
From 2013 to 2019, the Boeing board voted to spend what amounted to 104% of profits on stock buybacks, plus paid out billions in shareholder dividends, representing 42% of its profits. These are funds that could have been used to pursue additional engineering and safety measures.
Former Boeing CEO Dennis Muilenburg:We are taking actions to enhance the safety of the 737 Max
Boeing lobbied to speed up aircraft certification, prompting the Federal Aviation Administration to shift aspects of certification and design oversight of aircraft from the FAA to the company. Starting in 2005, federal rules were changed to designate an aircraft manufacturer as part of the FAA’s Organization Designation Authorization program, which allowed airline manufacturers like Boeing a substantial role in determining whether their planes were safe to fly.
In fact, a 2013 Government Accountability Office report found company employees approved by the FAA were performing more than 90% of certification tasks.
Can Boeing turn around their culture?
Now, Boeing’s leadership must institute a culture focused on safety in more than name. But it is unclear that Calhoun or many Boeing board members know how to do so.
We know that Boeing engineers were pressured by their managers to limit their safety analysis to keep costs down. Congressional investigators recently learned that Boeing employees had serious misgivings about the 737 Max. In internal messages published by The New York Times, one anonymous Boeing employee said in 2017 that the plane was “designed by clowns, who are in turn supervised by monkeys.”
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According to performance research firm MSCI, which ranks the quality of a company’s governance, Boeing’s board falls in the bottom third of S&P 500 companies. Why? Their pay is too much, even compared with other company boards. They have apparent conflicts of interest. And, their experience is often irrelevant.
One corporate governance expert told Fortune: “It’s as though the reforms and the additional scrutiny and the best practices of the last 20 years kind of passed them by.”
Lastly, the 737 Max might never be totally safe for flight. Federal regulators continue to discover new software problems that compromise stability and airworthiness. And we learned from a recent congressional hearing that another crucial system, the rudder cables, were not modified to address more than a dozen safety specialists’ concerns. Did Boeing or the FAA actually do thorough safety assessments on all critical systems? If so, will they make them public?
David Calhoun is an unlikely choice to guide fundamental, necessary changes at Boeing. If he is to outperform our expectations, he must shift the company’s Wall Street-oriented culture toward an aggressive focus on product performance, engineering innovation and safety excellence.
Michael Stumo lives in lives in Sheffield, Massachusetts. He is a plaintiff in a lawsuit against Boeing.