I’m Boeing to Make a Killing

How the Cult of Business Education Leaves a Wake of Death and Destruction, Part

By Joel Martin

In the magical world of ivory tower economic theory, it shouldn’t be this way.

We shouldn’t be seeing new, near-weekly disasters at Boeing. Boeing planes shouldn’t be losing panels, door plugs and other bits and pieces mid-flight. We shouldn’t have seen poorly designed software and inadequate pilot training result in a crash that killed 189 people and in no rational world should we have seen a second deadly crash that killed another 157 people for exactly the same reason. We shouldn’t have to witness a company that was once the pinnacle of engineering prowess and safety floundering under the weight of engineering, manufacturing, documentation, and training flaws.

If we had ivory tower ‘efficient markets’, investors would have seen the trouble coming and fixed it. They would have hammered the stock price to bits. Management would have had to fix things right away or they would have been tossed out on their ears. Even in the context of the semi-efficient markets taught in business school, a retinue of clever stock analysts would have discovered and disclosed these problems long ago. The market would have slapped Boeing and made them fix things before they became deadly.

The concept of market efficiency is based on the notion of perfect information or, at the least, the notion that all relevant information will be uncovered and disclosed in a timely fashion because the market provides an incentive to do so. Alas, I don’t know of any real-world practitioner who believes this. There are many people, myself included, who believe that the market becomes semi-efficient over time. That is, information, good or bad, will become known to the market in the long run. The problem is that, as is often said, “in the long run we are all dead” or, in the case of Boeing, a lot of other people are dead.

Boeing didn’t used to be a train wreck in a dumpster fire. Prior to 1997, Phil Condit was Boeing’s CEO. Condit, a talented engineer, had risen through the ranks by working in many parts of the company, a typical promotion path at the time. In 1997, Boeing merged with McDonnell Douglas resulting in a clash between the “bean-counter” culture at Douglas and the engineering culture at Boeing. The bean counters won. As Jerry Useem put it in The Atlantic, “a company once driven by engineers became driven by finance.”

Money is seductive and Condit was duly seduced. Condit teamed up with Douglas CEO Harry Stonecipher, who became Boeing’s President, and subsequently CEO, to remake the company. In a bizarre PR driven stunt, Condit and Stonecipher, took off from Seattle in a flight to an unknown destination, announcing in midair that they were moving Boeing’s headquarters to Chicago. If you want to destroy the morale of the workers who design and build your product, move the people who make the big bucks 1,700 miles away from the people who do all the hard work. Management essentially gave employees the finger.

Stonecipher came up through the ranks at General Electric where he learned at the feet of CEO Jack Welch. Welch was widely known as “Neutron Jack” after the atomic bomb that was designed to kill people while leaving buildings standing. That was Welch’s MO: fire as many people as you can in order to cut costs and improve your bottom line. Why? Because the stock market adores brutal cost cutting. In almost every case, job cuts in an established company increase the value of its stock. Thus began Boeing’s plunge from the epitome of engineering excellence to the butt of late-night talk show jokes.

During the 1990s, when I went to business school, Jack Welch was the poster child of management success. There were gushing articles about him in every business magazine, articles that we read in classes ranging from corporate strategy to accounting to human resources. To be sure, there were plenty of articles that talked about his sharp elbows, but it was hard to argue with success and Welch sure had plenty of that in terms of corporate profits and, importantly, his stratospheric compensation.

If you want follow suit with Neutron Jack and cut personnel costs what better place to start than with your most experienced technical staff? They make the most money and they can be annoyingly persistent in contradicting business management when it comes to things like safety. Welch-like CEOs tend to be astonishingly self-confident and utterly intolerant of those who speak truth to power. Even if they really don’t even understand their own business, they like to surround themselves with toadies and boot lickers. (A business philosophy that took over the U.S. Government on January 20, 2017.)

In Boeing’s case its “good ole boys” corporate culture (so named by no less than Fortune magazine) continued to evolve to punish the squeaky wheels. Boeing intimidated its professional union by recording union activity and ostracizing union organizers. In 2020, it moved its 787 production from Washington State to South Carolina to further weaken unions.

In 2021, Boeing safety inspectors complained to the FAA that they were under unacceptable pressure to approve design faults and that managers would shop around to find a safety employee willing to sign off. Boeing promoted a culture of fear and engineers started being “careful” about what they said in front of management, “to avoid the threat of further staff cuts.” Boeing responded that, “At no time did our performance targets reward or encourage a trade off against safety.” Really? Try telling that to the families of the 346 people killed in the 737 Max crashes.

There are many reasons for Boeing’s legacy of failure. The cultural, knowledge and communications gulf between management and engineering is one of them. David Calhoun, the current Boeing CEO, was hired after his predecessor, Dennis Muilenburg, was fired following the two fatal 737 Max crashes.

You would think that Boeing would have hired someone who knew something about how to build airplanes but you would be wrong. Calhoun is an accountant who spent 26 years in management at, here we go again, General Electric. It’s hard to imagine how a guy with absolutely no technical expertise could fix a company where the engineers are afraid to talk to management.

In general, people don’t like to hear bad news. Cassandras are sidelined and it’s a career ending move to be a whistle blower. If management doesn’t like bad news, boards of directors like it a whole lot less, it’s an anathema. That’s my take based on experience with both for-profit and not-for-profit boards. Board members tend to love riding a wave of success but many of them blame the messenger when it comes to dealing with problems. Blaming the messenger creates a strong incentive to cover up issues.

The most important reason for Boeing’s failures is that the company rewarded its management for doing the wrong thing. Take Calhoun for instance. He was denied a $7 million bonus for not getting the 777X into service by 2023. He wasn’t incentivized for improving quality. He wasn’t incentivized for putting safety first. He was instead penalized for not rushing a new plane into service fast enough. Boeing’s philosophy of cost cutting and alienating its technical staff worked for a very long time. In 1990, Boeing’s stock traded at $20 a share. In 2019 it peaked at $422, days before the second 737 Max crash.

Over the decades, Boeing’s CEOs have reaped huge financial rewards for setting the company on a disastrous path. That’s the thing, if you cut costs and recklessly manage a manufacturing company you are almost certainly going to increase your stock price and get a big bonus. You may be tormenting your employees and setting the company on a course to killing people but those deaths will almost certainly happen on someone else’s watch. In the meantime, you’ve reaped rewards that no one is ever going to take away from you.

Calhoun is voluntarily stepping down at the end of this year. He is reportedly guaranteed $24m when he leaves. Muilenburg earned $59m for his 33 years at Boeing. Jim McNerney, Muilenburg’s predecessor, reportedly collected almost $39m in 2015 alone. Stonecipher got a lousy $11.5m in 2015 after being fired for having a Boeing vice president mistress 20 years his junior. Mismanagement clearly has its rewards.

Although there is currently a criminal investigation into the Alaska Airlines door plug fiasco, no one will go to jail, at least no one important. They never do. Boeing will face fines and lawsuits but that will come out of the Boeing shareholders pockets (including the mutual funds that may be in your 401k). The former CEOs and managers will keep their lucre. No one can claw it back.

There’s no point in pointing out problems without offering any solutions. Several things need to change to prevent problems like Boeing. Foremost, we need to provide incentives for managing companies over the long haul. That is, we need to reduce the focus on “quarterly-capitalism” where investors don’t look much past the next quarterly earnings. That’s a complicated issue that we’ll look into in a subsequent article.

There are actions that congress can take to prevent these types of dangerous, economically disadvantageous events in the future. In cases where laws or regulations are broken and particularly when lives are lost, companies should not be able to fully indemnify their senior management. CEOs who are ultimately responsible should have to shoulder part of the burden of fines and lawsuits. Management shouldn’t be able to make a mess of things and then walk away with no financial consequence whatsoever.  That may mean that the statute of limitations needs to increase for certain crimes. Laws may need to be enacted to enable the government - and shareholders for that matter - to claw back some of the money that was paid out to those responsible.

Joel Martin is a climate activist and writer for San diego350.org and The Jumping-Off Place. He is a scientist, semi-retired biotech entrepreneur, and long-time San Diego resident.