Gus Carlson is a U.S.-based columnist for The Globe and Mail
The continuing crisis that led to this week’s high-level housecleaning at Boeing BA-N is yet another example of a corporate board choosing a chief executive officer who knows more about cost-cutting than he does about a company’s core business.
While the turfing of Boeing CEO Dave Calhoun was applauded by the company’s shareholders and others, the underlying question remains: What did directors expect? Mr. Calhoun is a money guy, an accountant by education and training, not an engineer or aviation design expert. He was plucked from the asset management giant Blackstone to solve the aircraft maker’s Max jet problems, which began in 2019 and have claimed almost 350 lives.
Those problems got worse on his watch. Widespread outsourcing in the manufacturing process in the name of cost-saving appears to have compromised quality and led to several recent incidents, including the now-infamous mid-flight door failure on an Alaska Airlines Boeing 737 Max 9 in January.
While there is plenty of blame being meted out – the head of Boeing’s commercial airplanes unit is out, and its board chair, Larry Kellner, will not stand for re-election – all directors should get a heaping helping. When the executive leadership a board chooses is focused more on the numbers than on how a company’s products work – or don’t work – bad things can happen. In Boeing’s case, those bad things are matters of life and death.
What happened at Boeing is becoming an all-too-familiar story in the world of corporate governance and a cautionary tale for every company board and its stakeholders.
Consider the recent C-suite mess at the Walt Disney Company. Like Boeing’s Mr. Calhoun, former Disney CEO Bob Chapek nearly tanked his company because he didn’t know the business. Fortunately, the only things he put at risk were the fictional lives of a few animated characters, and investors’ wallets.
Mr. Chapek’s fatal flaw: He didn’t understand the creative culture that is the core business behind Disney’s entertainment products.
Very quickly after taking the helm, Mr. Chapek implemented a sweeping reorganization that marginalized creative leaders and slashed creative budgets. He surrounded himself with bankers and put investment in technology platforms ahead of Disney’s market-leading creativity.
Disney’s fortunes turned south quickly under Mr. Chapek. Yet its board continued to reward him, upping his annual compensation, including bonuses, even as the company’s share price sank and the quality of Disney’s creative output sputtered.
After two years of chaos, Mr. Chapek’s predecessor and champion, Bob Iger, had to step back in as CEO to stop the bleeding. Still, Mr. Chapek walked away with a hefty severance package.
Remarkably, Mr. Calhoun was brought in by Boeing’s board to be the company’s saviour at a time when its products were failing and trust in the Boeing brand was thinning.
Perhaps a reference deep in Mr. Calhoun’s résumé comforted the board about his qualifications for the job. Decades earlier, he had executive oversight of GE’s transportation and jet engine business units.
What the board got in Mr. Calhoun was a textbook finance executive with a sharp pencil and a laser focus on cost-cutting – and an apparent inability to find the flaws in the value chain and fix them. The company’s failures have led to regulatory investigations, aircraft groundings and even an FBI criminal probe into the Alaska Airlines issue.
Exacerbating the problem was the fact that Boeing had fallen into the soft but deadly trap of a duopoly. With only one global competitor, Airbus, the board clearly supported a strategy of cutting costs without fear of jeopardizing sales – until, of course, their planes started falling apart.
The exit of Mr. Kellner, Boeing’s chair, suggests the board understands a fish rots from the head. But the fact that Mr. Calhoun will stay on through the end of this year – and presumably help search for a successor – suggests the board still doesn’t get it. Mr. Calhoun needs to go now. He won’t get any smarter about the business in the next eight months. Ask any Disney director about the dangers of hanging on to a compromised CEO too long.
Whether Mr. Calhoun’s successor comes from inside the company or externally is a fraught question. While it seems critical that the next CEO have legitimate credentials in the core business of building aircraft, there is a risk that any internal candidate would be tarnished by the culture that developed under Mr. Calhoun.
The lesson here is clear. Boards need to be smarter about finding executive management that understands the core business first, not just the finances. And they need to be held accountable if they don’t.
In industries such as commercial aviation, where the stakes are higher than in places like the Magic Kingdom, getting this right is the only strategic imperative.