Boeing needs more than Band-Aid to get accountability back
• CEO David Calhoun’s long service as director and background in private equity and at GE are anathema to the changes in culture and ethos needed
When Boeing CEO David Calhoun was asked in January how he would fix the 737 Max crisis as a long-time insider, he bristled at the label, telling reporters, “I watched the same movie you did.”
Calhoun, of course, was hardly a mere observer, or should not have been: he has been a director at Boeing since 2009. A pair of board changes announced on Monday should be viewed in that context. The rejiggering is fine, but ultimately just a Band-Aid over the bigger question of the board’s accountability for one of the ugliest periods in the firm’s history.
Directors Edward Liddy, the former CEO of Allstate and an interim leader at American International Group (AIG) during the 2008/2009 financial crisis, and Michael Zafirovski, a former General Electric (GE) executive and an adviser to Blackstone Group, will step down.
Zafirovski was Boeing’s longest-serving director at more than 15 years, while Liddy has been on the board since 2010 after an earlier stint that was disrupted by his appointment at AIG. Neither had direct experience in commercial aerospace development.
They will be replaced by Qualcomm CEO Steve Mollenkopf and former United Technologies executive Akhil Johri. Mollenkopf’s degree in engineering fits with the company’s pledge to staff its board with that kind of expertise amid criticism that it had lost sight of technical priorities in the pursuit of everhigher profits.
ODD JUXTAPOSITION
Johri brings the perspective of someone who has been on the other side of Boeing’s aggressive stance towards its suppliers and could be an asset in healing those relationships.
Cleaving off long-serving directors and those with less helpful expertise is a good and necessary move. But that is an odd juxtaposition to Calhoun himself, who is now the secondlongest serving director and whose background in private equity and as a GE executive under Jack Welch at least on the surface seems anathema to the cultural changes that are needed at Boeing.
Among the legacy directors that remain, the median tenure is nine years. Point being, more needs to be done. Shareholders will have an opportunity to lodge symbolic protest votes against the current slate at Boeing’s annual meeting, which is likely to take place in April. But there is something to be said for a more proactive, deep overhaul, much like what took place at GE.
On the bright side, Boeing seems to have finally woken up to the terrible optics of the special $7m bonus for Calhoun tied to the safe return of the 737 Max. In a filing on Monday, Boeing spelt out additional milestones Calhoun must hit by 2023 to receive the payout.
These include stabilising the KC-46 military tanker programme that has struggled with production setbacks and successfully guiding the 777X into service after the wide-body jet’s first flight was delayed by teething issues with the engine.
Calhoun must also follow through on Boeing’s commitments to build a bigger services business and finally close the company’s joint venture with regional-jet maker Embraer, which is being held up by an EU regulatory review.
SPECIAL BONUS
In addition, Boeing’s Starliner spacecraft needs to successfully complete a manned flight after an uncrewed mission in December was aborted amid what Nasa has called “critical software defects”. Calhoun must also “strengthen engineering” at the company.
It is still not clear why Calhoun needs a special bonus on top of a salary and a regular bonus to incentivise him do his job. But that lengthy list of priorities and tasks is a testament to just how deep the problems run at Boeing.
Whether a guy who has been on the board for a decade can deliver on all of these goals in a way that redefines the com pany’s ethos and culture remains to be seen.