Undervaluing experience and overvaluing leadership: the ballad of Boeing

We’ve discussed this before, but this is a good summary of the terrible corporate culture that has been disastrous for Boeing, but not just for Boeing:

It seems hard to remember now, but until quite recently, Boeing had a sterling reputation. For the second half of the 20th century, the plane-maker leaped from strength to strength, propelled by a fierce commitment to the quality of its engineering. In the 1960s, it gambled big on planes like the 737 and 747, investments that could have bankrupted the company but instead created air travel as we know it and made Boeing the undisputed dominator of the industry. Europe’s sole hope of catching up was to form a conglomerate of smaller manufacturers called Airbus. Boeing only grew more powerful, eventually swallowing up its main domestic rival, McDonnell Douglas, in 1997. Between them, they sold two-thirds of the world’s commercial aircraft.

But that merger contained the seeds of Boeing’s current problems. McDonnell Douglas was run by a man named Harry Stonecipher, who was an acolyte of Jack Welch, the longtime head of General Electric who was viewed at the time as “the Manager of the Century.” He espoused the view that a corporation’s first and only duty was to maximize shareholder value — or, to put it in simpler terms, to make its own stock price go up in the short term. No other concerns — environmental degradation, employee well-being, or even its own long-term viability as a company — could even be entertained, let alone prioritized.

Though his was the company being acquired, Stonecipher wound up as the largest shareholder in the new Boeing and became its CEO. Under his direction, Boeing began developing a new wide-body, the 787. For the first time in its history, the company outsourced the design of components to subcontractors in order to save money. The process was a disaster and the project went wildly over budget. After Stonecipher was forced out following the discovery he’d had an extramarital affair with another executive, the company in 2005 replaced him with another Welch disciple from GE, James McNerney.

To support its share price, the company under McNerney poured billions into stock buybacks instead of investing profits into the kind of research and development needed to stay competitive. McNerney decided not to spend billions of dollars building a new plane to replace the 737. Instead, Boeing tweaked and updated the existing model and called it the 737 Max, outfitting it with larger, more efficient engines for increased economy. Compensating for the resulting instability was a secretive automated system called MCAS that would adjust the plane’s pitch without input from the pilot.

McNerney also fought to deeply cut costs. On his watch, the company opened its first non-unionized aircraft production line and initiated a program called “Partnering for Success” that pushed suppliers to cut their prices by 15 percent or more. Many feared that squeezing suppliers would harm the quality of their components, but McNerney was determined to recoup the cost of the 787’s development; if the subcontractors complained, they could find their work taken away from them, as happened to landing-gear-maker United Technologies Aerospace Systems.

McNerney retired in 2015, handpicking his successor, president and COO Dennis Muilenburg. Over the next three years, Boeing’s stock price more than doubled as it sold new planes the world over. (As Bloomberg News reported, Muilenberg and McNerney “had personal reasons to emphasize productivity and cost-cutting” because their compensation was tied to share performance. Together they took $209 million in total pay over seven years.)

Then on October 28, 2018, a 737 Max operated by an Indonesian carrier suddenly crashed. Four months later, an Ethiopian Max did too. The cause in both cases was soon identified as a malfunction in the MCAS system meant to make the latest generation of 737s stable during flight. With 346 people dead, the Max fleet was grounded for nearly two years, costing Boeing billions. Even worse for the company, in 2019, Airbus overtook Boeing as the world’s largest plane-maker. That same year, the Boeing board fired Muilenburg and replaced him with David Calhoun, another McNerney acolyte. Muilenburg “was the hapless guy that was put in place for that purpose by McNerney,” says aviation analyst Richard Aboulafia of AeroDynamic Advisory. “This is all Game of Thrones shit.”

As the article goes on to point out, with all that’s happened the company is still salvageable — competition is limited, the planes that are actually assembled properly remain good, and the 737 Max is still sold out for years — but it will take a decisive break from the culture of the less successful company whose culture swallowed that of the more successful one because this entailed more short-term money for the people running the company.

But a lot of damage has been done and critical experience lost, and it won’t be easy to replace. R.I.P. John Barnett:

John Barnett had one of those bosses who seemed to spend most of his waking hours scheming to inflict humiliation upon him. He mocked him in weekly meetings whenever he dared contribute a thought, assigned a fellow manager to spy on him and spread rumors that he did not play nicely with others, and disciplined him for things like “using email to communicate” and pushing for flaws he found on planes to be fixed.

“John is very knowledgeable almost to a fault, as it gets in the way at times when issues arise,” the boss wrote in one of his withering performance reviews, downgrading Barnett’s rating from a 40 all the way to a 15 in an assessment that cast the 26-year quality manager, who was known as “Swampy” for his easy Louisiana drawl, as an anal-retentive prick whose pedantry was antagonizing his colleagues. The truth, by contrast, was self-evident to anyone who spent five minutes in his presence: John Barnett, who raced cars in his spare time and seemed “high on life” according to one former colleague, was a “great, fun boss that loved Boeing and was willing to share his knowledge with everyone,” as one of his former quality technicians would later recall.

But Swampy was mired in an institution that was in a perpetual state of unlearning all the lessons it had absorbed over a 90-year ascent to the pinnacle of global manufacturing. Like most neoliberal institutions, Boeing had come under the spell of a seductive new theory of “knowledge” that essentially reduced the whole concept to a combination of intellectual property, trade secrets, and data, discarding “thought” and “understanding” and “complex reasoning” possessed by a skilled and experienced workforce as essentially not worth the increased health care costs. CEO Jim McNerney, who joined Boeing in 2005, had last helmed 3M, where management as he saw it had “overvalued experience and undervalued leadership” before he purged the veterans into early retirement.

“Prince Jim”—as some long-timers used to call him—repeatedly invoked a slur for longtime engineers and skilled machinists in the obligatory vanity “leadership” book he co-wrote. Those who cared too much about the integrity of the planes and not enough about the stock price were “phenomenally talented assholes,” and he encouraged his deputies to ostracize them into leaving the company. He initially refused to let nearly any of these talented assholes work on the 787 Dreamliner, instead outsourcing the vast majority of the development and engineering design of the brand-new, revolutionary wide-body jet to suppliers, many of which lacked engineering departments. The plan would save money while busting unions, a win-win, he promised investors. Instead, McNerney’s plan burned some $50 billion in excess of its budget and went three and a half years behind schedule.