By Erik Dolson
Boeing, maker of airplanes in America, employer of more than 100,000 Americans, major component of America’s economy and hero of America’s past wars, has become cancerous and should be cut out of the body of our capitalism.
For the good of America.
Boeing was once a company of engineers. It employed the best and the brightest who took ideas that were almost science fiction and built them into real, market-dominating airliners.
Like a healthy organ, Boeing did its job wonderfully well with a minimum of attention. Tucked up in the wet Pacific Northwest, Boeing dominated that part of Washington state not owned by Weyerhaeuser: the glacial plain from Boeing Field in the south to Everett in the north, and most of Seattle, long before the gestation of Microsoft and Amazon.
But in the 1980s, Boeing began to change. Focus shifted from building planes to growth. Originally intended to protect profit, growth became an end in itself, as did a focus in management on share price.
The hallmarks of cancer include continuous growth, limitless number of cell divisions, and invasion of tissue and formation of metastases. Boeing began to fit this description.
As with many cancers, there was an environmental component. The 1980s included a seismic shift in the concept of “success” in corporate America, epitomized by the genius of General Electric’s leader, “Neutron” Jack Welch. Neutron bombs kill people but leave buildings. Welch got his nickname by firing employees but keeping businesses, lowering cost and increasing profits.
One of Welch’s tools was “Six Sigma,” a data driven system to improve efficiency. He also had a policy of firing the bottom 10 percent of sales producers every year, regardless of their absolute performance. Stock price became a primary focus. At first Welch’s methods were successful. G.E. value skyrocketed as Welch bought and sold divisions, looking for maximum return.
Welch wanted G.E. to be the largest company in the world. Men who worked for him were sought by other companies hoping for some of the G.E. magic. This was also during a time of overall increase in stock valuations, but Welch’s G.E. and others outperformed indexes such as the S&P 500.
Welch also distributed stock to his management teams, took a good chunk himself. G.E. grew rapidly, gains in stock price became a primary measure of success, and Welch was regarded as a hero of capitalism. (It didn’t always work. Even G.E.’s stock lost half its value after Welch retired, and many of the companies that adopted his ideas did not fare much better.)
But other companies took note, including Boeing, in the 90s under the leadership of Phil Condit. Condit expanded Boeing, bought rivals such as McDonald Douglas, Rockwell Aerospace and Hughes Space & Communications, expanded operations to North Carolina and South Carolina (possibly to get away from the unions in the Pacific Northwest).
Condit doubled the size of the company and eventually moved Boeing headquarters out of its Seattle birthplace to Chicago in 2001. Boeing grew, it was profitable, but the cancer had metastasized. The company was showing early signs of disease as focus shifted away from building the best airplanes in the world to becoming one of the most valuable companies in the world.
Harry Stonecipher succeeded Condit in 2003 after it was disclosed that Boeing had been in discussions to hire an Air Force officer who was in charge of procurement of Boeing planes. One got the sense that values were open to question.
Stonecipher had worked for G.E. under Jack Welch prior to heading up McDonnell Douglas, until Boeing bought that company. At Boeing, Stonecipher was proud of the fact that he was blowing up the engineering culture at Boeing so that it would be run “like a business rather than like a great engineering firm.” (JOE NOCERA, Bloomberg) Stock price rose.
Two years later, Stonecipher was replaced by James McNerney, yet another G.E. man. McNerney had no experience in aviation. But he too was an avid cost cutter, and it was under his watch that the decision was made to “upgrade” the 737 series to a 737 MAX instead of developing a new model.
It’s important to realize that this was gaming the system. A new model would have required a full review by the FAA and other regulatory agencies. More training would be required of pilots, etc. This would slow down approval and make the plane more expensive.
In a hurry, management was more interested in driving down labor cost, outsourcing work to the cheapest subcontractor, reducing staff, and misleading the Federal Aviation Administration. Presentation of the 737 Max plane as “just another 737” was critical to its planned success, and necessary to jack up the stock price. Money saved would be used for stock buybacks, executive compensation, and growth.
Internal communication was fraying, because what employee wanted to bring problems to a manager who was trying to eliminate his/her job?
McNerney was succeeded by Dennis Muilenburg. While Muilenburg was an engineer by training and a long time Boeing employee, at this point the Boeing mindset was squarely focused on profit and share price. No one at the top seemed to be aware of, or willing to consider, what was happening on the shop floors, in the warehouses. In fact, one of the goals of the move to Chicago was to isolate management from day-to-day concerns.
So, 40 years after it began, the cancer finally resulted in catastrophe when 346 people in two Boeing aircraft died when the planes flew into the ground due to flaws in software design, possibly hardware problems, and a lack of pilot training, all of which were the result of Boeing’s focus on profit and cost cutting rather than engineering.
The company’s internal failures were exposed in 2019, but they’ve been obvious to thousands who worked for Boeing for years. Employees were not reluctant to share their opinions that the company had been floundering, but were unheeded. 2019 was simply when the disease at Boeing became known to the world. When Muilenberg told Congress after the two Max crashes that “safety is in our DNA” at Boeing, he was describing a company that had not existed for years, if not decades.
The crisis of the 737 Max is not the only example. Boeing is failing to meet military requirements for new refueling tankers, faces a lukewarm reception for its revolutionary 787 plane that was years late, and recently had an embarrassing failure when its space division shuttle failed to rendezvous with the space station.
Muilenburg was fired a month ago on December 23, 2019, but he was replaced by yet another G.E. alumnus, David Calhoun, who had worked for G.E. for 26 years and also had no background in building airplanes beyond being a director of Boeing during the time when the problems festered.
So, what’s to be done? Many will say that Boeing is too big to fail, that the impact to America and to the communities Boeing supported for generations is simply too great. But there’s another way to look at this.
The social and economic community of America is a very strong organism; diverse, vibrant, and resistant to many ailments. It often demonstrates the success of capitalism, a paradigm of production and distribution that has vastly improved the human condition.
Capitalism also heralds its accomplishments through “creative destruction.” Perhaps an American icon needs to be destroyed by the very forces that led to its dominance. Perhaps Boeing should fail so that American capitalism itself can improve and become healthy.
A healthy body sloughs defective cells so that good cells can flourish. It is when this process stops that cancer spreads and bodies die.
Corporate leaders often stress “consequences” for the less fortunate. Consequences for mismanagement are equally appropriate.
Stockholders should lose their equity. Stockholder risk will sharpen oversight. Only then can there be a return to responsibility.
Boeing should be parted out. Whatever value is reclaimed should protect hundreds of thousands of Boeing workers, pensioners, subcontractors, and customers. Subsidiaries like the military division and the space division should be broken off and sold. Money raised should be used to make reparations.
There has been an impact on subcontractors, and their employees. Communities have been harmed, and this is likely to continue. They should be revitalized.
Businesses have been disrupted. Southwest Airline built its business model around the 737, and purchased new 737 Max planes that will have been grounded for over a year. Southwest and other airlines have been harmed. They should be compensated.
Executives and board members who were complicit in the destruction of Boeing and the loss of lives should be held accountable. Money made off their dereliction of duty, if not outright criminality, should be clawed back and redistributed. It is obscene that Dennis Muilenburg’s separation package is equal to the amount set aside for families of those who died in crashes of the 737 Max.
Attempts to “save” the Boeing of the last century are doomed, because that Boeing hasn’t existed since then, and Boeing of the 21st century is collapsing. For the good of capitalism in America and the communities where it once thrived, Boeing must be excised. Several new companies could take Boeing’s place. This should be expedited and American capitalism set on a path toward a future once promised but forgotten in a maelstrom of corporate greed.
Then an biopsy should be performed, to see if Boeing, Enron, Lehman Brothers, Washington Mutual and Wells Fargo (with some executives finally facing prison) are exceptions or the inevitable result of capitalist energy. Questions need to be asked:
What is the impact on a company when stock options outstrip salary as a portion of total executive compensation? When stock price reflects an emphasis on lowest possible cost, rather than the best possible product? When the take home of top floor executives is based partly on suppressing the livelihood of shop floor workers?
Is a balance possible in capitalism between competing values, or does the system itself require dynamic experimentation, excesses, crashes and disruption that characterize the current situation at Boeing and events like the Great Recession earlier this century? Was that recession caused by anomalous corporate greed in an era of deregulation, or simply the natural outcome of a dynamic, self-regulating capitalist system? Are rules effective, even possible?
What happens when a company begins to focus on its success rather than on what created that success? When does a healthy system grow out of control and become malignant?
It will be supported to the extent that GE is to the end. Sell off and hopefully save core business that they are confident in. Move Corporate headquarters back to Seattle where they can be insulated from Wall Street and Washington DC
Wonderful editorial, Erik. Thanks!
Thank you, Mike.