Congressional hearings of CEOs under fire make for great television, but that’s pretty much all they are good for. My favorite inquisitor is California’s Katie Porter, whose takedown of Equifax CEO Mark Begor was such a delight I’ve watched it multiple times. Begor is still Equifax’s CEO.
This week it was Boeing CEO Dennis Muilenburg’s turn for a trip to the Congressional woodshed and our elected leaders rose to the posturing occasion. Muilenburg was pounded for his $30 million compensation, his refusal to resign or take a pay cut, and for ignoring a design flaw suspected as causing the crashes of two Boeing 737 Max jets. Emerging after two days of hearings Muilenburg looked like he had undergone a 48-hour colonoscopy without any anesthesia.
Despite all the feigned Congressional outrage, the hearings didn’t address the broader issues in Corporate America that ultimately led Muilenberg to ignore safety warnings. The camera preening politicians also failed to appropriately acknowledge Boeing’s conscientious workers, including an executive who resigned rather than oversee a manufacturing process they deemed unsafe. In this era of corporate toadyism and “team players,” these employees deserved recognition and applause.
Let’s first look at Muilenburg’s compensation, which in the greater scheme of things seems low when you consider that Uber CEO Dara Khosrowshahi was paid $45.3 million last year and Disney CEO Robert Iger was paid $65.6 million. The management and technical skills required to oversee a $101 billion aerospace company with 150,000 employees in 65 countries is considerably more extensive than what’s required to manage a ride sharing app company claiming to have virtually no employees or an entertainment company that makes movies, operates television networks and theme parks, and creates top grossing cartoons. Muilenburg’s decisions impact the safety of a significant portion of the world’s airliner passengers; Iger literally has Mickey Mouse responsibilities.
But CEOs aren’t compensated on the basis of the skills required to do their jobs. Rather, they are rewarded based on the wealth they create for investors. Khosrowshahi is paid so handsomely because he successfully prettied up his money-losing company for the public markets, allowing its venture investors to cash out and laugh all the way to the bank. The fact that Uber has lost market share under Khosrowshahi’s watch and hasn’t had an innovation since he joined doesn’t matter. Disney’s stock has performed spectacularly well with Iger at the helm so never mind that he earns 1,424 times the median Disney employee salary.
Muilenburg, who holds a master’s degree in aeronautics and astronautics, has been with Boeing for 15 years and seems quite competent in his job. The design flaw suspected in the 737 Max jet crashes wasn’t the result of negligence or an oversight; Muilenburg understood the potential risk but gambled that it wasn’t material. He also ignored concerns about the Max 737 manufacturing strains for the same reason.
Muilenburg’s Congressional attackers glossed over the heroism and bravery of some unidentified Boeing executives and workers. According to the Wall Street Journal, whose investigative coverage of the 737 Max jet crashes has been superb, a veteran production manager in one of Boeing’s factories warned the company’s workforce was exhausted and overly strained trying to keep up with 737 Max manufacturing demands and recommended that production be halted.
“Frankly right now, my internal warning bells are going off,” the manager said in an email four months before the first crash. “And for the first time in my life, I’m sorry to say that I’m hesitant about putting my family on a Boeing airplane.”
The manager acknowledged that a temporary halt in production “would take a lot of planning” but noted that “the alternative of rushing the build is far riskier.”
The production manager chose to quit rather than oversee a production process he deemed dangerous and irresponsible. Another Boeing employee raised concerns about the potential design flaw three years before the crash. The Journal obtained details of an internal Boeing survey which found that one in three employees who responded felt “potential undue pressure” from managers regarding safety-related approvals by federal regulators across an array of commercial planes. So much for Muilenburg’s “safety first” claim.
There are many who would cheer Muilenburg’s resignation or firing, but that wouldn’t resolve the underlying issues that led him to ignore employee safety warnings. It takes a certain steeliness and ruthlessness to become a CEO of a public Fortune 500 company and an arrogance to believe they are worth tens of millions of dollars to effectively do their jobs.
This sort of person is wired to put profits and their financial interests first and can still sleep well at night if their priorities result in the loss of life. G.M.’s Mary Barra refused to recall millions of cars with an ignition glitch, ultimately causing 13 deaths.
The Puget Sound Business Journal reported last week that a group of Boeing engineers and technical workers in California are working to form a union because of the company’s plans to move jobs to Russia and the Ukraine. In addition to the cost-savings that will be achieved offshoring jobs to these notoriously corrupt countries, it will eliminate a pesky management problem. Rest assured, Muilenburg won’t be receiving emails from Ivan and Yegor expressing concerns about safety issues.
Footnote: I was curious to see Boeing’s political contributions. According to Open Secrets, Senators Bernie Sanders and Elizabeth Warren are the biggest recipients. As both candidates say they don’t accept corporate contributions, perhaps this is an error, or they aren’t aware of the significant largesse.