I once represented a major Canadian bank whose then management genuinely wanted their company to adhere to the highest ethical standards and practices. The company’s head of PR and corporate communications understood that a lofty code of conduct written by lawyers was meaningless if employees didn’t believe the sincerity of the stated values. He implemented a company-wide initiative called Say/Do to measure the degree of buy-in.
Employees across the country received a questionnaire detailing the company’s values and were asked to grade on a scale whether they believed the bank’s business practices were consistent with them. Much to management’s surprise, employees outlined extensive discrepancies between what the company said and what it did. The questionnaire’s findings resulted in meaningful changes to the company’s operations that ultimately helped boost profitability and made for a prouder and more engaged workforce.
It seems apparent that Boeing employees doubted the sincerity of their company’s code of conduct, which states that “integrity must underlie all company relationships, including those with customers, suppliers, communities and among employees.” Internal emails made public last week indicate that employees disrespected and disdained the company’s management, its regulators, and its customers. More alarmingly, some employees openly doubted the safety of Boeing’s 737 MAX, which was grounded after two crashes.
“Would you put your family on a MAX simulator trained aircraft? I wouldn’t,” wrote one employee.
One employee succinctly explained the 737 MAX safety issues in layman’s language: “This airplane is designed by clowns, who in turn are supervised by monkeys.”
Another employee explained the financial reasons for the plane’s safety issues. “We put ourselves in this position by picking the lowest cost supplier and signing up to impossible schedules. Why did the lowest ranking and most unproven supplier receive the contract? Solely based on bottom dollar. Not just MAX but also the 777X!”
Wrote a management pilot: “I still haven’t been forgiven by god for the covering up I did last year. Can’t do it one more time. Pearly gates will be closed.”
Former CEO Dennis Muilenberg, who was fired in December, took the fall for the 737 MAX safety issues. Muilenberg’s oversight of a company willing to cut ethical and manufacturing corners is understandable given that he was a 35-year Boeing veteran. In the annals of corporate wrongdoing, few, if any, companies, have a rap sheet as extensive as Boeing’s.
To cite just a few of the more than dozen wrongdoings outlined by the Corporate Research Project:
In 1989 Boeing pleaded guilty and paid a penalty of more than $5 million in connection with charges that it illegally obtained classified Pentagon planning documents.
In August 2000 Boeing agreed to pay up to $54 million to resolve two whistleblower lawsuits charging that the company placed defective gears in CH-47D Chinook helicopters and then sold the aircraft to the U.S. Army.
In July 2003 the U.S. Air Force stripped Boeing of $1 billion in potential revenue as a penalty for obtained documents stolen from its rival Lockheed Martin during a contract competition for military satellites.
In June 2006 Boeing agreed to pay a record $615 million to settle federal civil and criminal charges that it improperly used competitors’ information to procure contracts for launch services worth billions of dollars from the U.S. Air Force and NASA.
In August 2009 Boeing agreed to pay $25 million to settle allegations that it performed defective work on the entire KC-10 Extender fleet, a mainstay of the Air Force’s aerial refueling fleet used in Iraq and Afghanistan.
After a Japan Air Lines 747 crashed during a domestic flight in 1985, killing 520 people, Boeing admitted that it had performed faulty repairs on the plane’s rear safety bulkhead. For more than a decade after that, there were repeated reports of defects in the company’s planes.
Free market capitalists argue that a company’s primary obligation is to maximize shareholder value. The guardians of shareholder interests are corporate directors, who in Boeing’s case were paid an average of $345,480 in 2018 to oversee management. Boeing’s board in 2011 approved a cost-containment strategy to tweak the design of the company’s narrow-body 737 to compete with Airbus’s fuel efficient A320 rather than design a new airplane from scratch.
What’s notable about Boeing’s board is that five of its 13 directors have ties to private equity firms, which specialize in ruthless cost cutting. All of the five were directors when the 737 MAX project was approved. One of them is David Calhoun, who previously served as Head of Private Equity Portfolio Operations of The Blackstone Group. Calhoun was named to replace Muilenberg last year, and he assumed the CEO position on Monday.
Calhoun’s background hardly inspires confidence when it comes to aircraft safety, given that he’s an accountant by training. By comparison, Muilenberg holds a master’s degree in aeronautics and astronautics.
Boeing’s shareholders shouldn’t get off scot free if bean counting contributed to the two 737 MAX crashes. Yes, Boeing’s stock took a hit after the 737 Max was grounded, but Calhoun is said to be a turnaround whiz, so he likely will work his financial magic and get the price back up. And with former Trump cabinet member Nikki Haley joining Boeing’s board last May, the company has a direct pipeline to the president. (Boeing duly rewarded Haley for helping the company fight union organization attempts at its 787 manufacturing plant in South Carolina when she was the state’s governor.)
The silver lining in the released Boeing emails is that employees knew there were serious safety issues with the 737 MAX. It would be even more alarming if Boeing built a plane and was clueless that it was unsafe. What needs to be understood are the board pressures and influences Muilenberg and his management team experienced that led them to put profits ahead of safety. Muilenberg walked away with $62.2 million in benefits, a board acknowledgment that he didn’t engage in any wrongdoing.
When he was Boeing’s board chairman, Calhoun said in a CNBC November interview that the 737 MAX issues resulted from “a set of engineering decisions that ended up being wrong.” Notably, Boeing doesn’t have any engineers on its board. But the flying public can take comfort knowing that two of the three directors who comprise the board’s aerospace safety committee —Lynn Good and Lawrence Kellner — also graduated with degrees in accountancy.