Boeing's CEO is departing, but the company's problems run far deeper

By Therese Poletti

Troubled aviation giant needs to restore its engineering and safety reputation

'Boeing doesn't have an accounting problem or a cost savings problem. They have a safety and culture problem.'Corporate board analyst Matt Moscardi

Boeing Co. Chief Executive David Calhoun will step down at the end of the year, a change at the top that is not going to immediately fix the issues at the troubled aerospace giant, which needs to shake up its financially driven culture and get back to its engineering roots.

Boeing (BA) is now embarking on a difficult search for a new CEO - someone who can work with federal regulators, inspire employees and return the company's once-vaunted manufacturing back to world class.

Calhoun's departure, scheduled for year's end, doesn't communicate enough urgency, but it could help in the search for a successor.

"Announcing a change nine months in advance is useful from a succession-planning perspective but does not signal any perceived need for urgency," said Jo-Ellen Pozner, associate professor of management and entrepreneurship at Santa Clara University's Leavey School of Business. "If Boeing understood the problems the market perceives with its current leadership, it would have named an external successor with significant manufacturing and operations experience."

While it is a difficult question as to whether Boeing should look internally or outside the company for Calhoun's successor, the best possible candidate is likely to come from the outside, if only because Boeing's current corporate culture has been in place too long.

"Given what observers now recognize as a dire need for a change in mindset within Boeing, an outsider is likely to be much better received," Pozner said. Boeing did not give any details or immediately respond to questions about its CEO succession plans.

In addition to announcing Calhoun's departure, Boeing appointed Chief Operating Officer Stephanie Pope as president and CEO of its commercial airplanes division, effectively immediately. Pope was the former CFO of the division she now leads, from December 2020 to March 2022.

"Pope is an accountant and comptroller," said Matt Moscardi, a founder of Free Float LLC, an analytics service of corporate boards and directors. "Boeing doesn't have an accounting problem or a cost savings problem, they have a safety and culture problem."

Bill George, former chairman and CEO of Medtronic and now executive fellow at Harvard Business School, wrote in a recent article for Harvard Business School that Boeing's current problems are due to "a leadership failure that has allowed cultural drift away from Boeing's once-vaunted engineering quality."

Those problems have been widely attributed to how the company's culture changed and became far more financially focused after its merger with McDonnell Douglas in 1997. Harry Stonecipher, a former GE executive, came out of retirement to lead the merged company after an ethics scandal caused the departure of then-CEO Phil Condit.

"He [Stonecipher] said we are not going to be an engineering firm. We are going to be run like a business," George said. "That was insulting to people. That really demoralized a lot of the engineers." Instead, Boeing focused on maximizing profits on older models and used its cash for share buybacks.

Boeing is feeling the financial impact of the recent grounding of its 737-Max planes.

Now, Boeing is feeling the financial impact of the recent grounding of its 737-Max planes. Its Chief Financial Officer Brian West told a BofA conference last week that Boeing's cash flow will take a hit of between $4 billion to $4.5 billion in the current quarter. Since the beginning of January, its shares have lost about 30%, and the company has once again been the target of shareholder lawsuits.

Attempting to restore Boeing's engineering culture will be a tough job that will take years, and the company has already waited too long to get started. In addition, Boeing's board of directors should also see a shakeup, where its members that don't have any engineering or manufacturing experience step down. "Those folks have sway at the board level," Pozner said. "If discussions at the board level are focused on shareholder value, that trickles down to the rest of the organization."

No one wants Boeing to fail or fall further behind. But the company needs a further shakeup, with even bigger moves, so that real, measurable change can begin. "It takes years. You don't do this overnight," said George last week, before Monday's news. "The board has to take that position."

Moscati, the corporate board analyst, was even more blunt: "The problem with Boeing is they removed the people who had the skills to build and engineer planes from positions of power. They need to meet the Airbus (FR:AIR) challenge - finding engineers who can run a company."

More: Replacing Boeing CEO Calhoun won't be easy. Here are some ideas.

Also read: Boeing CEO Dave Calhoun leaving the company seen as good news for the stock

-Therese Poletti

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03-25-24 1902ET

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