Rescuers carry a body bag containing human remains recovered from the waters where Sriwijaya Air … [+]
I began writing about the story of Boeing
What is critical now isn’t the what in this story, but the why. Why did intelligent, experienced leaders at Boeing take dangerous, risky shortcuts that cost human lives in two crashes, billions in lost revenue, and untold value in lost reputation? We must continue to ask questions about Boeing to prevent this kind of massive scale mistake and forge a better future.
I believe the facts surrounding the Boeing 737 ban point to a toxic corporate culture shaped by shareholder primacy and short-term profits — a culture where employee complaints were increasingly silenced, and individual’s resistance was blatantly ignored.
One such employee wrote to me after I contributed a column here on Forbes describing the horrific happenings at Boeing after records revealed that for years the company took dangerous, risky shortcuts to maximize short-term shareholder value. The letter I received, signed by a longtime Boeing machinist, begged me to continue to tell this story. He said management from time to time, talks about safety, but they don’t mean it. Look at their actions, he said. And we’re not allowed to complain. That’s the power of culture for good or evil.
The FAA became lax and is complicit in what transpired, but what drove Boeing to pull off this outrageous behavior was a culture that justified the company’s decision to take those short cuts. The actions were brazen and clearly visible. For a five-year period, in clear daylight, this once proud, creative company publicly committed to innovation and safety invested 43 billion in stock buybacks to enrich shareholders and only $15.7 billion in R&D, according to David Hay, at Evergreen Gavekal, a large private investment company. Did anyone become alarmed? The Boeing board, the financial community of brilliant analysts? Management, the culture says, has a fiduciary responsibility to maximize short-term shareholder value. Maximize in the short-term.
The real question is fiduciary responsibility to whom?
At Boeing, way too slowly, the board acted. The CEO was fired and in January of this year, Dave Calhoun, a businessman with a stellar reputation, stepped in. The losses he faced were staggering – not only the 346 lives lost in two crashes, but also approximately $86 billion for everything from the expense of fixing the aircraft, to compensating the company’s customers, and the massive number of lost or cancelled orders for the aircraft and an extra two and a half billion in the class action lawsuit. Calhoun knew the company from having been one of its directors. He started with very few public announcements. He didn’t promise much. He went to work. Months went by. Fixes and redesigns were made. In November, 11 months after Calhoun took the helm, the 737 Max is flying again. It’s clearly a most encouraging sign. I don’t know Dave Calhoun. I suspect Boeing isn’t fully where it needs or wants to be. The Boeing culture of innovation and safety will take time to fully blossom once again. My machinist correspondent and his colleagues will have to fully trust the new regime. Will he and the rank-and-file workers be properly respected, allowed to speak out, be listened to? Will the new culture change, take hold? Yes, Boeing, fiduciary to whom?
The disastrous culture and governance at Boeing is an example that must be examined. There are lessons to be learned here, by business, by the government, by the American people. Governance creates powerful cultures that drive behavior for good or otherwise. Was business created simply to make a sizable but small minority of America rich? If so, look at the results — an America where socio-economic inequality is staggering. Look further at how the pandemic is attacking and killing the vulnerable majority at exponentially higher rates.
America clearly needs for business to create—with urgency—a new governance that will forge a new and better corporate culture. The answer is not mysterious. Business CEOs know it. Mr. Calhoun at Boeing knows it. So do dozens and dozens of other corporations who simply practice it. They all know that a company must have a fiduciary responsibility to multiple stakeholders: to the customer it serves (to the innocent flying public); to the workers who must be treated with respect and paid fairly; to the corporation itself which must continue to innovate to remain competitive; yes, to the shareholders who bring capital to the table; to the vendors and support organizations who partner in a corporation’s success; to the society/communities where corporations live and work; and finally, to our ultimate home, our planet that we are close to destroying.
Fiduciary responsibility to all these stakeholders must again become the law of the land. It must replace the culture that drove Boeing with such disastrous results. Stakeholder capitalism is the solution. America is craving the powerful, sustainable, win-win culture that stakeholder capitalism can most assuredly usher in.
