Should the Boeing Company’s recent announcement that it would be replacing its CEO, chairman of the board and a major division head this year be seen as a positive business move that restores the airplane maker’s reputation in the industry and sets it up for future growth, or an admission of a string of failures that has damaged the credibility of the board and puts doubt on its current directors’ ability to lead the company into the future? What the board does over the next several months will answer that question.
Unfortunately, the Boeing board finds itself under intense scrutiny as a string of disastrous events since 2018 have led to CEO Steve Calhoun stepping down at the end of the year, independent board chair Larry Kellner deciding not to stand for re-election and Boeing’s Commercial Airplanes CEO Stan Deal retiring. Reuters reports that Calhoun and the Boeing board have had to deal with the aftermath of:
• Fallout from the deaths of 346 people when two of Boeings best-selling jets crashed in 2018 and 2019 (before Calhoun was hired in 2020 )
• Business disruptions from the Covid 19 pandemic
• Quality control problems that have lingered throughout Calhoun’s tenure as CEO, leading to regulators placing production limits on Boeing’s 737 Max and requiring the company produce a comprehensive plan addressing quality control issues
• U.S. regulators stepping in to temporarily ground Boeing jets for safety checks
• Delays meeting production schedules to supply customers with new airplanes
Since Calhoun took over as CEO, Boeing stock lost about 43 percent of its value before seeing an uptick after the announced changes in management and the board. While some shareholders appear to welcome Boeing’s announced changes, the company will have to do more to make sure the board is trusted to lead the company into the future. Here are some issues the Boeing board will need to address in a significant way to smooth the company’s recovery from this recent stretch of crises and poor performance:
1. Demonstrate that quality and safety issues are under control.
If Boeing cannot show that its airplanes are of the highest quality and safe, the company will lose customers and shareholders. Airbus, its biggest competitor, has grown by 26 percent since Calhoun took over in 2020, which demonstrates the type of impact these quality and safety issues have had on the company. Hiring Stephanie Pope as the new head of Boeing’s Commercial Airplane division is a good start, but the company may need to visit customers and shareholders to present a “road show” style presentation that details how the company intends to upgrade the quality of its work and has put procedures in place to ensure quality and safety standards are adhered to. The company may also want to publicly announce its commitment to upgrading quality and safety standards to make sure the traveling public feels safe when flying on Boeing airplanes. Boeing will also have to meet with regulators to satisfy all their concerns.
2. Make additional changes to corporate directors.
While selecting a new board chair is a good first step, Boeing’s poor stock performance and inability to correct quality issues over a period of years has left the board vulnerable to critics who may argue that the current board is not up to the task. The board could identify potential new candidates who have experience upgrading manufacturing operations, have a background in safety and compliance or have been instrumental in turning around large corporations. While it will be difficult deciding which current board members might step down, the conversation should be had because Boeing shareholders will likely hold the board accountable for everything that happens now. The Financial Times recently reported that The International Association of Machinists District 751 is lobbying for a seat on Boeing’s board. If Boeing’s largest labor union is pushing for a board seat, can its largest shareholders be far behind?
3. Make sure the next choice for CEO meets shareholder approval.
The next person this board selects to lead the company will need shareholder support. If shareholders question the choice of CEO, the company will find it harder to rebound from its current situation. Customers may flee and the stock price may decline. Engaging with shareholders before announcing a successor may glean information that could help the selection process.
If the Boeing board can successfully navigate through this crucial moment, they will earn the respect of their colleagues and restore an iconic franchise to respectability in the marketplace.
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