Editorial in The Seattle Times States Boeing’s Troubles Reach to the Top—Really? That's The Same as Stating that Bears Defecate in the Woods. Why is this News Piece in the Editorial Section?
From The Seattle Times (with article my comments on the article in parenthesis):
Boeing's Troubles Reach to the Top
Tuesday's announcement of a record $1 billion charge for delays in the 747-8 should be a moment of clarity. And when all the debris of excuses and blame is cleared away, we stand at the door of Chairman and Chief Executive James McNerney and the Boeing board of directors.
Special to the Seattle Times, published 10/6/09
Delay of the 747-8: $1.7 billion.
Blunders in rolling out the "game-changing" Dreamliner:
$2.5 billion and counting.
Cost of good corporate governance: Priceless.
There are indeed some things money can't buy. (And an ethical and competent CEO and BOD (Board of Directors) is apparently one thing any amount of money can’t buy, as judged by the amount of money Boeing pays its CEO and BOD.)
Tuesday's announcement of a record $1 billion charge for delays in the stretch version of the jumbo jet should be a moment of clarity. One of the most famous names in American business (currently an infamous name, thanks to its mismanagement, I believe) is in trouble, its reputation for great engineering and on-time delivery badly wounded.
(Outsourcing of engineering has a large part to do with it, as well as using other engineering (such as B-2 ITAR design engineering) without authorization or required export licenses.)
And when all the debris of excuses and blame is cleared away, we stand at the door of Chairman and Chief Executive James McNerney and the Boeing board of directors.
(How true a statement! However, expecting him to take any responsibility for his numerous instances of mismanagement, lawbreaking at Boeing under his watch/guidance, and his numerous lies while in the position of CEO would be foolish in the extreme, considering the general lack of accountability for any mismanagement under him. The case of former 787 program head and still Boeing executive employee Mike Bair is a good example of that lack of accountability.)
McNerney, who led GE Aircraft Engines before going to 3M (whose most famous and “technologically advanced" was the Post-It note) and eventually Boeing, should ask himself: What would his onetime boss Jack Welch do with him for such performance? He'd be one more unemployed person among the six chasing every available job in this economy.
(Another gem of truth! Too bad McNerney no longer works to Welch’s management principals, especially when it comes to accountability for performance.
One huge no-no in the company rules is to create excessive liabilities for the company, the company rule prescribed consequence of, I believe, is termination. But has McNerney been terminated for the untold billions of current and future liabilities his mismanagement has created for the company? As the head of the self described most arrogant company on the face of the planet, McNerney holds himself as above compliance with any of the mandatory consequences for ill thought out or unethical behavior such as his breaking of the company rules and related Code of Conduct.
This is also extremely hypocritical in addition to being abhorrent, as it was Boeing management’s lawbreaking in the Sears/Druyun/Condit/Albaugh first tanker scandal, and the Boeing theft of Lockheed competition sensitive documents they used to rig and win the EELV program contract that led to the writing of the Code of Conduct in the first place. Ironically a Code of Conduct that is used far more often to retaliate against non-management whistleblowers who report Boeing Management’s ethical/legal breaches than it is used against any Boeing manager--even in the case of obvious and well documented management misconduct.
So, fittingly for the corrupt corporate management that runs Boeing, the Code of Conduct itself has been corrupted into an instrument to ensure continued ethical and legal lapses by Boeing Management, and an instrument to ensure that whistleblowers that speak up against such continuing ethical and legal lapses are retaliated against by creative use of the “Code of Conduct” against those non-management employees. Retaliation by the way is an illegal act when applied to a whistleblower, even if the company refuses to acknowledge the whistleblower status of the employee.
Indeed, as former Boeing ethics consultant Marianne Jennings said, companies that choose to cover up (by retaliating against whistleblowers, in Boeing’s case) will eventually have the truth outed, most often at the worst possible time for the company, and the company would have been far less damaged if they had listened to the whistleblower and admitted and rectified the fraud at that time.
Unfortunately, although Boeing hired Jennings to try to lend some legitimacy to its “Code of Conduct” program and related annual ethics training of non-management employees, and Enron was used as a case study in how a company should not handle revelations from "internal whistleblowers," Boeing is now, in my informed opinion, the most corrupt corporation in America, now that Enron is gone.
When applied only to non-management employees and whistleblowers (like me), and not to Boeing Management fraud (like the fraud I reported), the Code of Conduct is an abomination, and is itself a fraud. The Code has never resulted in any reform of corrupt Boeing Management. Instead, it has birthed a CYA response for those managers. Sadly, it is being used to do the opposite of what Boeing PR said it was supposed to do. In my opinion, it should be abolished, or made to apply only to Boeing mismanagement at all levels.)
Instead, he cruises along above the trouble. That only happens for one reason: an ineffective board of directors. (Amen! The unbelievably inept decision for Carson’s replacement as noted in my previous blog illustrates the ineptness of the BOD in diagnosing and correcting mismanagement at Boeing, including McNerney’s.)
Only directors can act in the ultimate interests of shareholders. And while McNerney's defenders would say he was dealt a bad hand with last year's machinists' strike, he has presided over repeated management pratfalls. Among them:
(McNernery has defenders? And they would blame his troubles on the last Machinist’s strike? Only a person with an amazing lack of judgment would believe that and take the role of defender. Although McNerney and Boeing P.R. created that lie in order to deflect blame from the rightfully guilty (McNerney, Mulally, and the BOD) for the 787 delays, no reasonable person would believe that a two month IAM strike resulted in the over TWO YEARS of delays (and counting on that troubled program).
Indeed, it was an attempt at union busting at Boeing that resulted in the hopelessly flawed over outsourcing of the 787 program. Mulally, Stonecipher, McNerney, and the rest of the BOD are ultimately responsible for much of the 787 delays. In fact, many people believe that Boeing forced the strike deliberately to deflect as much of the blame for the delays onto the union as possible. In fact, the company did voice that lie themselves after the strike, and used the strike as a reason to perform more of the same union busting management actions that had already resulted in over two years of delays on the 787 program. Boeing showed a marked lack of respect to Boeing employees and Washington politicians who had been powerfully supporting Boeing for decades, when they decided to put the 2nd 787 line in South Carolina, despite admitted extra costs and inefficiencies for doing so. This new 787 production line in SC should be called either the “The Right to Work for Less Line,” “The Build-a-787 Commercial Airliner Without the Required Training or Experience Line,” or perhaps most appropriately, “The 787 Union Busting Line”.
The 787 South Carolina line decision proves McNerney and the board have learned nothing over the last several years of delays on the 787 program, as they made the same type of deeply flawed and inept decision in putting the second line in SC that has so far doomed the 787 program. This clearly is a textbook example of poor decision-making on the part of Boeing. Albert Einstein, who said, “Insanity is doing the same thing over and over again and expecting different results,” contributes a quote that may apply.)
Moving ahead with a risky new, heavily outsourced supply chain for the 787, a plane that already was pushing the technology envelope. (I would hate to defend McNerney, one of the worst CEOs who ever got to that position by being in essence bred for the position rather than earning the title by merit alone, in any way, but Alan Mulally and CEO Stonecipher had just as much to do with the debacle that is the over-outsourced 787 program. But, alas, with the SC decision, McNerney in effect rubber stamped their bad union phobia driven decisions.) Worse, he was too slow to recognize the problems and rectify them. (True—much of the spin up of the program occurred on his watch.)
The shakeup in the commercial airplane unit, including the shunting aside of boss Scott Carson, came particularly late. (An understatement—not only late, but well short of the numbers that should have been booted by hundreds of mismanagers, as noted in my prior blog.) Now Boeing not only must pay compensation to some customers, it is also seeing some canceled orders. (True. And the true amount of those liabilities created by the mismanagement of Mulally, Stonecipher, McNerney, and the BOD may not be fully known for years. That data may only be forthcoming when the company files for bankruptcy because of those liabilities and other liabilities they created by their mismanagement.)
The 747-8 has brought numerous engineering and design curve balls, raising its costs — and this for a version of a long-established airplane. As Welch would say, execution is everything, and the chief executive is accountable. (Except at Boeing, of course.)
Boeing shareholders have seen their stock fall as low $29.05 in March. It was just headed back toward the highs it held last fall, despite the bank panic, when Tuesday's announcement came. Shareholders don't pay a handsomely compensated CEO to tread water with their investment, particularly when this comes primarily from leadership and operational troubles rather than the recession. (True, but Boeing should be well below where it is now. There are still many ill informed people and institutions who buy and hold Boeing stock even in these deeply mismanaged times at the company, apparently not knowing about any of the mounting public evidence (that Boeing has tried for years to hide to keep the stock artificially high) of the company's inability and unwillingness to reform the true source of its troubles--its management--before that management seals the company’s, its investors’, and its workers’ doom.)
Seattle has already seen the damage such complacent boards do. In the absence of effective regulators, Washington Mutual's Prince of Destruction, Kerry Killinger, should have been reined in or fired by his board long before WaMu assumed final approach to become the nation's largest bank failure. Instead, he had a lap dog board of cronies and enablers. (Like Boeing! I agree.)
Unlike WaMu, Boeing has a board that should be a model of independence and executive competence. There's John Biggs, the former boss of TIAA-CREF, who should be a maniac for protecting shareholders such as the huge retirement fund he once ran. John Bryson ran the parent of a tiny, simple company called Southern California Edison for 18 years. Linda Cook is executive director of Royal Dutch Shell and Mike Zafirovski (another Welch protégé) is the former CEO of Nortel. No other Boeing employee but McNerney sits on the board.
It,s a struggle to understand why a board of this stature and intelligence would allow McNerney to continue as chief executive. (An understatement.) The clubby and insular world of top business leaders should only get him so far with these directors unless it's yet another sign of even deeper troubles. (True, there are much deeper troubles, indeed. That is almost certainly why he is still there. When someone is incompetent and corrupt, firing them is dangerous if you don’t want that corruption to get out, as they know where all of the skeletons are hid at Boeing, just as at least some of the board members do. Maybe it is this fear--that McNerney lets it be known just how corrupt a company Boeing is if let go--that results in his otherwise inexplicable job security, when non-management Boeing employees who follow the straight and narrow and do not make such poor decisions have no such job security.)
One would be the kind of CEO cult of personality pioneered by Welch. (I never noticed McNerney having a personality other than one of a suntanned blueblood golfer, so that’s not it.) Another is the kind of Kool-Aid keg party held by seemingly strong boards that nevertheless bought into a flawed and insular worldview of their company. General Motors comes crashing to mind. (I agree that another likely scenario, and the fate of Boeing, will be akin to GM’s if there isn’t almost total change at the top, middle, and bottom of Boeing Management. However, GM to my knowledge has never broke the laws and regulations anywhere near the way Boeing has in order to meet financial and schedule goals, so I would say that Boeing is in a much riskier position than GM was in just before its failure.
And the board cannot say they weren’t warned about such lawbreaking at Boeing—I warned one member of the Board--the Chief Counsel—of some of Boeing’s systemic lawbreaking in late 2002 and 2003. Yet that lawbreaking continues still.)
One telling element is missing from the board. The only "airplane guy" is retired McDonnell Douglas CEO John McDonnell. Not for nothing do commenters to The Seattle Times often write of a McDonnell Douglas takeover of Boeing, and especially its executive culture, with unfortunate results. It should be obvious that making planes isn't the same as drilling for oil, running a power company or even building aircraft engines, despite what high-paid management consultants will say.
(True. As many have noted, McDonnell and his former company's former managers in lower management levels are indeed responsible for much of Boeing’s troubles, including the trajectory the company is on which is eerily similar to McDonnell Douglas’s corporate trajectory near the end. However, like Former Arkansas Governor Mike Huckabee being responsible for letting the criminal loose that recently killed four police officers in Washington, Phil Condit’s decision to merge Boeing with McDonnell Douglas was the critical mistaken decision responsible for the later carnage to Boeing by wrongly absorbed McDonnell Douglas management. But, “legacy” Boeing Management also share blame for Boeing’s current position, including Alan Mulally, as noted.)
Lucky for McNerney, Wall Street is fixated on much worse governance: The sudden "I'm taking my ball and going home" resignation of Bank of America's Ken Lewis with no succession plan. (I disagree. I think Boeing’s governance is far worse, however the results of that misgovernance have far from played out as of yet. Due to arrogant steps to obstruct justice, much of Boeing’s crimes and corruption are still yet to be outed to the general public and investors. When they are, however, investors should have a strong case for compensation for their loses as such liabilities were intentionally hidden, including being repressed by retaliation against whistleblowers that dared to bring them to the fore for action to end them before Boeing Management damaged the company and cost more lives.)
Still, Boeing shareholders are rightfully angry. And after the union and suppliers and underlings have been sufficiently kicked around, the shareholders will turn that fury on the executive suite. And the board.
(Don’t hold your breath. Any current Boeing shareholders are ill informed in the extreme in my opinion. Any sufficiently informed shareholder would have sued Boeing long ago for losses from Boeing’s numerous misstatements about the health and schedule of the 787 program alone, in my opinion. Don’t expect them to “get fully informed” any time soon because of the noted withholding of information by Boeing that would potentially affect the stock negatively. And, therefore, don't expect them do the right thing and get rid of the CEO and Board as Mr. Talton rightly alludes is a big part of the fix for Boeing’s ills.
I suspect many investors will end up like the ill fated passengers of the Titanic, their fortunes going down with “the Boeing ship” when it “sinks” because of all of the undisclosed fatal defects in its integrity and the corrupt and incompetent helmsmanship in effect steering it toward a doomsday impact with an “iceberg.” Of course, the CEO and BOD will be fine in this scenario, getting off the “ship” in a “lifeboat,” just like so many moneyed people did early in the actual Titanic disaster, before the company “sinks below the waves” as a result of their poor helmsmanship, leaving stockholders to “take a bath” so to speak.)
Unless those shareholders (and concerned employees) are heeded — and quickly — the supposed "bad business climate" of the Puget Sound region is going to be the least of Boeing's worries. (Amen to that, as well.)
End of this excellent article (not editorial, as noted), and my take on it expressed in the parenthesis within it.
You may want to follow the link to the article and view the comments on it. Most are very astute and very interesting.
A comment on this blog post by GFS:
Well stated, both original article and your comments, Mr. Eastman.
It amazes me that over so few generations the lessons learned about the necessity of unions to assure for fair and equitable treatment, compensation, and safety standards in our jobs could be forgotten. I believe I understand how desperate South Carolina workers were to agree to go along with Boeing's Siren song, and disband their unions. But it is apparent, this was a huge mistake. All I can say about Boeing is that it is clear by how they've treated Washington workers and how it appears they will treat South Carolina workers, there is no shortage of disrespect and animosity in their Boardroom for their employees.
You are right about the Washington State legislature being overly loyal and fiercely protective of Boeing. It is ridiculous the concessions that have been made to try to keep Boeing here after each outburst of threats to leave made by the company if their demands were not met.
Often these legislative decisions have not been in the best interests of the state and its citizens as a whole. For example, as I understand it, since at least the 80's Boeing has been allowed to defer its payment of taxes, which go to support schools and other state programs. At the same time, Boeing CEO Frank Shrontz, was most vociferous in his demand that Washington schools were not training people well enough for his company to hire right out of the box. Think about it and remember the financial stresses on our education system we've had to endure since the downward spiral of the timber industry funding and that education funding has continued to decline here since that time. Allowing repeated deferring of tax payments by one of our larger employers hardly makes sense.
Boeing, I am told by a Boeing employee in this area of sales, completes the signing and sale of planes in the air outside of Washington airspace, in order to claim the sale is not obligated to include and Boeing is not obligated to pay, Washington State Sales Tax. Again, think about the condition of our state budget and ask yourself if this makes any sense, especially in light of Boeing's increasing hostility and disdain for our state's citizens and workers.
I keep in mind the campaign contributions which may be researched and viewed as they have been doled out to our many elected politicians. Take a look at Senator Patty Murray's disclosure for example. The area of campaign finance reform is overdue and must be accomplished if we ever hope to have our elected officials represent the citizens, not the companies who give them campaign dollars and sometimes more.
The company had better wake up before the citizens and elected representatives in our state do. We may be slow to organize, but it is beginning to happen. A few more baskets of dissatisfied investors will be the least of their problems.
Thanks, GFS, for the insightful comment.
Agreed about unions. Although Boeing's high level of unionization in those plants it has not yet outsourced to non-union companies and union adverse "right to work for less" states is due to Boeing Management themselves not treating workers fairly, I believe all workers should unionize until states or the federal government implements real protections for workers against abuse by employers.
Even in supposedly "liberal" Washington State, companies can fire good workers for any reason, such as perceived political affiliation, and even for fabricated reasons. They can even fire for prohibited reasons by stating they did so for another reason, with the burden of proving the real reason on the employee. Such unfairness actually begs for unionization at all companies.
I've seen companies that say they treat workers with respect in order not to have them form unions, with "open door policies" for employees. However, one such company I worked for tolerated a manager that abused employees verbally when they were in a bad mood, which was about half the time. This didn't affect me personally much, but it did affect many other employees, and some may have been terminated during one of their manager's tirades. Strange how the orientations at some of these non-union companies don't sometimes match the reality of how workers are treated at the company. (The talk doesn't match the walk).
Of course, I suspect if someone owned a company or were a manager at such a company, they would be tempted to use their power inappropriately if doing so seemed to them to alleviate some neurosis they had.
Sad that so many workers have to deal with such management with no real protections from abuse (wrongful termination, etc.).
And needless to say, even what few whistleblower protections exist are severely lacking, to say the least.
And even the laws that exist are routinely broken by employers, as Boeing did in several instances, e.g., as documented in the Tides suit in District Court in Seattle.
Workers having to bring suits to get compensated for illegal whistleblower retaliation by such powerful companies who have the resources to treat such suits as mere costs of doing business outside the law is unconscionable, to say the least.
Unfortunately, unions have been under attack since the Reagan Administration. Sadly, many workers don't see a problem with that until they are a victim of unfair and/or illegal management practices.
For many non-union employees, doing a great job means nothing (and in some jobs, like QA at Boeing, doing a good job can get you in trouble with management). Only golfing, hunting, or shining the car of your boss can ensure real job security. Sadly, suck ups exist at many companies who lower themselves to just that.
You are right, S.C. workers lowering their own standards and protections enough to lure Boeing there is a sad thing. Given the economy, many people probably don't blame them for in essence prostituting themselves for those jobs.
Washington politicians went down that road as well as much as they thought they should to get those jobs. However, they realized later that they were only being used by Boeing for more concessions from S.C., and never had any chance of getting the second line no matter what they did.
However, this distasteful process was the entire fault of Boeing Management. It was in essence the "John" pulling up to the curb and looking over the "wares," making each candidate compete distastefully against each other, seeing who would lower their standards most to be selected, albeit, as noted, it never was a fair competition.
Boeing's "spouse" (its own IAM workers) were never considered in that competition, just as married Johns ruled their wives out as a consort before going out looking for other women for a price.
Of course, this analogy is far from perfect, and distasteful in itself (as the real process was). A case could be made for an analogy in which Boeing was the prostitute and the states bidding for Boeing's business the "Johns."
Those who know my writing (like the FAA) know my penchant for "unfortunate but apt" analogies. It is one way they know I was really the writer, LOL.
There must be a way to stop these distasteful competitions in the future. If Washington's politicians or the IAM and SPEEA were powerful enough, maybe that would have stopped such a "race to the bottom" type competition for jobs by desperate states and their residents. But there must be other methods.
It is the same as outsourcing jobs to the lowest wage country's workers. Whether Boeing's name is on the building is immaterial, in my opinion. At any ethical, competent, upstanding company, you must have high standards and maintain them (not lower them as time goes on) and the good will of all of your employees.
You are right about the importance of taxes from good corporate citizens being very important to the state financial condition, as well as financing good educations for future workers at those companies.
Certainly, Boeing didn't select S.C. for its educated workers or its well funded infrastructure by corporations paying their fair share of taxes. S.C. is near the bottom of all 50 states in education.
You would think by Boeing's actions that building airplanes doesn't require smart, educated people. Not so.
In fact, I also believe past BCA Presidents and Boeing CEOs complained that Washington's education system wasn't sufficient to train the workers they needed to build airplanes. What a 180 degree turnabout in management "thinking" at the company.
Yeah, I heard the same thing about Boeing performing such flights to avoid sales tax. Strange, but people in Washington going to Oregon to buy cars to avoid sales tax can't get away with that, so why should Boeing?
Maybe this is just another way Washington has bent over backwards to get Boeing to show some allegiance to the state and its workers and the company's heritage, only to be recently "given the finger" by Boeing Management with the heavy original 787 outsourcing and again with the latest S.C. union avoidance decision.
Correct. Campaign finance reform is needed to get politicians to start working for the interests of citizens rather than puppets of campaign contributors like Boeing. Patty Murray and King County Prosecutor Dan Satterberg are good examples of the need for reform.
Murray only recently "got some religion" when she saw Boeing played her and the state in the S.C. 787 line decision.
Maybe she'll do her job more in the people's interests and much less in Boeing Management's in the future, but don't hold your breath for that.
Correct, Boeing arrogantly ignores growing public and investor perception of its management's very deep flaws. However, as you stated, every day more people are aware that wholesale changes are needed in Boeing Management to have any hope that the company can survive its current mismanagement.
The Last Inspector
The Last Inspector