Today, Boeing released their CEO, David Muilenburg, which I understand. But the truth of the matter is that the problems are much deeper than his leadership.
On Bloomberg TV today, there were some interviews from various parties discussing the issues of the 737 Max and Boeing's relationship with the Federal Aviation Administration. One analyst was saying that Boeing needed to better manage that relationship. While Boeing clearly failed on this account, the FAA failed too.
The rotation of executives between government oversight agencies and industrial players has been going on forever. This isn’t just a problem in the aerospace industry, but many others too. The relationship is always cozy, no matter what the industry, until it gets out of control. Things blow up. Then, regulators start taking back the excessive oversight which the regulators relinquished to the industry over time. The reasons for the blowups are almost always the excessive focus of industry toward profits that cause harm to the public that the regulators are there to protect.
One party that I haven’t heard mentioned in this whole discussion is Boeing’s board of directors. The 737 Max was announced publicly on August 30, 2011. With a business that has so few products to sell (only a few planes at a time), the success of a single product is critical to the success of the company. The board would have clearly been highly involved in the decision to “modify” the 737. The board decided to “take a shortcut” to avoid the high redesign costs of a brand new jet by modifying the existing 737.
Looking at Boeing’s proxy statement, more than half of the board has been there since 2010. So they were the primary decision makers to “modify” the existing 737 by taking a shortcut. One director has been on the board since 2004. If the board didn’t know about the risks that were being taken, they sure should have or they shouldn’t have been sitting on the board.
Before talking about Boeing's relationship with the FAA, the board should be looking closely in the mirror. They started the project in the first place and clearly were the root cause. Did they do a cost benefit analysis similar to the debacle of the Ford Pinto in the early 1970’s? While I don’t know the answer, I do know that a company with so few products and huge single product development costs wouldn’t make the move to pursue the 737 Max without clear board support. Look at the attachment which shows their current and deferred compensation. Most directors have significant deferred compensation units! Hmm.....
Much of the blame has to be placed on the primary decision makers. It’s not complicated. It is that simple.
