There has been much debate about when Boeing took the wrong turn that led to its present downward spiral. That moment remains lost in the fog of time. But here is one of the first moments that we saw that its management was tearing down what had made Boeing great. I reported when it happened in 2014; here is a repost and revision.
“Boeing has always been less a business than an association of engineers devoted to building amazing flying machines. Sheer technical bravado–and at times an almost willful disregard for financial realities–have defined a company that designed the B-52 in a single weekend, wagered three-fifths of its assets on the 707, and launched the 747 when many observers (including FORTUNE) declared it potentially suicidal.”
— Journalist Jerry Useem in Fortune, 2 October 2000.
Jim McNerney was Boeing’s president and CEO from 2005 to 2015 and Chairman from 2005 to 2016 – its first-ever CEO without an engineering background. He is corporate royalty: Yale, Harvard MBA, time at McKinsey and GE, CEO of MMM – then Boeing. Today’s Boeing is his creation, for which he was paid over $100 million to build. Michael Kinsey’s definition of a gaffe “is when a politician tells the truth – some obvious truth he isn’t supposed to say.” There are few better examples than this during Boeing’s quarterly earnings conference on 24 July 2014. This was the year after problems with 787 cost Boeing tens of billions – caused by McNerney’s aggressive outsourcing of jobs away from Seattle’s skilled unionized workers.
Bloomberg News: “Jim, you have a birthday coming up next month. …Will you be at your desk, and has the Board approvide you staying on past age 65?”
Jim McNerney: “Yes, the heart will still be beating. The employees will still be cowering (laughing). I’ll be working hard; there’s no end in sight. We’re continuing to build the succession plan …But there’s no discussion of it yet. So you’ll still be asking questions of me.”
This is the mind of a modern American CEO. He was not kidding. Boeing’s executives worked hard to demoralize its workers (the most recent round earlier in 2014). McNerney exulted in his success. The disastrous 737 redesign is just the most recent result. Before that there were “Claims of Shoddy Production” of the 787 Dreamliners manufactured at Boeings South Carolina plant (part of the company’s shift to a non-union workforce). The Department of Justice is investigating.
In this Boeing stands with other corporate leaders such as those of Amazon, Nike, and Walmart in forging a new corporate-worker relationship: plutocrat and peon. It’s natural that their great success creates contempt for their employees. They have weakened or broken their unions. They converted much of their workforce into contingent, low wage, no benefit proles.
These executives are capitalists in the sense of living off America’s accumulated social capital. They are leeches. The greatness of America is shown by the length of time it has taken them to ruin formerly great companies such as GE and IBM, reducing them to shells of their former selves.
Unless we change America’s corporate structures, more companies will decay. It is built on law and custom, and under our control – if we have the will and wit to act.
This decay is part of the slow collapse of America’s institutions described in A new, dark picture of America’s future. These problems seem unrelated and overwhelming, but they have a common cause in our apathy. We have let slip the reins of America.
“A society does not ever die ‘from natural causes’, but always dies from suicide or murder – and nearly always from the former ….”
― Arnold Joseph Toynbee’s A Study of History.
For More Information
See Matt Stoller’s description of Boeing’s decline – driven into the ground by its senior executives.
Ideas! See my recommended books and films at Amazon.
If you liked this post, like us on Facebook and follow us on Twitter. For more information, see my posts about Reforming America: steps to new politics, and especially these …
- For Thanksgiving, Walmart shows us the New America.
- Nike swooshes us into a future of fewer jobs, low pay.
- Watch corporations strip-mine their future (and ours).
- While we sleep, corporate execs strip-mine America.
- How Corporations Bought Washington (it was cheap).
Books about this crisis of capitalism
See these two powerful books about this crisis by Wolfgang Streeck is sociologist, Professor and Director Emeritus at the Max Planck Institute for the Study of Societies in Cologne. See his c.v. and publications, his website and his Wikipedia entry. See reviews of his work here and here.
How Will Capitalism End?: Essays on a Failing System
Buying Time: The Delayed Crisis of Democratic Capitalism
Based on what I have experienced ” They are narcissistic leeches.” Came from an industry that used the same plant,same process for 37 years. Took them 3 years to tear it down. The corp built a new factory and they almost destroyed the customer base until the CEO came in and retired/fired the majority. Unfortunately, the new CEO is the former CFO and apparently does not understand ours is a technical product. The mindset towards peons is that they are immediately replaceable. They got rid of the expertise and replaced them with their sycophants.
The most humorous part was that when something went well, they gave their friends awards, when something went bad, they blamed the peons and the people who knew what they were doing. Their saying was “being good is the enemy of being great.” Rather than recognise problems that the technical experts were telling them, the new management thought they were making excuses and being lazy. The new management was going to lead us to greatness by getting rid of the good and replacing it with the great. The great just happened to be great brown nosers, and great at losing money and customers.
Glad I am retired.
John,
I wanted to keep this simple, so I didn’t discuss the extremely important point you raise: so many US companies have fallen into the control of financial engineers (accountants and MBA-finance types). Wall Street loves them as they optimize the company for short-term profits. Boeing, GM, and IBM are examples that should send shock waves through America’s ruling elites. But hasn’t
Add Hewlett-Packard to that list. People used to pay extra for HP products, because they knew they would be rock solid. Then came the financial engineers and cost cutters, who started to OEM products from the lowest bidder and quality collapsed. Fast forward to today and what used to be HP has been broken down into smaller firms (HPE, HP Inc., Agilent, etc.) none of which are doing well.
As for why the ruling elites don’t care, they expect new companies will take their places. But I don’t foresee any Silicon Valley startups replacing Boeing, GM, Ford, etc. If Boeing doesn’t get its act together it could suffer the same fate as McDonnell Douglas, which is finally vanishing for good as the last airliners it produced are being retired and scrapped. Wouldn’t it be fitting for Airbus to buy out a moribund Boeing and steadily phase out its jets, replacing them with new Airbus designs?
As for Boeing’s current debacle, the 737 Max, I wonder if they will ever recover from that preventable blunder. I know that I will go out of my way to avoid that type until it’s had years of accident free operation.
I have read that some customers are refusing to accept delivery on Dreamliners built in the low wage South Carolina plant as delivery inspections are showing sloppy workmanship, even potentially dangerous lack of quality.
This has to be the best thing that ever happened to Airbus. Boeing has destroyed their sterling reputation, the one that had some people saying: If it ain’t Boeing, I ain’t going.
Frank,
Thanks for the reminder! I’ve added this to the post. This includes mention that Qatar Airlines has refused to accept Dreamliners manufactured at Boeing’s South Carolina plant.
Apropos financial engineering and losing the thread of your business, I think Boeing began its descent in 2001 when it moved corporate headquarters from Seattle to Chicago to” be nearer financial centers”. https://www.nytimes.com/2001/05/11/business/chicago-offering-big-incentives-will-be-boeing-s-new-home.html
Once upon a time, this country had a head banker, Jesse Holman Jones, who forced railroad executives to move from New York out to Kansas, the center of their business, before he would bail out the company. He also forced them to forgo their dividends and put the earnings into rolling stock and maintaining personnel. Sounds like a fairy tale to someone watching today’s financial markets.
SDW,
That’s a great observation, and note from history! Thanks for posting it.
Boeing moved its headquarters to Chicago as a power move: it sent a signal to all Boeing “heritage” employees that it was now McDonnell-Douglas, with M-D’s St. Louis management ruling the roost. Boeing was bought by McDonnell-Douglas with Boeing’s money in 1995, when CEO Phil Condit suffered a moment of personal weakness (Wall Street Journal stooped to scandal-rag status when they interviewed Condit’s 13-year-old daughter about his impending messy divorce).
Boeing employees have been watching the slow-slaughter unfold for years. In fact, the first time I ever visited Fabius Maximus was right after McNerney made his famous “shaking in their boots” statement.
My last volley at my own exit interview (from Boeing Philadelphia, military rotorcraft) was, “If you and your families plan to stay in Delaware County, you’re going to have to fight harder for Boeing to stay here…” Historian Tony Silletti shared this op piece in Delco Memories, with the query “Who works or did work for Boeing here in Delco?” and it looks like it’s going viral…
https://www.delcotimes.com/opinion/letter-to-the-editor-in-defense-of-defense-boeing/article_9abf1a32-3484-11ea-be7f-b73a780a83bf.html?fbclid=IwAR0AlBMCXXQw8c-vGrwPRXkIIngvtMh0NWGsAVq_GntO534JNkN3cWazEJA
The laissez faire free market types claim that no intervention is needed, as “Mr. Market” will provide incentives for corporations to do their best and will punish those who do not. Yet, as we are witnessing, the sociopaths who control the executive suites don’t seem to care and think they can hoodwink “Mr, Market” into believing they are doing a great job.( Hey! Q3 profits are up X%!). Had Boeing been lucky and the pilots of those two 737’s been able to keep them from crashing, everything would be still be hunky dory at Boeing, with the stock price steadily climbing and 8 figures executive bonuses.
That said, the FAA also dropped the ball regarding the MAX, big time. From what I read, the FAA had no one who reviewed the MCAS system and only realized that after the crashes.
I can envision the meetings at Boeing, discussing the MCAS test reports prior to shipping. The suits probably asked the engineers what the risk of crashing was, and decided that the risk was acceptably small and that they could fix it later and retrofit existing planes. A great plan, until two jets literally fell out of the sky,
Frank,
“FAA also dropped the ball regarding the MAX, big time.”
A distinguishing characteristic of Americans is expecting government agencies to do miracles, but being unwilling to pay the necessary funding. Hence regulators rely on self-regulation as the only practical alternative – which also keeps libertarians happy! WaPo: “How the FAA allows jetmakers to ‘self certify’ that planes meet U.S. safety requirements.”
We demand deluxe service suitable for our awesomeness but don’t want to pay for it. We buy airline tickets based almost totally on the lowest price, then whine about the accommodations. We whine about quality of journalism, but are seldom willing to pay for the news.
Yup, Libertarians also spout the “Mr. Market will take care of everything.” argument, hence the whole argument for corporations to police themselves, as “Mr. Market” will give them a spanking if they don’t deliver. That doesn’t even work with cars, as Toyota had problems with cars suddenly accelerating, a problem they never admitted was real, though they quietly fixed it. And that problem hit close to home. My sister was driving her Toyota Siena when it suddenly accelerated. She couldn’t stop it, but fortunately for her she was still at a lower speed when she crashed and was not injured. She has sworn she will never own or drive another Toyota again.
What’s interesting is that plenty of people were still boarding MAX’s in the US right up until they were grounded. In theory “Mr. Market” should have grounded the MAX, yet I don’t recall any US airline refusing to fly them before they were grounded. Then again, from speaking with an acquaintance who was an airline mechanic, airlines do a terrible job of servicing their jets and since the FAA lacks the personnel to verify, the airlines also get to police themselves, so I suppose they too tell themselves “So we cut some corners, It’ll be fine.”
Larry, you bring up a great point that the technical people discussed at my work “Boeing, GM, and IBM are examples that should send shock waves through America’s ruling elites. But hasn’t.”
Even weirder is the fact technical managers were required to read Harvard business profiles where they went over that technical business needed to be run by technically savvy upper managers. In the profiles, such businesses as HP, IBM, and others were used as examples. They even had history of some smaller corporations where if the CFO’s ran it; it died. If the CEO was an engineer, for example, they survived. Harvard even pointed out that in the declining margin/ fast paced world that engineers were quicker and better to these changing conditions than most bean counters.
That is why I referred to them as narcissistic. A personal example, three times I told the R&D team why a proposed new process would not work in our waste system and why, including that the people who were transferring the knowledge were not being candid, since the properties in question were in the literature and the data they sent. Each time, the corp critter would say that I was wrong, out of my lane and not a team player, then a week later restate what I said and give credit to the people who we were getting the process from. After the third time, I went to HR and told them the next time the corp critter behaved in such an unprofessional manner, I would make it an issue with the Brit’s government agency whose mandate is to make sure foreign investments such as our facility were treated according to British personnel regulations (they had to post the number in a public place at work.) That put a damper on that. But corp critter really expected people to agree with him, even when he was wrong, and accept whatever he gave you. They ran the business this way!
Couldn’t agree with you more Larry. Commendable stuff!
Speaking from the younger generation, a lot of this seems to have root in the “shareholder theory of value,” which always astounds my peers when I’m like, “No, that’s not some ironclad law. There is no law that says the company has to maximize the value of the shares.”
These folks are killing their golden goose, but I suppose it probably wouldn’t die until they’re gone, so they may not care that much.
SF,
“to have root in the “shareholder theory of value”
That has been the golden goose for senior execs, justifying them extracting vast fortunes from the companies they rule. As you note, this has been a purely cultural change.
“it probably wouldn’t die until they’re gone, so they may not care that much.”
They earn enough in their tenure so that none of their children need work for the next ten generations. They leave behind wreckage, but they obviously don’t care.
I recall that Boeing had a rather large failure trying to use technology to improve border security a few years back-
“Boeing virtual fence: $30 billion failure, 23 August 2007.
The Department of Homeland Security “virtual fence” project, being built by Boeing, is in big, big trouble. The virtual fence is a high-tech network of cameras, lighting, sensors, and technology designed to intercept illegal border crossings
https://www.zdnet.com/article/boeing-virtual-fence-30-billion-failure/
kakatoa,
I know its fun to mock project failures, but that’s often pretty daft. Experimentation is the only way to innovate. Americans want the successful experiments without the failures, and want them cheap and now. Because we’re so awesome. Not possible.
This was Project 28, a proof of concept trial along 28 miles of the US-Mexican border. Boeing was awarded the contract in September 2006. In February 2008 it was fully operational.
It proved to be not cost-effective, and was canceled in January 2011.
The complexity of what they were attempting to do was a lot more complicated than the rather simple transferring of former star wars tracking techniques to find flaws in coatings on a moving web with more data then we knew what to do with a decade earlier.
Pushing the boundaries of what’s possible seems to be hard wired into a portion of our species.
kakatoa,
“Pushing the boundaries of what’s possible seems to be hard wired into a portion of our species.”
Which is why we’re no longer sustenance-level near-animals. I’ll bet that every inventor since the guy that invented the ax was surrounded by mockers. That too seems to be hard-wired into some people.
https://mattstoller.substack.com/p/is-a-boeing-bailout-taking-shape
https://mattstoller.substack.com/p/the-coming-boeing-bailout
Eric Weinstein and Peter Thiel’s latest podcast should be an eye-opener to anyone outside the tech world. To the rest of us within it, stories like Boeing’s are becoming all too common.
Bryce,
I don’t know about a Boeing bailout – he presents weak evidence for that. But Stoller’s columns are on my must-read list. Theil, not so much.
“stories like Boeing’s are becoming all too common.”
Other examples? There have always been the occasional corp flameouts. But what’s the evidence they are becoming more frequent?
Thanks for the references!
I was reminded of a warning that C. Meyer use to give about applying the FST(1) to development or applied research efforts/projects.
https://www.amazon.com/Fast-Cycle-Time-Strategy-Structure/dp/141657624X
kakatoa,
Sounds interesting! What warning did Meyer give?