Yesterday, the CEO of Boeing, Dennis Muilenburg, was discharged from his office. His story is a modern corporate morality tale. A large, profitable and respected corporation but which did not adequately manage its risks in developing a new aircraft has paid for its oversights. And, more unusual, a senior officer of the company has been held personally responsible for management shortcomings.
As a result of its own errors, Boeing has decided to shut down production of its 737 Max jet. Some 400 already built aircraft are grounded. They cannot fly until safety concerns are resolved in favor of passengers who would fly in the planes.
Boeing’s decision to take action and not just do business as usual reflects stakeholder theory. Boeing now recognizes its need to care for a certain class of remote stakeholders – the passengers who are stakeholders of Boeing’s customers, the airlines. Boeing’s financial success in the long run depends on the safety and satisfaction of those passengers. Boeing’s responsibility to those passengers arises from its obligation to sell a safe product to its customers so that those customers can provide a safe service to their customers.
What began as a short-term fix to Boeing’s profitability concerns has now metastasized into a possible question of firm survival.
In order to save capital in bringing a new short haul aircraft to market to compete with Airbus, Boeing decided to upgrade the existing 737 design and not start from scratch in designing a new plane. Cash flow pressures caused by production delays in manufacturing the 787 Dreamliner drove the decision to save money in bringing the new 737 aircraft to market. But adding larger, more efficient engines to the standard 737 body and wings gave the new model, the 737 Max, excessive lift in flight, forcing the nose up and threatening a stall of the engines. Boeing’s response to this design flaw was to add software which would override the pilots and push the plane’s nose back down should such unwanted lift occur.
In two accidents, the software worked as intended, but inexperienced pilots tried to keep the plane level and both times the affected planes, responding to the software and not the pilots, nose-dived into fatal crashes.
Boeing’s decision to add large engines to the existing chassis was penny wise, but very pound foolish. The decision and the steps then taken to offset its shortcomings made for an escalation of corporate irresponsibility.
Boeing initially placed too much emphasis on financial metrics and not enough on what is actually a more strategic consideration – the ability of the company to deliver safe products. The company’s management lost sight of its core purpose. Profit is not the purpose of a company, but only the derivative, second-order consequence of performing its mission well.
Had Boeing back then built for itself a culture around stakeholders first and foremost, a culture which believed in the August statement of the Business Roundtable or the December Davos Manifesto 2020 of the World Economic Forum (or which managed according to our Principles for Business), the 737 Max most likely would not have been built and a better, safer aircraft would have been produced in its place.