Boeing, Agency Theory, Shareholders, And The Community

The other day a couple of my friends read my blog on Boeing and asked what I thought about a recent article from The Atlantic. The article, “The Long-Forgotten Flight That Sent Boeing Off Course,” was written by Jerry Useem. He is a contributing writer at the Atlantic and covers business issues for the New York Times. He has written about Boeing before, and I even used some of his information in my dissertation years ago. In this article he is writing about an event I remember vividly. The day Boeing changed from being a Washington State based company to a Chicago based company with facilities in different national locations.

Useem describes the action taken by CEO Phil Condit and President Harry Stonecipher as, “putting some distance between themselves and the people actually making the company’s planes.” By locating the recently merged Boeing and McDonnell-Douglas company in Chicago, leaders could distance themselves from the day-to-day business operations. Useem says this decision has resulted in the 737 Max fiasco, because the company leaders divorced themselves from the “firm’s own culture.” Leaders no longer listened to engineers but to each other. I think he is right.

I was a Boeing employee when Condit and Stonecipher merged the two companies. I remember how we used to joke that McDonnell-Douglas had taken over Boeing using Boeing’s own money. I have even written in previous writings how the merging of the McDonnell-Douglas MBA weenie culture with the Boeing goggle-head culture was problematic. Useem describes this time in this Atlantic article, “Condit was still in charge, yes, and told me [Useem] to ignore the talk that somebody had captured him and was holding him hostage in his own office. But Stonecipher was cutting a Dick Cheney-like figure, blasting the company’s engineers as arrogant and spouting Harry Trumanisms (I don’t give em hell; I just tell the truth and they think it’s hell) when they shot back that he was the problem.” I think this is an amazing description of the time.

As I reflect on those days working for Boeing as a manager, I remember how even managers didn’t like Stonecipher’s philosophy. We were worried that he would not approve the manufacturing of the 787, which he eventually did. However, we also know that he didn’t care about making a lot of planes, he just wanted to make a buck. This was the tension between Boeing, an engineering company symbolized by the goggle-head, and McDonnell-Douglas, symbolized by the MBA weenie.  I remember the Boeing corporate leaders coming to the Portland plant telling us that we were no longer a family – but a team. We in Portland did not like that.

The tension that Useem is writing about is nothing new. This article got me thinking about Agency Theory. In every for-profit business there are principles, owners, and agents, managers. The theory discusses the tension that naturally occurs between these two entities. Principles delegate the owner’s authority to the agent, manager, to run the business in a way that makes money for the principle. Managers want to run the company in a way where they get good bonuses. Often the goals are different between the two entities. In our example about Boeing, the engineers wanted to successfully create flying machines, while Stonecipher represented the ownership goal of making lots of money. Companies that negotiate both profitability and long-term sustainability have happy stakeholders.

I don’t think Agency Theory is the problem, I think the changing reality of company ownership is the issue. When Bill Boeing started the company in 1917, he had a stake in the company. In other words, he was actively involved in the day-to-day operations of the company. He was personally impacted by the results. Today Boeing is owned by shareholders. If they don’t like what Boeing is doing and are not getting a sufficient return on their investment, they can move their money to something else. Who cares about the employees, the community, or other stakeholders?

About the move, I think Useem is right. Boeing leadership had separated itself from the day-to-day business of the company, and as a result business has become just a number. They don’t walk through the factory and say good morning to Lakeesha, John, or Jose. They look at spreadsheets and decide the future without any thought of community impact. Is it any wonder that corporations have a bad reputation? Useem is describing events surrounding the Boeing Company, but I think it relates to the existential crisis affecting corporations in the United States.

I don’t agree with Elizabeth Warren that corporate boards should be forced to have a certain number of union, or employee, representation. I don’t not like government intrusion in the running of businesses (unless necessary), so to keep the government out, corporations and shareholders need to adjust for the good of our economic health and improved social capital in their relationship with the community.

I enjoyed my career at Boeing. I met many wonderful people and was able to create a comfortable retirement for my wife and I. Throwing the corporate model out is wrong, and I think the Millennials are missing an incredible opportunity for a wonderful career by not wanting to work for corporations. There are many corporations currently operating in a manner that demonstrates a positive business model. So, the concept is there, and other corporations can adjust if they choose to.

And that is my thought for the day!

 

One thought on “Boeing, Agency Theory, Shareholders, And The Community

  1. I experienced the same bean-counter mentality in the last two corporations who employed me. Both lost sight of what made them great in the first place. Corporate culture counts toward profitability, but can’t be captured on a balance sheet.

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