Dennis Muilenburg in 2017. Photo by Ryan Johnson, courtesy North Charleston on Flickr.
So far the 737 MAX debacle has cost the Boeing Co. more than $8 billion, Southwest Airlines its foothold at Newark International Airport, and the nation’s economy a growing piece of its output.
Yet, bizarrely though not surprisingly, it has not cost Dennis Muilenburg – Boeing’s CEO, president and board chairman – his job. That is very likely because Muilenburg is Boeing’s CEO, president and board chairman. When the person at the top of a flailing company holds all the levers of corporate power, there is nobody in a good position to challenge him.
Beyond the human tragedy of the 346 lives lost in a pair of crashes five months apart and the steadily accumulating list of problems that seem likely to keep Boeing’s best-selling aircraft grounded worldwide until sometime next year, Muilenburg’s continued presence at the top of the organization is turning this saga into a case study in corporate mismanagement and boardroom ineptitude.
Muilenburg is a company man who came up through the military side of Boeing’s business. He was presumably not directly involved in the early decisions to rush the 737 MAX series to market to compete with an updated Airbus A320 that threatened Boeing’s share of the short- and medium-haul civil aviation business. Airbus launched the A320neo in 2010. Muilenburg became CEO in 2015 and chairman the following year.
But Muilenburg was in charge last October, when it became clear that a single misfiring sensor and a poorly designed flight control system together sent a Lion Air flight into the ocean shortly after takeoff, killing 189. It was Muilenburg who insisted the 737 MAX was safe to fly before a fix for the system was designed or implemented, and before any pilots received training on how to compensate for the system’s shortcomings. So he was responsible when an Ethiopian Airlines jet crashed in March, again minutes after takeoff, killing 157 more people.
Even then, Muilenburg did not call to ground the aircraft. It took foreign authorities grounding the plane to eventually force Boeing’s hand, and that of a slow-on-the-uptake Federal Aviation Administration. Since that time, Boeing has consistently underestimated the complexity of the task of fixing the aircraft and getting it re-certified for service. In doing so, it has created mounting costs and disruptions for its partners, such as Southwest and American Airlines. Boeing has also created unquantified but significant damage to its own brand.
If the buck stops at the top, then Muilenburg – who was paid about 23.4 million bucks last year – should be long gone. But he isn’t. That’s largely because Boeing’s board is a throwback to the go-along-to-get-along days of the 20th century.
As Nell Minow, a corporate governance expert, told Fortune, “By virtue of the fact that this company has ended up where it is, there is something wrong with the board.” A board should ensure a corporation is properly managed. Yet Boeing’s 13 directors face various stumbling blocks to providing the kind of oversight today’s shareholders expect. Three of the directors also sit on the board of Caterpillar Inc.; two of them sit on the board of Marriott International. One director is on both boards, as well as that of FedEx. Overlaps like these are “soft” objectivity issues. While they do not necessarily represent direct conflicts of interest, they split board members’ attentions and loyalties.
Four of Boeing’s directors also have political ties, including the most recently elected, Nikki Haley. Haley, like her fellow director Caroline Kennedy, can offer a track record of political celebrity. But it is not clear that she can offer the skills necessary to effectively monitor the management of an aerospace company. For all of Haley’s good points, the former U.N. ambassador does not seem inherently well-suited to steering a major corporation in crisis. In fact, this is the main point. Boeing and its board have been inexcusably slow to act as if the company is in crisis at all. That is a damning assessment of both Muilenburg and the directors that have allowed him to remain in place.
Performance analytics research firm MSCI gave Boeing’s governance a score of 5.4 out of 10. This places the company in the bottom third of S&P 500 companies. The board’s weakness has become obvious, even to outsiders, in light of the crisis Boeing faces. Not only has the board failed to fire Muilenburg outright, but in April, it recommended that shareholders vote against a proposal to separate the CEO and board chairman roles. That proposal roundly failed at the company’s annual shareholder meeting.
Despite the fact that Boeing’s board – apart from its chairman – is nominally independent of the company, evidence demonstrates that this independence is illusory. Like corporate heads of yore, Boeing’s chief executive is choosing his board; it isn’t choosing him. If it were, it would have chosen someone else by now.
Shareholders, especially the huge index funds with big Boeing holdings, ought to take note. If Muilenburg is still around at the annual meeting next spring, the entire Boeing board will have earned a vote of no confidence.