How to get the best new boss for Boeing? Ask GE

General Electric Co

26/03/2024 12:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own. Refiles to add links.)
    By John Foley
       NEW YORK, March 25 (Reuters Breakingviews) - What could
be a tougher challenge than fixing up Boeing  BA.N ? The
flailing aircraft manufacturer’s CEO Dave Calhoun is to leave at
the end of this year, having failed to resolve a thicket of
safety issues, regulatory probes and customer grievances.
Whoever Boeing appoints to clean up this mess will
need financial incentives equal to its enormity. 
    Boeing could crib ideas on that front from General Electric
 GE.N , Calhoun’s onetime employer. The jet-engine maker was
once in similarly dire straits, buckling under the weight of
overpriced acquisitions, poor financial decisions and a culture
of deep denial. Its share price had halved in under two years.
After ousting CEO John Flannery, it brought on turnaround
specialist Larry Culp.
    To motivate Culp, GE did something unusual, awarding him an
extravagant sign-on bonus linked to the company’s stock. The
higher the average 30-day share price, the more shares he would
get, with a maximum payout of $232 million. Some shareholders
were wary: Roughly a quarter rejected the plan at GE’s 2019
annual meeting. Fundamentally, though, this was the high cost of
hiring for a high-risk job.
    Running Boeing will be a similarly big ask. Shares have
slumped as the blowout of a 737 MAX body panel mid-flight
compounded manifold existing troubles, prompting regulators to
limit production. Like GE, the underlying problems are grave and
cultural as well as operational. Boeing must placate watchdogs,
win back customers and fix – or replace – the 737 MAX. There’s
every chance the new boss will fail as Calhoun did.
    If Boeing does take a leaf from GE, it should avoid some of
its peer’s mistakes. Culp’s welcome bonus was linked only
to GE’s share price, without adjusting for the company’s peers
or major indices, meaning he could benefit from a general market
upturn. The biggest misstep came amid Covid-19, when the board
reset Culp’s targets to make his bonus easier to attain. Still,
it worked. GE’s shares have doubled since Culp took charge; he
had secured the maximum payout by last July.
    There’s a risk that any CEO motivated with share-price
targets pursues those at the expense of other factors, like
safety. But for Boeing, the two issues are now tied: The most
likely way for shares to recover is to fix engineering issues
and assure customers the company’s planes are safe. The GE model
– with some tweaks – would give a new CEO a strong incentive to
get that done.
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    CONTEXT NEWS
    Boeing said on March 25 that Chief Executive Dave Calhoun
will step down at the end of 2024. The aircraft-maker’s shares
have dropped by around one-quarter in 2024, as the company has
weathered safety problems, widespread groundings and regulatory
limits on production.
    Chair Larry Kellner will leave after Boeing’s upcoming
annual shareholder meeting, to be replaced by former Qualcomm
chief Steve Mollenkopf, who will lead the search for a new CEO.
Meanwhile, Stephanie Pope was named as head of Boeing’s
commercial airplanes division, replacing Stan Deal.
    The blowout of a Boeing aircraft door in mid-flight in
January exacerbated a years-long series of safety issues
involving the 737 MAX, including two fatal crashes in 2018 and
2019. The Federal Aviation Administration has curbed Boeing’s
output until it is satisfied quality control issues have been
resolved.

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Graphic: Fixing Boeing could be high-risk, high-reward    https://reut.rs/3IPYNr1
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 (Editing by Jonathan Guilford and Sharon Lam)
 ((For previous columns by the author, Reuters customers can
click on  FOLEY/ 
john.foley@thomsonreuters.com; Reuters Messaging:
john.foley.thomsonreuters.com@reuters.net))