Opinion: Are Institutional Shareholders Boeing’s Best Hope?

As gut-wrenching as it may be to contemplate, it is becoming increasingly clear that the Boeing Co. is on course to become one of America’s greatest industrial tragedies—a victim of years of managerial incompetence and a culture of hubris so ingrained as to seem it was brazenly cultivated with a sense of purpose.

That is not to say that Boeing’s fate is preordained. On the other hand, anyone who thinks such a notion is preposterous because the company, once the crown jewel of America’s aerospace/aviation community, is too big or too critical to the U.S. economy to fail, think again. The industrial landscape—including aerospace and commercial aviation—is littered with the names of formerly great enterprises whose collapse would have been unimaginable at their zenith.

At one time, that was true for Boeing, too. But a very different picture is starting to come into sharper focus.

With no one to blame but itself, Boeing, whose roots date back to 1916, has all but destroyed its once-proud legacy of engineering excellence, public trust, confidence among customers and regulators, innovation, product-pioneering risk-taking and any notion that its C-suite is capable of avoiding problems that can have an outsize impact on the organization’s operations, reputation and financial standing.

That is not all. Long gone is what was once a cohesive workplace culture of rigor and discipline that permeated Boeing down to the level of small technical and engineering teams—a culture that helped foster pride in strict adherence to the highest standards of quality assurance. Often before such teams would welcome a new addition, the individual had to convince the group that he or she shared the same values.

“There are still many dedicated, hardworking employees throughout the company, but the culture that helped make Boeing the gold standard no longer exists,” observes a retired Boeing Commercial Airplanes executive.

So damaged is the company’s reputation that reasonable people could question—and are questioning—whether the quagmire in which Boeing finds itself is reversible, or whether it is a slippery slope from which recovery is becoming increasingly unlikely unless there is a dramatic overhaul at the top.

Meanwhile, the company—seemingly paralyzed from an aversion to all commercial aircraft product-development risk—is falling further and further behind in capturing its share of the global duopoly with Airbus for commercial aircraft.

Bank of America analyst Ronald Epstein believes the recent FAA-mandated slowdown in 737 MAX 9 production will ultimately benefit Boeing in the long run. His rationale: The slowdown will enable the company, its suppliers and regulators to focus on quality assurance and best-in-class production practices without the stress of ramping up production in the near term.

Perhaps that would be the case—assuming that no more high-profile quality-control issues occur.

But there is a fat chance of that. Boeing’s self-incriminating track record, beginning shortly after the FAA certified the MAX for safe flight operations in 2017, strongly suggests that more quality-assurance problems are inevitable. To make a persuasive argument to the contrary would require evidence that the company has consistently demonstrated a ferocious resolve to rebuild its reputation during this interim period.

Instead, the pattern has been one egregious lapse in quality control after another, followed by management assurances that the company is committed to fixing the problem and then a return to business as usual. We know Boeing has been void of inspired management for some time, but has the company lost its way to such an extent that it no longer has the institutional knowledge to learn from past mistakes?

“There have been a lot of production-quality defects in [the 737 MAX product line] the public doesn’t even know about,” declares Ed Pierson, a former Boeing 737 program senior manager and now executive director of the Foundation for Aviation Safety. “This is clearly a leadership issue.”

Speaking of leadership, let’s be crystal clear: Boeing’s board of directors is every bit as responsible as top management for the company’s current plight. After all, they have presided over the company’s management team all this time. To put a finer point on it, it is hard to imagine a board of directors being more insidious and negligent in delivering on its core mission: providing strong oversight and strategic support.

That leaves institutional shareholders as the last best hope to alter Boeing’s self-destructive course. They hold about 70% of the company’s outstanding shares. Acting in their own self-interest, if nothing else, they could declare a crisis of confidence, challenge the status quo and demand a change in top management and the board of directors.

Until then, there is little reason to expect management to do much of anything different from what they have been, which is a sad commentary on what used to be a truly great company in which employees, the industry and the nation could take pride.

Anthony L. Velocci, Jr., was Aviation Week’s business editor from 1989 to 2003 and editor-in-chief from 2003 to 2012.