STEVE INSKEEP, HOST:
The new CEO of Boeing says his company needs a culture change. If they manage that, it won't be the first. Boeing's critics contend that a culture change nearly 30 years ago is at the root of its current problems. Wailin Wong and Darian Woods of NPR's Planet Money podcast, The Indicator, have the story.
DARIAN WOODS, BYLINE: Chroniclers of Boeing's history point to 1997 as a turning point for the company. That year, Boeing acquired fellow airplane maker McDonnell Douglas.
CARL TACK: And then, effectively, McDonnell Douglas executives took over the company.
WOODS: That's Carl Tack. He's a former corporate lawyer and investment banker. Today he teaches finance at the College of William & Mary.
TACK: By all accounts, that changed the culture of Boeing, over a 20-year period, from a firm of engineers to, you know, a business run by not necessarily engineers. Boeing became much more financially oriented.
WAILIN WONG, BYLINE: This is financial engineering. Earlier, this mindset had transformed General Electric. It was during the tenure of legendary CEO Jack Welch. He was known for a relentless focus on short-term profits and boosting GE's stock price.
WOODS: Former GE executives took the Jack Welch playbook to other companies. And this group of alums included a CEO of McDonnell Douglas, who later became CEO of Boeing.
TACK: I can tell you the hallmarks of a financial engineering-run company, and they look a lot like GE in its heyday.
WONG: We're going to talk about two of these hallmarks - aggressive cost management, and distributing money to shareholders. So number one is pushing costs down. For Boeing, this meant layoffs, freezing out suppliers that refused to discount their prices and evaluating managers based on their ability to cut costs.
WOODS: The focus on cost-cutting also meant outsourcing more manufacturing. Now, this is something a lot of companies do. But the supply chain for, say, Boeing 737 MAXes became really complex.
WONG: Here's one example of that outsourcing. In 2005, Boeing offloaded plants in Kansas and Oklahoma to an investment firm. That investment firm created a new company that later became the supplier of fuselages for the 737 MAX.
WOODS: The supplier came under intense scrutiny this year after a door plug blew out of the side of an Alaska Airlines 737. This summer, Boeing announced it was acquiring that supplier, basically reversing the deal it did back in 2005.
TACK: I'm not going to pound the table and say Boeing's, you know, had the crashes in '18 and '19 and the Alaska Airline incident because of financial decisions they made 15 years ago. I'm not saying that. But a lot of insiders think those two things are related.
WONG: The second hallmark of a financial engineering-focused company is distributing lots of money to shareholders. Carl says Boeing spent $65 billion on stock buybacks and dividends between 2013 and 2019.
TACK: Money that could have been used in the company for - in various ways.
WOODS: Carl thinks executives may have believed their company was too big to fail, and that might have enabled greater risk-taking on the financial side. We reached out to Boeing for the story, and the company referred us to a statement CEO Kelly Ortberg recently made where he said, we need to be on the factory floors, in the back shops and in our engineering labs. He's a former engineer who previously ran an aerospace company.
WONG: Wailin Wong.
WOODS: Darian Woods. NPR News. Transcript provided by NPR, Copyright NPR.
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.
