Ruminations on Boeing, shareholder value destruction and culture

Aweh dearly beloved fellow ruminants & groupies

Is the destruction of shareholder value a boring topic? Compared to recent posts on sadomasochism and BDSM perhaps it is but then again perhaps they are related. Much useful information is captured in the share price history of a company. 

A company’s capacity for growth, adaptation, and innovation is intricately linked to its financial standing and the willingness of shareholders and financial institutions to back its development. Consequently, persistent shareholder value erosion poses significant challenges for all stakeholders involved: shareholders, suppliers, customers, and notably, employees. The prospect of sustained depreciation in shareholder value can be particularly disheartening and demoralising for employees, prompting them to consider alternative opportunities.

Let’s delve into what we might define as shareholder value destruction, using Boeing as a case in point. Examining the share price history over various periods – one month, six months, one year, and five years – reveals a consistent downward trend, painting a rather sad picture. The reasons behind this decline have been extensively chronicled, with Boeing earning the unfortunate distinction of being the subject of a 90 minute Netflix  documentary/tragedy as well as a New York Times bestseller. Both pieces offer compelling yet unsettling insights.

Now, why do I choose to study these narratives instead of indulging in reruns of the Brady Bunch? Perhaps it’s a reflection of my penchant for exploring the darker aspects of human nature, akin to sadomasochism, and my somewhat nihilistic tendencies. I must admit to having a morbid curiosity that draws me to investigations such as those surrounding air crash incidents, and the inquiries into the Boeing 737 Max are particularly harrowing.

Do I have anything to add to this extensively well-documented topic? Probably not but then again owing to a combination of self-diagnosed narcissistic personality disorder and hubris I am going to try anyway. Let’s confine ourselves to companies where technology and engineering are central to the company business. Boeing fits the bill. Whenever one wants to do a superficial analysis, even Donald Trump could understand, a good place to start is with a two-by-two matrix looking at company culture based on the cliché that culture eats strategy for breakfast.

So, let’s imagine two axes. On the horizontal axis consider whether there is an expertise-based culture or a hierarchical culture. On the vertical axis consider whether there is a financial culture or a technical culture.

A hallmark of hierarchical cultures often lies in the erroneous assumption that expertise and organizational rank are synonymous. There’s this notion that higher rank automatically equates to greater expertise, resulting in lower-ranking subject matter experts being marginalized and sent to the back of the room. This dynamic is epitomised by the “hippo effect” – where the opinion of the highest-paid person in the room holds sway.

In such cultures, when a “hippo” is present and a tough decision looms, the inclination is to discard data and expert analysis in favour of deferring to the hippo’s judgment. Essentially, in hierarchical settings, hippos wield both the highest rank and the most power.

A poignant illustration of this dynamic is depicted in the Boeing documentary, where several Boeing engineers openly confess that they wouldn’t advise flying in certain planes they’ve worked on.

A red flag indicating a hierarchical culture emerges when senior management distances themselves from operational aspects and relocates to a remote, lavish new head office, complete with an executive lift. Boeing, originally based in Seattle from its inception in 1916 until 2001, once enjoyed a stellar reputation as an engineering-driven company renowned for producing top-notch, safe aircraft. However, industry observers argue that this reputation began to erode as Boeing shifted its focus to prioritising the bottom line far away from operations.

A pivotal moment signalling this transition was Boeing’s decision in 2001 to relocate its headquarters from Seattle to Chicago. Many viewed this move as emblematic of the company’s misguided shift in priorities. More recently, Boeing’s relocation to Washington, purportedly to concentrate on lobbying the government for defense funding is another interesting development. Ultimately, dearly beloved readers, I leave it to you to judge whether this relocation is a harbinger of improved safety standards for Boeing’s passenger aircraft.

Frequently, companies heavily reliant on technology and engineering cultivate what’s known as a technical culture. However, having a technical culture doesn’t necessarily guarantee strong commercial performance. Engineers, while driven by grand technical aspirations, can sometimes lose sight of commercial realities. They may become so focused on pursuing lofty technical ideals that they inadvertently jeopardise shareholder value.

Engineers are not immune to actions that could result in shareholder value destruction. In such cases, the bean counters step in to assess the damage. Yet, these accountants themselves can contribute to value erosion if they prioritise cost-cutting measures over necessary technical innovation or compromise on safety standards.

Boeing stands as a poignant example of this dynamic, and BP serves as another tragic illustration. Both cases underscore the importance of striking a balance between technical innovation, commercial viability, and safety considerations to safeguard shareholder interests.

Now, let’s shift our focus to SpaceX, a company renowned for its markedly distinct culture compared to Boeing. Regardless of personal opinions about Elon Musk, it’s undeniable that he deserves recognition for eating Boeing’s lunch in the realm of spacecraft development while concurrently generating shareholder value.

In Elon Musk’s biography, he mentions actively seeking out Boeing engineers  who embodied a disruptive mindset within Boeing’s established culture. This strategic move not only benefited SpaceX but also potentially provided relief for the Boeing “hippos” who may prefer to operate in peace without the disruption caused by such innovative and challenging engineers.

SpaceX, while lauded for its achievements, is not without its flaws, including safety issues  and a culture that embraces risk-taking. However, in the competition for skilled and passionate engineers, it’s evident where I would steer a young professional. The allure of SpaceX’s share options, coupled with its innovative culture and ambitious goals, would likely be a compelling draw.

On the other hand, when considering Boeing’s share options, what can one say? For a young engineer seeking an environment that values innovation, creativity, and the potential for groundbreaking contributions, SpaceX is a more enticing opportunity.

Dearly beloved readers perhaps you can think of other examples of shareholder value destruction and provide your own more profound insights into what role corporate culture could play in shareholder value destruction. I look forward to your thoughts.

I want to express my gratitude for all the ideas and comments received. I genuinely appreciate them, and please continue to share your thoughts.

Regards

Bruce