IBUGBE

How did the evolution of Boeing’s organization and management lead to two tragic plane crashes within six months, in which a total of 346 people died?

Harvard Business School professor Bill George discusses the long roots that ultimately led to the crash of Lion Air flight 610 in October 2018 in Indonesia and the crash of Ethiopian Airlines flight 302 in March 2019 in Ethiopia. He discusses the role cost cutting, regulatory pressure, and CEO succession played in laying the foundation for these tragedies and examines how Boeing executives responded to the crises in his case “What Went Wrong with Boeing’s 737 Max?”

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BRIAN KENNY: On January 17, 1967, aviation history was made when Boeing unveiled the very first Boeing 737 aircraft at King County International airport, outside of Seattle. Baby Boeing, as it was called, had a greater seating capacity than any plane in its class and sported wing-mounted engines that provided a more balanced center of gravity. The team at Boeing thought they had a winner on their hands, and they were right. The Boeing 737 is the top selling commercial aircraft of all time and holds its own entry in the Guinness Book of World Records. It’s operated by more than 5,000 airlines in over 200 countries. And at any given moment, there are roughly 1,200 737 airliners in the sky. In over three decades of operation, the plane was involved in 19 fatal accidents, which equates to about one accident for every four million departures. So when a brand new Boeing 737 max fell from the sky in October 2018, killing all 195 souls on board, the aviation world took notice.

Today on Cold Call, we welcome professor Bill George to discuss his case entitled, “What Went wrong with Boeing 737 Max?” I’m your host, Brian Kenny, and you’re listening to Cold Call on the HBR presents network.

Bill George is an expert on leadership, a topic he teaches and writes about extensively, including numerous books, articles and business cases. He’s also the former chairman and chief executive officer of Medtronic. And he’s a repeat guest here on Cold Call. Bill, we’re so happy to have you back. Thanks for joining us today.

BILL GEORGE: Thanks for having me back, Brian.

BRIAN KENNY: We always love your cases. They’re super relatable. Sometimes they’re looking at historic figures, like Martin Luther King Jr. We had a conversation about that case, and then sometimes they’re more ripped from the headlines, and this falls into that category. I think these incidents are pretty fresh on people’s minds. We’re going to dig into some of the cultural issues at Boeing and I think people will really like to hear your thoughts on where there might’ve been lapses in judgment or leadership. Let me ask you to start by telling us: What’s your cold call to start the case when you walk into the classroom? Or when you tune in on Zoom, I guess these days, is how we’re doing it.

BILL GEORGE: Brian, here’s how I start. It’s now March nine, 2019. You’re Dennis Muilenburg, the CEO of Boeing. You’re asleep in your apartment, Chicago, while your family’s back in St. Louis at your home. You get a call from your chief safety officer of Boeing. “Dennis, we’ve had bad news. A second Boeing 737 Max has crashed outside Addis Ababa airport in Ethiopia, just a few minutes after takeoff. We just don’t know anything at this stage. You’re Dennis Muilenburg. I want you to walk in his shoes. What are you going to do right now?

BRIAN KENNY: That’s a tough question, but it’s the kind of thing that these leaders have had to face. Tell me… You’ve written so many cases on leadership. Why did this one strike you as one that was worthwhile? And how does it relate to the things that you write about and teach as a scholar?

BILL GEORGE: I think this captures both the crucibles that the CEO and all the executive of Boeing felt about these two planes crashing from the air, and how they led through this crisis. And this really illustrates leading in crisis, which a lot of us are facing these days. But it’s an understanding of all the pressures that come to bear because you have not only the internal pressure, you have the customer pressures, you have the government pressure of the FAA, you have the media pressures, you have investor pressures. You probably have pressures from your board of directors who want to know what’s happened. And all these things come to bear. And so the real test of a leader is how you respond in crisis. That’s what I was trying to capture and really examine how this leader dealt with this crisis.

BRIAN KENNY: Give us a sense before we really dive into the details, what are the key learning points that emerge out of these cases?

BILL GEORGE: I asked the students after they describe how they would deal with this situation, what’s the root cause of this problem. That’s at the start of the class. The other learning that comes out of it is a lot of times crises have very long roots. And if you only deal in the immediacy of it, you don’t understand the depth and complexity of the problem. And the third learning point is to understand what pressures CEOs are under from external forces, as well as internal forces. And how they have to, not only balance, but integrate and satisfy and deal with each of these forces. And the pressures are quite different from a supplier or a customer. And FAA, or frankly, Muilenburg, had to testify before Congress and the pressures you get testifying before Congress. That was an extremely embarrassing situation because the families of the victims of these crashes came with pictures of their loved ones on a board. It was about 16 inches high and eight inches wide. And they held these pictures up behind him at a certain point in time, a dramatic point, they all held them up. And the Congressman asked him to turn around and look, and they asked him, “How are you feeling?” So it’s a high pressure job, I’ll say that. And I think few people understand the multiple pressures CEOs are under, and they wonder, why do they behave in the ways they do?

BRIAN KENNY: You talked about the Ethiopian Airlines disaster. I teased in the intro, the Lion Air flight that crashed in 2018. And that was the first 737 Max to go down. So I wonder if you could maybe talk a little bit about that flight, but I also want to talk about Boeing and its history. They’ve been around for a long time, a storied history in aviation. So tell us what happened with Lion Air first, maybe as a starting point.

BILL GEORGE: The interesting thing about that is how Boeing responded. There was no statement from the CEO. Instead, there was a statement from the public relations department saying that we are very sad this happened, and we are deferring all inquiries to the National Transportation Safety Board that’s going to investigate it. Basically not stepping up to any level of responsibility. And then about a week, 10 days later, Boeing published a statement saying the 737 Max is the safest aircraft that’s ever been flown. Boy, that’s a risky statement when you don’t have all the information. The pressures people are under. You don’t know what happened. There was a clear application they were trying to blame it on the pilots. But you really don’t know what happened. And you’re making these very strong statements and they aren’t coming from a person, the CEO. They’re coming from a press department. And I think that’s significant to examine. They did not shut the flight planes down. They let the others do the investigation for them, and then eventually they started their own investigation, but the planes continued to fly.

BRIAN KENNY: Yes. So, in your opinion, is this consistent with the culture at Boeing? Talk a little bit about the origins of Boeing and the culture that was there, let’s say prior to the merger with McDonnell Douglas.

BILL GEORGE: Boeing, founded by William Boeing, was really the premier aviation company for the last 110 years. And it’s an amazing company. I’ve visited many times out in Seattle and it’s an amazing company. And they have these huge bays where they produce the planes in Renton, Washington, of course, they’re the ones who produced the original 707. They produce the 727 and then they had a huge bonanza with the 747, which of course, a gargantuan airplane that holds up to 450 passengers. So they were the premier company and they were an engineer’s company. They were a company where every engineer would fight to get a job there. And you mentioned McDonnell Douglas. There are pretty clear indications in the case and in all my studies that when they acquired McDonnell Douglas, who was the premier fighter jet pilot — I used to work with them when I was in the Pentagon in the sixties with the F4, a very, very popular aircraft — that the culture changed and it became much more, if you will, cost oriented and less safety and design oriented. We’ve seen this happen to a number of American companies. It happened to General Motors in the 20th century. General Electric too, started focusing less engineering, more on cost reduction. And so Boeing did that, and it also had a rather difficult succession of CEOs. Philip Condit was the CEO and had to resign over an ethical scandal. He actually moved the headquarters from Seattle to Chicago for something like $60 million in subsidies spread over 20 years. Personally, I felt at the time it was a terrible mistake. And I think history has proven it was indeed a very poor decision. Because you separate yourself now from the people running the company, from the engineers, the marketers, the people engaged every day in the business. And production people, you can’t walk out in the factory, they have no interest in Chicago. And then Harry Stonecipher came in. He actually was called out of retirement when Condit was terminated. And he actually did quite a good job reviving the commercial aircraft business because they were losing out to Airbus and always complaining about Airbus’s subsidies. But Stonecipher was a cost guy and he openly said, “We’re going to cut the costs. This has got to be a more business-oriented company, less of an engineer’s company.” And Stonecipher also unfortunately, was caught in a sexual scandal and had to resign. And they had the obvious candidate to become Stonecipher’s successor, right there in place who had revived the commercial aviation business. A man named Alan Mulally. But Mulally was passed over for Jim McNerney, who at the time was CEO of 3M. He had been at General Electric, very famous executive, and only been at 3M for three years. Even got a call from the President of the United States, urging him to take the Boeing job in the national interest. So, they’ve had quite a succession of CEO’s. And Muilenburg comes in, then later on, 2013 was COO, but he really didn’t become CEO or in charge until 2016, when McNerney retired.

BRIAN KENNY: So, let me just jump in for a second, because I’m hearing words like cost cutting, downsizing, whatever the right word, whatever euphemisms we want to use. Cost-cutting in an aircraft manufacturing, there seems to be a tension there. And I’m wondering if what we started to see was a change in emphasis in the way that they went about designing and developing aircraft that may have caused them to not be as thorough as they were in the earlier days when they first developed the 737. Is that fair to say?

BILL GEORGE: It’s always hard to prove that if you’re not working there, but that certainly is the impression one has.

BRIAN KENNY: So, there’s huge cost pressure in the industry, we know that. Why does Boeing make the decision to redesign… Or rather modify, I guess, might be the right word, the 737, rather than just designing an entirely new aircraft?

BILL GEORGE: Bingo, that’s the root cause of the case. It takes people a while to get there. You got there a little bit faster, Brian. That’s the key question. They were losing out to Airbus and American Airlines was about ready to shift away from them. So, they put together a crash program to develop a plane that can hold, a modification of the 737, that could hold the American Airlines business. Point of fact, it was late and it took five, five and a half years to get there, but they did everything to avoid the type certification that you referenced back in 1968. So, think about all the advances in technology and aviation. They had to stay within this type certification that meant they couldn’t make any changes. They couldn’t make it higher, they couldn’t add things, they couldn’t change their training manuals. And so they really couldn’t describe the differences to the pilots that were flying it, or even train them on those differences to stay within this type certification. So, that was the start of everything in the case I believe that predetermined, every design decision was based on not designing a whole new aircraft, which might have taken five to nine years.

BRIAN KENNY: So, is that the key issue there then? Because I’m wondering what the benefits are of constraining yourself in this way, by using a modification approach rather than a completely new design. Are they saving money, or time, or both?

BILL GEORGE: Speed. Get there fast. You have money. Don’t spend the kind of money you did on the 787. Get there fast and hold the customer. And so they’re responding to the short-term competition and frankly made a lot of short-term decisions that proved to be fatal. I was in the safety business at Medtronic. And we knew that one failed defibrillator could cost someone their life. And if we had a software problem that went across all of our defibrillators, they’d all have to be pulled out of people’s bodies or changed, corrected. And so safety was paramount. And you’re talking about a plane that’s flying with 150, 200 people in the air and maybe 300. You can have no compromise on safety. There is no such thing as a trade-off between cost and safety. Safety has to be paramount. Everything you do because the cost of a failure… I’m not even going to talk the cost of this, just the cost of one plane going down, so far exceeds any savings you get in designing the aircraft that you wouldn’t ever want to consider compromising. But these things are very subtle. See, there’s no one that goes out and says, “We’re putting cost over safety.” General Motors had that problem back in the nineties. No one’s saying that. It’s a slippery slope that people get to. And that’s important for students in the class to understand: how do you get in that slippery slope where all of a sudden decisions are being made that put cost over safety. And you do that, you’re going to have a fatal crash, which Boeing did.

BRIAN KENNY: What were some of the design changes they made?

BILL GEORGE: They had to move the engines because it was a heavier plane. But then they couldn’t raise the height like they normally would. So the engines were going to be too low or the profile was too low. So they ran into real problems early on and they had to redesign part of the electronic systems. And so they put in a system called the MCAS system. And that was a software fix to correct this problem. And what the MCAS did is, it had sensors, one sensor, that if a sensor sensed something was going wrong, it would take over flying the aircraft. It would actually take it away from the pilots. It’s like having a self-driving car and you can’t regain control. And so the pilots had lost control, but no one told them this. So if you’re trying to pitch it up and it’s going down, and you pitch it up and it goes down more because you don’t have control. And that’s exactly what happened in these two crashes. They had the same pattern problem. But meanwhile, they couldn’t train the pilots on what this was all about. And so see it’s what I call in the classroom, I talked about Murphy’s Law of Compound Error. When you have one thing go wrong, if you don’t fix the root cause, then you’re going to have compound a series of problems. Because you make decisions based on that first flawed decision, and it can lead to a very negative situation.

Editor’s Note: MCAS is Maneuvering Characteristics Augmentation System

BRIAN KENNY: I would assume Bill, that they must have tested these planes as they were building them. And the FAA plays some role, don’t they, in approving the planes when they’re done. Where was the FAA throughout this process?

BILL GEORGE: The FAA’s budgets were being cut back severely during the early stages of this. And so Boeing agreed to put some of its people into the FAA. So in effect, you had Boeing presenting the product for approval, and Boeing-paid engineers reviewing it, as FAA officials. There was no fraud or sham here. It was very out in the open. It was a huge mistake.

BRIAN KENNY: Yes. You talked a lot about the changes in CEOs that they went through. It sounds like it was a revolving door and maybe not with the most qualified people stepping into that role. What would you say, in your experience working with CEOs in all industries, what would the role of the CEO be in a situation like this? How should they behave? Should they be advocating for the engineers and their employees? Should they be advocating for the customer? What should they be doing?

BILL GEORGE: First of all, I would disagree with one thing. I think they were qualified. Jim McNerney was fully qualified to come in there. He had run the GE jet engine business. Dennis Muilenburg was fully qualified. He’d been with the company 22 years as an engineer, but he came in very late in the game. So what do you do when you’re CEO in 2016 and the planes are flying? You just don’t go shut your production line down and abandon your customers. It could’ve been done after the first Lion Air crash. In fact, should have been done with the benefit of 2020 hindsight. When you have that first crash, that first product that fails. That’s a good place to shut everything down. Yet, in my experience, not saying something, leads to real problems in a crisis. People want to hear from a human being. They want to hear from the CEO. So the role of the CEO, first of all, is to be a spokesman. You remember Brian, the famous Tylenol case with Jim Burke?

And he was out there every day. He didn’t have the information. He didn’t know who’d put cyanide in the Tylenol. He had no information, but he went out and reassured people, “We’re doing everything, okay.” And he didn’t say, it’s impossible this could happen again. Because he was scared to death it might happen again. So, you got to be out there on the firing line. I remember in the case of the British Petroleum, when they had that huge blow up in the Gulf of Mexico and it’s leaking, and it took over 90 days to shut it down. Tony Hayward didn’t go down there for six weeks, the CEO. After six weeks, he goes there. And they ask, “Mr. Hayward, what are you going to say about this?” And he said, “Actually I just wish this whole situation to be over. I’d like my life back.” And someone said, “Mr. Hayward, you know that these 11 employees of yours, they’re not getting their life back.” But that kind of inability to respond to a crisis, I think many CEOs are not well-trained. You can be an engineer at Boeing for 25 years and get to be CEO, but it doesn’t mean you’re well-trained to be in the public eye. So I think CEOs today must be out in front on very important issues because you’re going to be challenged. That’s a big learning from the case, of how important it is to be prepared to do that.

BRIAN KENNY: Yes. Bill, this has been a fascinating conversation. It’s a great case and a disturbing one because you hope that these problems have been resolved, but I guess you don’t really know for sure. But tell us, if there’s one thing you want listeners to take away from this case, what would it be?

BILL GEORGE: The importance of leadership in a crisis and why as the leader, you need to be out in front. If there’s a problem, you should be out there, first of all, apologizing and saying how sorry you are on behalf of your organization for what happened. Even if you don’t know if you’re culpable. Express empathy, because in the media it’s not about facts, it’s about feelings. How do people feel? Do you care about them? And we had a great debate in the case discussion about is it leadership or culture? Well, it’s both. But If the culture’s not right, the leader has to change that culture. And that’s a tough job, but that’s so important that leaders take that role on. So they have the internal role and the external role.

BRIAN KENNY: We’ve talked before about crucible moments and this is something you’ve written quite a bit about. And it sounds like this is exactly what a crucible moment is, right? By definition.

BILL GEORGE: It sure is. And this is the test because you have no preparation for it. You can go through all the crisis training you want, but no one is going to actually put you in that situation. So that’s why I think that Harvard Business School training is so important. We have a lot of people in this particular course, who become CEOs. And this is a great preparation for them to realize, “Oh my gosh, these are the kinds of things that could happen to me too.” So I’d better be emotionally and mentally prepared, even if I’m going to have to work on the fly and decide what to do, because the situation is constantly changing. The fact-based situation’s changing. But like I said, this is a real test.

BRIAN KENNY: Yes. Bill, it’s a great case. Thank you for writing it and thank you for coming on to discuss it with us.

BILL GEORGE: Anytime, Brian, thank you.

BRIAN KENNY: If you enjoy Cold Call, you should check out our other podcasts from Harvard Business School, including After Hours, Skydeck, and Managing the Future of Work. Find them on Apple Podcasts or wherever you listen. Thanks again for joining us. I’m your host Brian Kenny and you’ve been listening to Cold Call, an official podcast of Harvard Business School brought to you by the HBR Presents Network.