It’s time for Boeing CEO to go straight to union leadership: Expert

Simone Del Rosario: Just as Boeing machinists started a strike, we published an in-depth interview titled, “Boeing: The perfect story of what’s wrong with America’s economy?”

In that interview, leadership expert Gautam Mukunda took us through a master class on what’s gone wrong at Boeing over decades and what it’ll take to fix the culture. That interview gained a lot of traction, with Boeing employees telling us Mukunda hit the nail on the head. 

Since then, things at Boeing seem to have only gotten worse. 

Boeing’s had a pretty terrible last month, from the strike costing the company $1 billion per month to announcing plans to lay off 10% of its workforce to securing financial lines to take on even more debt to try to avoid a credit downgrade. 

Keep in mind, new CEO Kelly Ortberg has only been on the job about two months. 

With everything at Boeing even more up in the air now, I wanted to welcome back Gautam Mukunda for another chat. 

Gautam Mukunda, thank you so much for coming back and talking to us. It’s been a crazy month for Boeing since we last spoke.

Gautam Mukunda: Simone, always a pleasure. Yes, it has. Things are not going better so far for them, and that’s tough.

Simone Del Rosario:

I first wanted to get your reaction to how their new CEO, Kelly Ortberg, has been handling his duties with this strike going on.

Gautam Mukunda: Yeah. So let’s start. He started off by hitting exactly the right note, right? He came in, he said, Look, I’m going to be in Seattle, because Seattle is where the planes are made, and all my predecessors have been working in Chicago and DC, and that just doesn’t make sense, right? We got to get this fixed. And so that was, that was exactly the right way to start. And I thought that was a really good sign. Since then, the strike has happened, and I fair to say, I’m concerned. I don’t think this is Ortberg so much as Boeing operating the way that it has always operated for the last generation or so, but it may be time for him to step in. And so if we go over what happened, right? So the machine is struck, and in terms of any strength you got to understand the underlying conditions. And the underlying conditions here are that for a generation, Boeing’s unions have been the people saying, You guys are flying this company into the ground, right? You have sacrificed engineering excellence in order to in order to maximize short term profits. You are treating your people badly. You are driving out the best employees, right? The unions have been the one saying, raising the warning so the warning signs over and over and over again. That only now has you know other people caught up that they were right. And I think you have to frame it in that context. This isn’t the same as other strikes, where that is just that, it’s just pure Mike, purely about money. Or, you know, maybe you have problems with unions and other areas. This is different. This is an organized organization whose unions have been desperately trying to save it for a generation, while management is trying to destroy, you know, if they were trying to destroy it, they would act about the way that they have and so, partly as a consequence that, and partly because the culture that under that drove a lot of these changes at Boeing, the culture that really involves sort of squeezing the workers and the people who actually, You know, we’re actually building the planes to the maximum possible extent. And I just right, I want to, I want to highlight a particular thing, because it’s just so telling, um, Jim McNerney, the CEO of Boeing, and previously, the CEO of 3m Ge, you know, GE trained product by Jack Welch, all that sorts of things. Was asked when he was CEO of Boeing, was he going to retire at 65 as the rule said that they should that a mandatory retirement age 65 and mcnerney’s answer was, why would I do that? The heart is still beating and the employees are still cowering. That was the quote right now. He went and apologized for that a few weeks later and said, Oh, I didn’t mean it. Come on. You don’t make jokes like that if you’re not revealing a culture. Right? Jokes tell you a lot about the culture. And so the unions at Boeing don’t trust management. They don’t trust management even a tiny little bit. Right? This is a company where you have unionized engineers who have gone on strike, not even machine right? Engineers. Can you think of another unionized engineering workforce in the world. And so here that when this has happened, the then when they finally reached that point, Boeing’s management has done a couple of things right. So first is their offer, the 30% offer they made, the offer is not unreasonable, but instead of making it in a way where they did it in cooperation with the union leadership, they went directly to the workforce, basically thinking they could bypass union leadership and override them, and they lost like 93% of the workers voted against them, 93% and then once the strike happened. 

Simone Del Rosario: let’s talk about that part of it. There was an agreement between the negotiating team and Boeing leadership, that’s what they brought to the workforce. And then, you know, the workers didn’t like the agreement, no, to the surprise of many, but then, because we talked before this all happened, and you had thought that the Kelly ortberg Hire was going to be a big culture shift. You believe in CEOs having the ability to be able to change a culture in a place like Boeing and Kelly Ortberg is coming in an engineer who understands what they do, understands how to build planes, and you felt like this was an opportunity for Boeing, and then we saw them do something that felt very reminiscent of before, where they clearly aggravated the Union by publishing the second offer, and there was a ton of backlash based off of that. I have to ask, do you think that that was Kelly Ortberg? Do you think that that was people who are, you know, have been in Boeing for a long time? Where, where does the buck stop?

Gautam Mukunda: So the buck always stops with the CEO. Yeah, always right. He isn’t he that he is in charge, he or that he is the leader, right? The but when Harry Truman was president united states, said the buck stops here. That’s just as true for CEO, more true for CEO, in some ways, but I doubt it was his decision, right? Because this is just too much the way Boeing has traditionally operated and orbor has the what I said, I want to be very specific, was ortberg had the opportunity to change the culture. That doesn’t mean that he will. It just means that he could, if he wanted to, and that’s going to be a multi year process, and this will be the first step. And I really think that I can totally see how this would be. You know, labor negotiations are not generally handled by the CEO. He’s got plenty of things that he’s got to manage, including Boeing’s horrific legal difficulties, which they’re still going through. But this is probably, this is probably now time for him to step in. And I’m gonna, it’s important to note that touch labor, the people who actually sit around and, you know, actually manufacture the planes. Those costs only account for 5% of the total cost of manufacturing an airplane. So if they were to double labor costs, which no one’s proposing that they’re going to do that, that would be from five to 10% that’s still there’s a lot of room to play here. So this isn’t just about economics. I would really strongly urge Boeing leadership to realize that if the employees shouldn’t be cowering, and you know, you would have been, you would have been better off all the people the senior ranks of Boeing who are paid, after all, in equity, right? They’re primarily the biggest chunk of their compensation is equity. So Boeing, which I think over the last few years, has been the second worst performing stock in the s, p5 100, trailed only by Intel, they would all be better off if they had listened to labor a little bit more. So my suggestion would be that when they come back to the table, which they have to do soon, this strike is costing Boeing a billion dollars a month a month, right? And they need that capital to build the new airplane like they have to do, what they suggest is that this is not just about a financial negotiation. There’s also something about shared power here that they need to say, like, look, we need to bring labor, and we need to bring engineers, and we need to bring the unions. We need to bring them in, and their voice needs to be incorporated in management that could go as far as offering them a board seat. And, you know, the counter is always that labor in such a you know that this is a problem. Makes companies harder to manage Boeing. Could you like, like, could they possibly have done a worse job than the people who have run Boeing for the last 25 years? Right? Like, What’s your theory as to how labor, including labor on the board, would have done worse? Because it’s hard for me to imagine what worse would look like for this extraordinary, iconic American company. I think it’s time for them to realize that cultural resets don’t happen from small chain steps they take from happen from you need big steps. You need to, especially you need to start with a big step. And this is probably time for that one.

Simone Del Rosario: It seems like the deal breaker situation for the workers is the pension plan you mentioned. You know, the dollars and cents of the offers aren’t that far apart. That is the one big thing that’s been left off the table so far. Do you foresee Boeing caving to that? Do? Does the labor union have enough of the upper hand in this?

Gautam Mukunda: So the labor union definitely has the upper hand, and Boeing is acting like it doesn’t, but this just isn’t plausible, right? I mean, it’s a tight labor market for everybody, for the highly skilled machinists who are what you know, Boeing needs more than anyone else in the world. It’s really tight. It’s an extraordinarily tight labor market. Boeing is in a financial loop, like every card is against Boeing. The pension request is a difficult one, but I just know, right, that the pension contributions are based off the salary. So when Boeing is offering a 30% increase in pay that that rolls over into the pensions as well. So they are so even if they are not offering sort of what the debate is over the divide the defined benefit contribution of the pension right, where they were just getting the same amount all the time, and defined benefit pensions are going away. There start that many of them left. I suspect that that is a good that is a negotiating thing, where if Bo if Boeing comes back and says, We can’t give you that, it’s just not practical. No one gives that anymore, but we’ll give you 35% and we’ll give you a voice in governments, which they haven’t offered yet. That’s a very different conversation.

Simone Del Rosario: let’s talk a little bit about the finances of what’s going on at Boeing right now. At the same time that they’re trying to negotiate with the machinists, they’re also trying to plague hit investors and protect their credit rating, which is, you know, very much at risk at this point, as they’re in the second month of this strike. We’ve seen the reports about potentially raising $15 billion in, you know, stock sales and whatnot. What do you think about what’s coming out on the financial side of what they’re doing at the same time?

Gautam Mukunda: Yeah, so they’ve, they’ve gotten a ten billion revolving credit, additional revolving credit facility. And I. They know they haven’t actually touched the ones that they already had. So that’s ten billion additional, and they have registered with the SEC for a mixed capital offering both on both equity and debt of as high as $25 billion which is a lot. Of course, Boeing was already carrying $60 billion in debt. One might say that the gigantic stock stock buy buybacks that they’ve done over the last 25 years where they’ve spent hundreds of billions of dollars on that. Maybe that money could have been better used, but I guess it’s too late now. Um, so Boeing needs that capital, and it needs that capital. I mean, again, the strike is possibly a billion dollars a month. So it needs that capital quite pressingly, if they keep going along this route. But more than that need. They need it because those are the kinds of numbers that you talk about that you have to spend to develop a new airplane right gear. Building airplanes is unbelievably capital intensive, and that’s the place where they’re going to deploy it. I do not doubt that they will be able to raise the capital they need, at least partly because of the implicit government backstop that Boeing has, as you know, the a centerpiece company of American manufacturing. But I think they would be well, well suited. It’s time to announce a strategy, right? They’ve announced layoffs, 10% layoffs, but we don’t know what the guiding principle is here. We don’t know what they’re trying to do. Are they going to get rid of their space efforts, which have been floundering, to put a model lay in the ISS and go all in on commercial are they going to continue to think about defense, where, again, they’ve been struggling, but like, I don’t know what Boeing strategy is, and if I don’t, the markets do either. So it’s probably time for them to say and to make a really clear picture of what that is. If they do that, then back out right? Commercial Aviation is not going to go away. It is an incredibly important industry. It is an important, important industry with enormous barriers to entry, and Boeing is one of the only two players in it at the top scale. Even if you believe that Chinese aviation is coming, and I do, but it’s not clear to me that that’s going to challenge Boeing and Airbus in like the near future. That is a recipe for a company that should make enormous amounts of money, if you analyze right one of two players in a industry with high barriers to entry that’s a very profitable industry. So Boeing can make the case why they can be profitable. They can be worth investing in, but they have to make it.

Simone Del Rosario: Let me ask you this. You’re in Kelly ortberg’s ear. What are you telling him to do? What are the top three things that he needs to do immediately?

Gautam Mukunda: He’s got to settle the strike, and at least he’s got he should, he should meet with the union leaders directly, right? It’s time for him to go, passes by, pass the negotiators, and say, you know, I’m the CEO going, but I’m new, right? I wasn’t here all the awful things that my predecessors did to you, I didn’t do them. Give me a chance, and we’re going to make this happen. First, right? And even if that doesn’t resolve the strike immediately, it will at least indicate the seriousness and start to prepare the cultural damage. Second, he’s got to announce what their strategy is, right? What are they going to do? It almost certainly involves a new airplane. It’s hard for me to imagine a successful voting strategy that doesn’t he’s got to tell us what that new airplane is going to look like. It’s going to be what market’s going to explore, what their timeline is, and what they’re going to commit to making it not just a rehab, not just a rehash of older planes, but a new one. And I’ll add to that, and he needs to make it very, very clear that they are not going to do the 787, strategy of outsourcing everything. This is going to be an airplane that Boeing builds that’s done internal to Boeing in the way that they did with the triple seven. And they’re going to do it right? They’re going to start doing it now before the last remnants of that capability go away. And third, he’s going to have to announce what his cultural change plan is for Boeing, right? That if the problem there has always has been this incredible over Focus, focus on short term profits and the willingness to essentially squeeze workers and make them sacrifice everything to hitting schedules and initial and deadlines and the quarterly numbers. He’s going to have to lay out what that cultural change project looks like. There are lots of blueprints. I would point him, for example, towards what Cynthia Carroll did at Anglo American but there are lots of others that has happened. You know, people have done it before. It is incredibly hard. But you know, if the job, if the CEO job, was easy, then, then, then they wouldn’t be paid that much, right? If you don’t want to do hard jobs, don’t take that one.

Simone Del Rosario: Gautam Mukunda. Thank you so much for your thoughts today. 

Gautam Mukunda: Thank you.