The slogan “If it’s not Boeing, I’m not going” has been widely recognized by the civil aviation industry for many years.
Now, the stock price to some extent represents the attitude of the outside world towards Boeing: on April 26th local time, Boeing’s stock price closed at $167.22 per share, a 17.6% decrease compared to the same period last year. Standard&Poor’s, Moody’s, and Fitch have downgraded Boeing’s rating outlook from “stable” to “negative.”.
The multiple whistleblowers within it have exposed more alarming safety hazards.
The latest news shows that the Federal Aviation Administration (FAA) is investigating an accusation related to Boeing. According to reports, Boeing took retaliatory actions against two employees in 2022 for insisting that Boeing reassess the engineering work prior to the Boeing 777 and 787 aircraft.
However, although the whistleblowers have been present all along, why is it regrettable that these voices seem to have failed to prevent the continued occurrence of accidents?
Liu Zhi, Associate Professor and Doctoral Supervisor of the Department of Organization and Strategic Management at Peking University Guanghua School of Management, told First Financial reporters that firstly, employees can identify problems and obtain information related to them. If the quality standards or processes implemented by the enterprise are themselves incomplete and rationalized, employees may not be aware of the problems or the impact of such operational standards on overall safety and quality. Secondly, those who discover problems have the motivation to report them. “Reporting and exposing major safety and quality issues is more likely to raise concerns of suppression or even retaliation psychologically, so institutional and procedural safeguards are needed,” she explained.
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Frequent whistleblowers
Boeing, with a history of 108 years, is one of the world’s largest civil aviation aircraft manufacturers. Approximately 40% of the 29000 commercial aircraft flown globally are produced by Boeing.
However, due to frequent accidents, Boeing’s operations have been affected in the past two years. According to Boeing’s latest financial report, the company delivered 83 civilian aircraft in the first quarter, a year-on-year decrease of 36%, due to a decrease in the delivery volume of 737 aircraft and the grounding of 737 MAX 9; The revenue in the first quarter was 16.57 billion US dollars, a year-on-year decrease of 8%; However, although the company suffered a loss of $355 million in the first quarter, the loss narrowed compared to the same period last year’s $425 million.
Along with frequent Boeing aircraft accidents, whistleblowers also frequently appear. As early as 2016, John Barnett, who had worked at Boeing for 32 years and served as a quality control manager, reported to the media and FAA that about 25% of the oxygen supply system in Boeing 787 aircraft was not functioning properly. In 2019, Barnett also exposed to the media that the Boeing 787 Dreamliner had serious hidden dangers, including tacitly allowing assembly workers to use substandard parts. However, in March of this year, Barnett was absent from his defamation lawsuit against Boeing and was found dead in his own vehicle on the same day.
At two hearings on Boeing safety issues held on the 17th by the Senate Standing Committee on Investigation and the Senate Commerce Committee, multiple witnesses including Ed Pierson, Executive Director of the Aviation Safety Foundation, former Boeing manager, and Sam Salehpur, a quality engineer who has worked at Boeing for 17 years, questioned Boeing’s “broken safety culture.”.
Pearson, on the other hand, stated that he had suggested to Boeing Project 737 General Manager Scott Campbell a few months before the 2018 Lion Air crash that Boeing suspend production to rectify factory management order. Pearson, who had served in the Navy for 30 years, told Campbell, “I have seen military operations shut down due to much lighter issues.” According to Pearson’s recollection, Campbell responded, “The military is not a for-profit enterprise.”
Regarding Pearson’s statement, Boeing stated in a report that his concerns were “reviewed by the company’s highest management,” but denied that the cause of the Boeing 737 MAX accident was related to the situation described by Pearson. Salipur provided a large number of Boeing documents, detailing the issue of gaps exceeding specifications at the main connections of the 787 aircraft fuselage. He stated at the hearing that Boeing concealed the issue and used excessive force to push the components together, making the gaps appear non-existent.
This hearing is aimed at the continuous safety accidents of Boeing aircraft in recent times. In January of this year, a brand new Boeing 737 MAX aircraft took off from Portland International Airport in the United States a few minutes later when an emergency exit hatch suddenly fell, causing a large hole to appear on one side of the fuselage. The preliminary report from FAA suggests that this incident was due to the four bolts securing the cabin door panel being removed during previous maintenance work and not being installed back.
As mentioned earlier, the FAA is investigating an accusation related to Boeing. At present, the Aerospace Professional Engineering Employees Association has complained to the National Labor Relations Commission of the United States that these two employees were later given negative evaluations by Boeing. One of the employees has resigned. Boeing issued a statement in response, stating that there is “zero tolerance” for retaliation against employees, but no evidence has been found to support this claim.
Why can’t we brake despite the presence of “whistleblowers”
Boeing has never lacked whistleblowers internally, but employee concerns about production processes and quality control seem to have not acted as a brake.
Liu Zhi stated in an interview with First Financial News that in order for the “whistleblower” system to operate effectively, enterprises need to have “whistleblowers”. There needs to be a dedicated committee or responsible person in the organization to handle reports on security and other issues, and the responsible person is required to be sensitive and professional. At the same time, there needs to be established processes, manuals, etc. If such departments are virtually non-existent, ignoring the issues raised, without professionals responding in a timely manner and initiating investigations according to standardized procedures, potential dangers may accumulate and lead to crises. “When the Enron scandal occurred, there was also a 64 page Code of Conduct in the company, but it was just a decoration and no one practiced it,” she explained.
Meanwhile, “whistleblowers” should have relative independence and impartiality. These types of institutions should be relatively independent of the power structure within the organization, such as being able to directly report issues to the CEO, safety committees in the board of directors, or regulatory agencies. If there is no independence in terms of rights and responsibilities, and even helps companies cover up problems, it will actually become a “silencer”. Liu Zhi stated that the system needs to have external openness, that is, to involve third parties involved in safety and quality issues in whistleblowing. For example, many companies have systems to prevent commercial bribery, which not only have detailed regulations on the commercial hospitality or gift behavior of their employees, but also require suppliers, service providers, or customers to refuse to accept bribes and actively report them, otherwise it will lower the rating, reduce procurement, or terminate contract relationships.
In addition, it also requires the courage and action of senior executives or CEOs to face and solve problems directly. If employees and supervisory agencies discover safety and quality issues, but ultimately the CEO neglects, avoids, or covers up the issue due to considerations such as profit, efficiency, cost, and reputation, the result can be imagined. Liu Zhi stated that from the above situation, Boeing only has frontline or internal personnel who understand safety issues, as well as “whistleblowers” who have the courage to stand up, and it is impossible to prevent accidents from happening.
Salpur mentioned during the hearing that he was “ignored” and “marginalized” when he raised these issues to the company. “I have been threatened personally,” Salpur said. “My boss said, ‘If someone says what you said at the meeting, I will kill him.'”
Does “accountant culture” hold the blame?
One voice believes that the change in Boeing’s culture originated from the acquisition of McDonald Douglas, a former leader in the US military aircraft manufacturing industry, in 1996. With a large number of former McDonnell Douglas executives entering Boeing’s management, Boeing gradually shifted from an “engineer culture” to an “accountant culture”.
In an interview with First Financial News, Liu Zhi stated that instead of calling Boeing culture an “accountant culture”, it is better to call it an “accounting statement culture”, which only focuses on financial returns, tries every means to reduce costs, raise stock prices, and please shareholders, and executives benefit from it.
According to Liu Zhi’s analysis, looking back at Boeing, after acquiring McDonnell Douglas, they went through five CEOs, but all continued the culture of profit first, and no one made substantial changes or made the determination to make changes in the face of endless problems.
Liu Zhi stated that based on the business philosophy and value orientation of these past CEOs, they have all focused on shorttermism, pursued profit first, and have not taken obvious measures to return to the essence of Boeing as a company that manufactures aircraft involving life and death safety. “This is related to the operating model of the professional manager market in the United States. According to the principal-agent theory in economics, these CEOs are just professional managers, representing shareholders rather than the owners of the company. Their compensation and return not only include high annual salaries, but also highly depend on the financial performance of the enterprise in the stock market. Therefore, by creating ‘beautiful’ reports through short-term means, shareholders profit from the pushed up stock prices, and these executives can also obtain huge returns.”.
Boeing’s board analyst Matt Moscardi believes that “Boeing’s problem is that it has squeezed out those with the ability to build and design aircraft from the center of power. To address Airbus’ challenges, they must find engineers who can lead the company.”
At present, Boeing’s mechanics union is fighting for a board seat and hopes that the next CEO will have an engineering background. However, so far, there is no indication that all nominees for the new CEO, including the most vocal General Electric CEO Larry Karp, will have an engineering background.
Liu Zhi stated that, of course, the agent should not be the only scapegoat. The selection of CEO is determined by the board of directors. Why have similar CEOs taken turns over the past few decades, changing from one position to another when problems arise, repeating the same mistakes over and over again? This is related to the board of directors as a corporate governance mechanism.
She explained that Morgan Stanley Capital International (MSCI) ranked the company’s governance level on a scale of 1-10, and Boeing scored 5.4, ranking third from the bottom among the S&P 500 companies. But the remuneration of its board members ranks 23rd among the Fortune 100 in the United States. “An ineffective board of directors should also bear considerable responsibility for the Boeing issue,” she said.