This post was authored by Gapingvoid CEO, Jason Korman, and originally featured in Barron’s The latest reports about Boeing make this clear: Investors haven’t seen the hard proof they need that the company has fixed its long-standing culture problems. Ever since a panel blew off of a Boeing 737 MAX 9 Alaska Airlines jet in January, a new wave of attention has focused on the company. The airline’s inspections found many loose bolts on similar aircraft. A few weeks later, the nose wheel came off of an older Boeing jet in Delta Airlines’ fleet before takeoff at the Atlanta airport. Though these incidents have made headlines recently, data shows that overall incident rates for Boeing are still low, and in line with other companies like Airbus. While these incidents fortunately did not lead to casualties, they rightfully raised alarms. It was just a handful of years ago, in 2018 and 2019, that two crashes of the Boeing 737 MAX killed 346 people. Investigations at the time found problems in the company’s safety culture, which in 2020 Barron’s wrote was “broken.” One of the cultural issues relates to a set of Boeing employees who are empowered to report to the Federal Aviation Administration under a program known as Organization Designation Authorization, or ODA. The FAA surveyed some of these employees in 2021. In a letter to Boeing, the FAA said Boeing’s culture appeared to “hamper” these inspectors “from communicating openly with the FAA.” More than a third (35%) said the environment did not support the inspectors’ independence. The company vowed to fix its culture so that everyone at Boeing feels safe speaking up about any issues they see. A new CEO, David Calhoun, was brought in to help oversee this change. Boeing’s board awarded him $33 million in cash and stock last year, $10 million more than the year before. (Calhoun declined to be considered for an annual incentive payment that could have been worth $2.8 million more.) In February of this year, the FAA released a new review by an expert panel that had been mandated by Congress. It’s striking how little has changed. The new report found “a disconnect between Boeing’s senior management and other members of the organization on safety culture. Interviewees, including ODA unit members, also questioned whether Boeing’s safety reporting systems would function in a way that ensures open communication and non-retaliation.” Calhoun said in response to the report that Boeing has “a clear picture of what needs to be done.” He promised to develop an action plan with measurable criteria “that demonstrates the profound change” the FAA wanted to see. Meanwhile, the stock has continued to decline. Since the release of the FAA review in February, it has fallen 11%, and has dropped a total of 59.6% from its all-time high in March 2019. And while the announcement that Boeing is replacing several leaders including Calhoun may have been aimed at reassuring investors, it shouldn’t. A company can bring in new names and faces without addressing the underlying issue. A big part of the problem is that “culture” seems nebulous. When investors hear a company’s leaders describe the kind of culture that they’re building in an organization, it’s natural to believe them. Shareholders don’t know how to gauge whether real change is taking place. I work with companies and government agencies to create culture change, including organizations specializing in aviation. I show them that the key is to treat culture as a management system designed to embed new thinking models. These changed mindsets then lead to predictable, deliberate decision-making and new outcomes. For example, the management system makes clear what the company prioritizes most: safety or production schedule. The answer may sound obvious, but in the day to day grind, emotion can overcome logic. When a culture is clearly defined as a management system, priorities become clear at all times. So any employee can say that they need to pause or slow down because they may have spotted a problem. Managers know to reward that behavior, not punish it, because the employee is acting in accordance with the established thinking models. How can investors know whether Boeing is achieving real change? Boeing has said that Calhoun’s compensation for 2024 (he plans to step down at the end of the year) will be tied to safety goals and to the “design and deployment of an employee culture survey.” But a survey on its own does not provide real insight. To determine whether things have really changed, a company needs to ensure that any survey is packed with quantitative and qualitative questions and provides guaranteed anonymity. Even more importantly, organizations also need to allow in observers over an extended period of time. The employees have to get so used to the observers being present that they let their proverbial guards down and resume normal operations. With a new culture instilled, the surveys and reports from observers will demonstrate a concrete cultural shift. My team has seen this up close in aviation through our work with the U.S. Air Force. The service has a rigid hierarchy that makes the idea of challenging a superior uncomfortable—or even impossible. (Boeing hires many Air Force veterans, and likely has similar hierarchical thinking.) But once we had the chance to speak with airmen, observe behaviors, and enact culture change programs that last, we saw the beginnings of successful transformation. Boeing is a bureaucratic business with bureaucratic customers. It needs to break its well-established models of thinking and adopt new mindsets. While these incidents have made headlines recently, data shows that overall incident rates for Boeing are low, and in line with other companies like Airbus. The company must face the reality that human errors are inevitable, and only a culture that supports speaking out can help catch and fix those errors. When shareholders demand proof that culture change is happening, they’ll help Boeing finally move in the right direction. |