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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 and 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 1 accident
for every 4 million departures.
So when a brand new Boeing 737 MAX fell from the sky
in October of 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's 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 sort of 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 have 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 9, 2019.
You're Dennis Muilenburg, the CEO of Boeing.
You're asleep in your apartment in Chicago
while your family's back in Saint Louis at your home.
You get a call from your chief safety officer at 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, 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: Well, I think this captures both the crucibles
that the CEO and all the executives at 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,
or 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 it's 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 sort of key learning points
that emerge out of these cases?
BILL GEORGE: I asked the students
after they described 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 kind of understand the depth and complexity
of the problem.
And the third learning point is to understand
what pressure 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,
a customer, an FAA, or frankly, Muilenburg had testified
before Congress, and the pressures you get
in 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 that was about 16 inches high and 8 inches wide.
And they held these pictures up behind him,
and 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 asked him how he was feeling.
BRIAN KENNY: Pressure packed.
BILL GEORGE: 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
Air MAX to go down.
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, sort of 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 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.
BRIAN KENNY: Yeah.
BILL GEORGE: They did not shut the claims down.
They let the others do the investigation for them,
and then eventually they started their own investigation,
but planes continued to fly.
BRIAN KENNY: 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: Well, 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 that produced the original 707.
They produced the 727, and then they
had a huge bonanza with the 747, which, of course, is
a gargantuan airplane.
Holds up to 450 passengers.
So they were the premier company,
and they were an engineers company.
They were a company where every engineer
would fight to get a job there.
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 '60s.
The F-4, a very, very popular aircraft.
The culture changed, and it became much more, if you will,
cost-oriented and less safety and design-oriented.
We've seen this happen in a number of American companies.
It happened to General Motors in the 20th century.
General Electric, too, started focusing less on engineering,
more on cost reduction.
And so Boeing did that.
And it also had a rather difficult succession of CEOs.
Phil 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, the production people.
You can't walk out in the factory.
They have no interest in Chicago.
BRIAN KENNY: Yeah.
BILL GEORGE: 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' subsidies.
But Stonecipher was a cost guy, and he openly
said we're going to cut the cost.
This has got to be a more business-oriented company, less
of an engineer's company.
Stonecipher also, unfortunately, was caught in a sexual scandal
and had to resign.
BRIAN KENNY: That's a tough stretch.
BILL GEORGE: 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.
Had only been at 3M for three years.
He 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 CEOs.
And Muilenburg comes in later on in 2013 as COO,
but he really didn't become CEO or in charge in 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 sort of euphemisms we want to use.
Cost cutting and 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: Now you've got to--
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 modification in the 737
that could hold American Airlines business.
Point of fact, it was late, and it took five 5, 5 and 1/2 years
to get there.
But they did everything to avoid the type certification that you
referenced back in 1968.
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 5 to 9 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.
Yeah, money.
Don't spend the kind of money you did on the 787,
get there fast, and hold the customer.
They are 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 corrected.
Safety was paramount.
To me, there can be--
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 in everything
you do because the cost of a failure--
I'm not even going to talk to 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 '90s.
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 on a slippery slope
where all of a sudden decisions are being
made that put cost over safety?
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: Well, 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.
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
that if the 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.
Meanwhile, they couldn't train the pilots
on what this was all about.
See, it's what I call in the classroom-- 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 compounded series of problems
because you make decisions based on that first flawed decision,
and it can lead to a very negative situation.
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: 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: Well, I would say, 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 your CEO in 2016 and the planes
are flying?
You just don't go shut your production line down
and abandon your customers.
It could have been done after the first Lion Air crash.
In fact, should have been done with the benefit of 20-20
hindsight.
When you have that first crash, 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 had put cyanide in the Tylenol.
He had no information, but he went out and reassured people
we're doing everything.
He didn't say it's impossible this could happen again
because he was scared to death it might happen again.
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 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 asked 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
are not getting their life back.
But that kind of inability to respond in 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 deal 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: 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.
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--
media is 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 is 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 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 the Harvard Business School
training is so important.
We have had a lot of people in this particular course who've
become CEOs, and this is a great preparation for them
to realize, oh, my gosh, these are
the kind of things that could happen to me, too.
I 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.
Like I said, this is a real test.
BRIAN KENNY: 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.
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