In the past 13 months, the Boeing (NYSE:BA) 737 MAX has been involved in two fatal crashes, triggered in part by the model's poorly designed maneuvering characteristics augmentation system. As a result, the type has been grounded since mid-March. Meanwhile, investigations into the design and certification process for the 737 MAX have unearthed additional evidence of a deficient safety culture at Boeing.
Not surprisingly, this finding has led to a public outcry against the company and its CEO, Dennis Muilenberg. Many politicians have called for Muilenberg to step down and have accused him of putting profits -- and his own pay -- ahead of safety. Nevertheless, Muilenberg has no intention of resigning, and Boeing's board doesn't seem interested in making a change at the top, either. Let's look at why Boeing's embattled CEO is poised to remain in his position.
Muilenberg keeps the CEO post, despite other changes
Last month, Boeing made some changes to its executive ranks for the first time since the 737 MAX safety crisis began. On Oct. 11, the company announced that it had separated the CEO and chairman roles, leaving Muilenberg as CEO but elevating David Calhoun to the chairman position.
This move could be seen as a demotion of sorts, but it is also in line with the best practices recommended by most corporate governance experts. Furthermore, Calhoun emphasized that the change did not reflect a loss of confidence in Muilenberg, saying, "The board has full confidence in Dennis as CEO and believes this division of labor will enable maximum focus on running the business with the board playing an active oversight role."
Just a week and a half later, Boeing announced an even bigger change, with Stan Deal replacing Kevin McAllister as the head of the company's commercial airplanes division. McAllister was apparently pushed out over a variety of setbacks in the commercial airplanes business, including the delayed return to service of the 737 MAX. That said, he also may have been a convenient scapegoat. Most of Boeing's current problems relate to decisions made before he joined the company three years ago.
Recently, following two days of contentious hearings on Capitol Hill, Calhoun, the new chair of Boeing's board, doubled down on his support for the CEO. He said Muilenberg didn't create the problems with the 737 MAX. He also mentioned that Muilenberg had volunteered to forgo any bonuses until every 737 MAX is safely back in the air, a process that will probably take until 2021.
It's true -- most of the blame lies elsewhere
Calhoun may have exaggerated a bit in absolving Muilenberg of all blame for Boeing's current crisis. After all, Muilenberg was CEO at the time of both fatal 737 MAX crashes. It would have been within his power to ground the global 737 MAX fleet following the first accident, thereby preventing the second one. Instead, Boeing continued to insist that the MAX was perfectly safe, implying that shoddy maintenance work or pilot error was to blame.
That said, the underlying problem was not created under his watch. Until December 2013, Muilenberg was the head of Boeing's defense business. Thus, he had no input into the decision to launch the 737 MAX rather than developing an all-new plane. He also didn't have any oversight of the 737 MAX development program until after many of the key design decisions had been made.
Indeed, until this year, Muilenberg was widely seen as a force for good at Boeing. His predecessor, Jim McNerney, had a general business background and was seen as a "bean counter" who prioritized maximizing shareholder value over engineering excellence. By contrast, Muilenberg is an engineer by training. In the early years of his tenure, he improved management-labor relations and worked to build a case for developing Boeing's first all-new commercial jet in more than a decade. In other words, even before the 737 MAX crashes, Muilenberg was working to address the cultural issues that many observers have blamed him for.
Time to execute
Boeing's board seems to recognize that it doesn't have a better candidate for the CEO spot than Muilenberg. While public opinion and the politicians aren't on Muilenberg's side, the board understands that he inherited a flawed company and has done a fairly good job of improving it since becoming CEO in 2015.
That doesn't mean the board will have infinite patience, though. Following McAllister's ouster, there's no one else left to shoulder the blame if the Boeing 737 MAX's return to service is delayed further. If Muilenberg and his lieutenants can get the 737 MAX recertified within the next few months and deliver a year of clean execution in 2020, he shouldn't have to worry about his job security. On the other hand, if the 737 MAX grounding drags on for longer than expected or Boeing experiences new setbacks, the board may be forced to find a new CEO.