Boeing is a long-standing icon of American industry with a formidable history of leadership in the manufacturing and innovation of aeronautic technology. However, deadly malfunctions in recent years have signaled a steep nosedive in the firm’s reputation and stability. Since 2018, quality issues with Boeing products have directly caused hundreds of deaths and injuries, in addition to serious reputational and financial blows to the company. The roots of Boeing’s recent issues stretch back decades, and the firm’s trajectory since its 1997 merger with McDonnell Douglas offers a prime case study in the business case for corporate sustainability. It is because of unsustainable business decisions towards shareholders’ interests since its merger with McDonnell Douglas, alongside relatively non-material ESG initiatives, that prioritized short-run profit margins over long term stability and led Boeing to its current predicament. The effects of these decisions accumulated over time, leading to the great rise and fall of the company over the past 25 years.
Many criticisms of Boeing’s shift in company culture as “profits-over-people” find root in the 1997 merger of Boeing and McDonnell Douglas. The merger resulted in a clash between management of the two firms– though Boeing acquired McDonnell Douglas, the latter’s finance-trained management took over from Boeing’s in a bizarre, parasitic takeover of its new parent company. This management change brought about an increased cost-reduction focus, whereas Boeing’s former management had always prided the firm on its engineering excellence. To narrow their margins and increase the bottom line, Boeing decided to move its headquarters from Seattle to Chicago in order to gain $60 million in tax credits over two decades. Then-CEO Jim McNerney went on to populate the company’s board with similarly finance-minded members lacking technical experience. This was a hiring trend that continued until only recently– CEO Dave Calhoun, whose resignation was announced only weeks ago, was much criticized for the same.
One of Boeing’s most damning decisions was a dramatic turn to outsourcing. Rather than develop aircraft in-house and outsource parts from suppliers, beginning in the 2000s around 70% of the design, engineering and manufacturing of the 737 was outsourced to more than 50 strategic partners. While this approach was seen as innovative and revolutionary at the time, this race-to-the-bottom, cost-cutting strategy orchestrated by non-technical leadership resulted in quality issues leading to the deaths of 346 people in the 787 Max crashes of 2018 and 2019.
‘In the wake of this tragedy and Boeing’s quality control negligence, it is important to mention that these profit-cutting decisions were not without short-run success for Boeing and its shareholders: in 2013, Boeing promised to return 80% of its free cash flow to shareholders through share buybacks and increased dividends, part of a remarkable trend in the early 2010s. Beyond its already stellar reputation, Boeing’s management seemed to be successfully appeasing shareholders with promising ingenuity. Shareholders will seek the largest return possible as a rule, and Boeing evidently prioritized shareholder returns in their aggressive cost-reduction strategies. However, lapses in the quality of Boeing’s products were beyond shareholders’ foresight, and to attempt to directly improve operations would anyway exceed their responsibilities according to commonly-held best practices in corporate governance. While shareholders may have reinforced Boeing’s cost-cutting incentive, company operations and strategy are ultimately the responsibility of the Board of Directors. According to its own principles of corporate governance, Boeing management should rightly be held responsible for the technical knowledge required to balance shareholder prerogatives with its own continued existence and longevity. Or, at least, if it practices in reality any real kind of non-performative sustainable policy.
Boeing is by no means an anti-ESG firm, and has regularly published sustainability reports and objectives since 2007. However, the sustainability objectives pursued ignored the alarming drop in quality of Boeing products after outsourcing their design and engineering operations and focused instead on achieving carbon reduction objectives. Traditional aircraft fuel heavily pollutes the atmosphere, and Boeing undoubtedly foresaw business merit in beginning R&D of lower-emission products before competitors. However, while aircraft operation emissions are an important consideration, inaction by management to rectify unsustainable labor and quality-control practices suggests that Boeing’s sustainability rhetoric was either performative or myopic, and in any case ineffective business strategy. Put bluntly, cutting carbon emissions for marketing is immaterial for airplanes that crash.
It is important to consider where sustainability is to Boeing’s economic performance, and analysis through this lens would have led to many more red flags raised about Boeing’s labor practices linked to the 787 mechanical issues. Labor was consistently underpaid, overworked and subject to sudden cuts in benefits. Additionally, transferring production sites and threats to move work elsewhere reduced workers’ bargaining power. Company culture stigmatized safety complaints from labor, with an FAA audit stating workers were fearful to report safety concerns. Governance was another weak point preventing Boeing from catching its mistakes. At Boeing, the CEO and chairman roles were the same until 2019. Their 2019 separation was, no doubt, a step in the right direction for corporate governance following the disgraceful, high-profile 2018 and 2019 crashes. However, Boeing continued relentlessly lobbying Congress and the FAA to relax safety restrictions, even as corporate governance and accountability struggled due to labor and management issues.
Following Boeing’s recent disasters, it seems that their cost-cutting efforts have backfired in the long run: they have lost significant lobbying power in Congress, faced angry demands for steep pay increases from a disgruntled labor union, and been subject to withering press worldwide. This is in addition to $87bn in costs to investors from 2018 to 2024. President and CEO Dave Calhoun and CEO of Boeing Commercial Airplanes Stan Deal have announced their resignations, leaving the company in murky waters to select new leadership. Most importantly, Boeing’s unsustainable business has caused tremendous injury and loss of life. This has resulted in a serious loss of its social license to operate. This is largely due to Boeing’s unique position in the market, wherein individual consumers largely do not have easily available alternatives to Boeing products. For consumers to refuse Boeing products presents a phenomenon so unusual that isolated occasions have been enough to make headlines, feeding yet more negative press. Boeing’s reputational difficulties stemming from its unsustainability are part of a vicious circle: due to already-negative press about Boeing, it remains held under intense scrutiny even where airlines or other parties are largely to blame for safety issues.
In sum, Boeing faces serious difficulties but is not without recourse, as it remains a main player in an industry with nigh-on impossible barriers to entry. Attempting to appease shareholders through aggressive cost-cutting is simply unsuited to the aeronautical industry, wherein safety is paramount and uncompromisable. In order to improve its current reputation and market standing, Boeing presently has the opportunity to take a series of remedial, sustainable business decisions. These may include ensuring technical ability of the board, insourcing control of its engineering and development processes, ensuring labor safety and position security, and raising compensation for employees. The government has also played into Boeing’s failure, and must be an instrument in its success by ensuring rigorous safety audits and retaking control of inspection procedures. Shareholders, additionally, must consider Boeing’s mission and nature as an aeronautical firm in seeking long-term protection and growth of their assets rather than pressuring management into short-term gains. By embracing and reclaiming sustainable practices, Boeing management, shareholders, and governing bodies can regain trust, reclaim lost growth, and respect the enormous responsibility they bear in keeping global skies safe for billions of everyday travelers.
