Boeing is paralyzed, and this failing of its executives and directors is to blame

By Alison Taylor

The problem is not a lack of controls, visibility or knowledge. It is the lack of innovative thinking.

Corporate scandals tend to focus us all on issues of culture and corporate governance, and Boeing (BA) is no exception. David Calhoun is the latest in a series of CEOs to resign in disgrace, and his fall was cushioned by the usual golden parachute.

This couldn't be much more predictable. When Calhoun was hired in 2020, he was promised a $7 million bonus, directly tied to the return of the 737 Max to the skies. As U.S. Senators Edward Markey, Richard Blumenthal and Tammy Baldwin commented in a letter to Boeing's board of directors at the time: "This payment represents a clear financial incentive for Mr. Calhoun to pressure regulators to pull the plug on the 737. Max, as well as to speed up investigations." and the reforms necessary to guarantee public safety.

While some have wanted to frame Boeing's problems as a consequence of its DEI (diversity, equity and inclusion) efforts, this argument is wildly unconvincing. What Boeing's problems really illustrate is that even though corporations have added more women and minorities to boards of directors and senior management in recent years, conformity of thought and the strength of social ties are more powerful. The real problem is not a lack of controls, visibility or knowledge. Rather, it is group dynamics.

Nell Minow, a leading corporate governance specialist, has decades of experience directly observing board dynamics. She has this to say about groupthink in boardrooms: "We take these people of extraordinary ability and achievement. We put them in a boardroom, and there they suddenly become totally incompetent. Why? My answer is that these are people who have a genius to evaluate the norms of the room and adapt to them. And it's a fabulous quality. But unfortunately, you have 11 people like that, and a very visionary and dynamic leader who controls their information, their access "to other people in the organization, and even their tenure and compensation. That's not a good system."

Board selection criteria vary, but while efforts have been made to increase the independence of board members, personal and social connections still predominate. Many studies show that members tend to have similar backgrounds, political affiliations, and even religious beliefs. Bonding on the golf course remains a sacred professional practice. At Boeing, its $246 million 2021 fine resulted in the addition of aviation and safety experts to the board, and 30% of its directors are women. But none of the factors are enough to compensate for the complex web of connections, relationships and loyalties among its members.

How is it that, as Boeing and other companies have diversified in areas like gender and race, they appear to have neither diversified their perspectives nor gotten better at preventing ethical scandals?

"Meta-analyses of rigorous peer-reviewed studies found no significant relationships, causal or otherwise, between board gender diversity and company performance," Robin J. Ely, professor at the School of Business of Harvard, and David A. Thomas, president of Morehouse College. , he wrote in 2020. "Having people from diverse identity groups 'at the table' is no guarantee that anything will improve."

Senior managers were almost 64% less likely to report unethical practices than younger employees.

Jessica Kennedy's research has shed more light on Minow's observations about how boards often appear ineffective when it comes to ethical oversight. Before Kennedy became a management professor at Vanderbilt University, her work as an investment banker exposed her to numerous dysfunctional corporate hierarchies.

Kennedy has conducted a series of studies to explore what he had repeatedly witnessed: greater seniority leads to greater identification with the group. Ethical issues in particular cause cognitive dissonance, leading people to rationalize or minimize problems. This means that the higher up you are, the more likely you are to justify what the group is already doing, for better or worse. Their study of 11,000 U.S. government agency employees found that senior managers were almost 64% less likely to report unethical practices than younger employees.

Even if leaders created the very systems they oversee, over time they become products of them. This means that good leaders must be aware that power directly affects their judgment and moral orientation; They should strive to build strong ethical structures from the beginning.

Efforts to solicit dissenting opinions from younger employees should be considered a priority.

It also means that making efforts to solicit dissenting opinions from younger employees should be considered a priority, not a risky move best postponed or avoided. One useful mechanism to consider: assign a group of younger employees and executives the task of innovating and challenging the existing board.

Better deliberation is certainly an advantage, but a healthy group dynamic is needed to achieve the greatest advantage. Curiosity, critical thinking, and a willingness to challenge an accepted perspective, particularly a monolithic one, is where diversity and inclusion imperatives really drive more considered and ethical decision-making.

So far this is still missing at Boeing. Until the company realizes that safety is non-negotiable for all stakeholders, from investors to customers, Boeing will have to keep digging. A new CEO won't help. What is needed at Boeing is a completely new mindset on core corporate governance issues.

Alison Taylor is an associate clinical professor at New York University Stern School of Business and CEO of Ethical Systems, where her research focuses on ethics and corporate responsibility. She is the author of Higher Ground: How Businesses Can Do the Right Thing in a Turbulent World (Harvard Business Review Press, 2024).

More: Boeing CEO leaves, but company's problems run much deeper

Also Read: Outgoing Boeing CEO David Calhoun Received Millions in Additional Awards Just a Year Ago

-Alison Taylor

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03-30-24 0904ET

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