Boeing appoints seasoned executive with three decades of experience for top position, but CEO succession expert warns of potential challenges ahead

Boeing appoints seasoned executive with three decades of experience for top position, but CEO succession expert warns of potential challenges ahead

Boeing announced this morning that CEO Dave Calhoun would leave the company and that an executive with three decades of experience at the $117 billion manufacturing company, Stephanie Pope, would take the lead. As Pope takes charge of a company in crisis, investors wait in the wings to see what his plan is for the next 12 months and how Boeing will hold him to account.

Pope has a tough road ahead with regulators, investors and customers to reshape the company’s culture and prove to the world that people can trust him. Boeing was plagued with problems even before Calhoun accepted the CEO job to replace Dennis Muilenburg in 2019 after 346 people died while flying on Boeing-made planes. The US Department of Justice later Boeing fined Boeing $2.5 billion. to resolve criminal charges of conspiracy to defraud the Federal Aviation Association’s aircraft evaluation panel in January 2021. Three years later, Calhoun leaves amid a sharp lack of trust among customers and the public after parts of planes manufactured by Boeing began to explode in mid-flight; Last week, Boeing board membersincluding Kellner, began holding meetings with major clients without Calhoun present.

“They’ve had a few years to understand what’s going on with the engineering-assembly process and they haven’t yet diagnosed the situation,” said Jason Schloetzer, an associate professor at Georgetown University who has studied succession. and CEO effectiveness. “They are looking to clean house to some extent and bring in a new team with fresh eyes and new incentives to address this problem, because you can’t make change if you can’t even assess the situation. figure out what needs to be fixed, let alone develop a plan to fix it.

Boeing insider probably costs less than looking on the outside

Choosing Pope as an internal CEO is likely much less expensive than hiring someone from outside Boeing, said Maria Vu, senior director of North American compensation research at the proxy advisory firm. Glass Lewis. A CEO outside the company allegedly asked Boeing to offer the executive “compensatory” payments, to compensate for the equity he would leave behind with a former employer. Additionally, struggling companies often have to offer numerous incentives to entice managers of other companies to take over a company in crisis. It is not yet clear whether Boeing will offer Pope more than the compensation she received as chief operating officer, $1.2 million in salary plus a $2 million annual cash bonus and a long-term incentive of $10 million. Once Boeing reveals Pope’s goals, investors will likely examine them for signs of how the board intends to hold Pope accountable for turning around Boeing’s culture, she said.

“There appears to be significant risk to the company if the company culture is not addressed in a meaningful way,” Vu said. “It will show how serious the board is about changing the culture if you look at the kinds of things they are encouraging Ms. Pope for in her incentive programs.”

With Pope, the company is turning to a seasoned executive to turn the company around and on one hand, “it’s great,” Schloetzer said. He’s “someone who knows the sector very well, who has been there a long time and who knows well what’s going on there,” he said. On the other hand, Pope is also “a person who was there while these issues were going on.”

“It’s not easy to find someone who can come and think in an organization like Boeing, so it also makes sense to have an internal person, but it’s no easy feat,” Schloetzer said. According to Schloetzer, there could also be recruiting below the C-suite and NEO level to bring new perspectives to Boeing.

In addition to the Calhoun-Pope handover, the bloodshed at the top includes Stan Deal, president and CEO of Boeing’s commercial airlines division, and board chairman Larry Kellner, who took over in 2019 when Calhoun left the board. to the CEO. The company has also seen departures from other senior positions in recent years, including Leanne Caret, president and CEO of Boeing’s defense, space and security unit, and senior vice president and treasurer David Dohnalek. Boeing’s board of directors elected Steve Mollenkopf to replace Kellner.

In January, Boeing announced that Calhoun had appealed to Admiral Kirkland Donald as special advisor to investigate Boeing’s quality management system for commercial plans. Kirkland, who is chairman of the board of Huntington Ingalls, an $11.5 billion military shipbuilding company, was expected to give Calhoun and Boeing’s aerospace safety committee a report and recommendations. Its review is still ongoing, a Boeing spokesperson said in a statement to Fortune.

For Calhoun, most of his $20 million-plus salary was supposed to come from his long-term incentive compensation, which had a target of $17 million. By the end of 2023, he should have seen the 737 MAX return to service safely; realignment of the engineering function; 777X entry into service of twinjets and ramp-up of delivery and production. The award has not vested, according to information provided by the company.

“In general, to get a leader to take something seriously and make significant changes, particularly if it’s a significant risk to the business, we would expect to see some revisions to training programs. incentive to help solve this problem,” Vu said.

As for Calhoun, he has at least $20 million and potentially another $45.5 million, depending on how Pope performs in the CEO role. However, Boeing’s board could provide him with additional compensation as part of his departure or decline to do so in order to avoid further scrutiny.

“How they classify his departure is a conversation they’ll probably have with him in terms of negotiating,” Vu said.

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