Boeing announced this morning that CEO Dave Calhoun will be leaving the company and that Stephanie Pope, who spent three decades at the $117 billion manufacturing company, will take over the leadership of the company. As Pope takes charge of the business amid the crisis, investors are waiting in the wings to see what Pope’s plan is for the next 12 months – and how Boeing will hold her accountable.
Pope faces an uncertain journey with regulators, investors and customers to change the company’s culture and then prove to the world that people can trust it. Boeing faced problems before Calhoun even took office as CEO, replacing Dennis Muilenburg in 2019 after 346 people died while flying Boeing-made planes. US Department of Justice later fined Boeing $2.5 billion. resolve criminal charges of conspiracy to defraud the Federal Aviation Association’s aircraft evaluation panel in January 2021. Three years later, Calhoun leaves the company amid a severe lack of trust among customers and the public after parts of Boeing-made aircraft began to come off in flight; Last week, Boeing board members, including Kellner, began holding meetings with major customers without Calhoun present.
“They’ve had a couple of years to figure out what’s going on with the design-build process, and they haven’t diagnosed the situation yet,” said Jason Schletzer, an assistant professor at Georgetown University who has studied CEO succession and performance. “They’re looking to clean up the house to a certain extent and bring in a new team with fresh eyes and new incentives to tackle this problem, because you can’t affect change if you can’t even assess the situation. eat and figure out what needs to be fixed, let alone make a plan to fix it.”
A Boeing insider will likely be cheaper than searching outside
Selecting Pope as an internal CEO is likely much cheaper than hiring someone from outside Boeing, said Maria Wu, senior director of North American compensation research at consulting firm Glass Lewis. A CEO outside the company would require Boeing to offer the executive “full” payouts to compensate for the capital they left to their former employer. In addition, companies in distress often have to provide many incentives to entice executives from other companies to take over a business in crisis. It’s unclear at this point whether Boeing will offer Pope more than the compensation she received as chief operating officer, which was $1.2 million in salary plus a $2 million annual cash bonus and $10 million long-term incentive . Once Boeing reveals Pope’s goals, investors will likely scrutinize them for signs of how the board intends to hold Pope accountable for changing Boeing’s culture, she said.
“There appears to be a significant risk to the business if company culture is not given the proper attention,” Wu said. “How serious the board is about changing the culture is evidenced when you look at what they incentivize Ms. Pope for in her incentive programs.”
With Pope, the company is turning to an experienced leader to turn things around, and on the one hand, “that’s great,” Schloetzer said. She’s “someone who knows the business very well, has been there a long time and has a good understanding of what’s going on,” he said. On the other hand, Pope is also “the man who was there while these problems were being solved.”
“It’s not easy to find someone who can come in and think through an organization like Boeing, so it makes sense to have an inside person, but it’s not just that,” Schloetzer said. There may also be hiring below the C-suite and NEO levels to open up new prospects for Boeing, Schloetzer said.
Along with passing the Calhoun-Pope torch, the leadership bloodshed includes Stan Deal, president and CEO of Boeing’s commercial airlines division, and board chairman Larry Kellner, who took over the role in 2019 when Calhoun transitioned from his role as a board member. To CEO. The company has also seen attrition of other leadership positions over the past few years, including Lynn Caret, president and CEO of Boeing’s defense, space and security division, and senior vice president and treasurer David Donalek. Boeing’s board of directors elected Steve Mollenkopf to replace Kellner.
Boeing announced in January that Calhoun contacted Admiral Kirkland Donald as special advisor to Boeing’s quality management system study for commercial plans. Kirkland, who is chairman of the $11.5 billion military shipbuilder Huntington Ingalls, was expected to provide a report and recommendations to Calhoun and Boeing’s aerospace safety committee. Its review is ongoing, a Boeing spokesman said in a statement to Luck.
For Calhoun, the majority of his $20 million-plus salary would come from his long-term incentive payout, which had a goal of $17 million. It should have seen the 737 MAX safely returned to service by the end of 2023; reorganization of the engineering function; 777X introduction of twin-engine jet aircraft into service, deliveries and ramp-up of production. The award was not transferred, according to the company’s disclosure.
“In general, to incentivize executives to take something seriously and make significant changes, especially if it poses a significant risk to the business, we expect to see some changes in incentive programs to help address this issue,” Wu said.
As for Calhoun, he’s due at least $20 million and possibly another $45.5 million depending on how Pope performs as general manager. However, Boeing’s board may provide him with additional compensation in connection with his departure or may refuse to do so to avoid additional scrutiny.
“How they classify his departure is a conversation they’re probably having with him as part of the negotiations,” Wu said.