News Write up

Boeing 737 Max crisis prompts calls for shakeup at company Description of Even

After the two crashes of Boeing 737 Max which had resulted in disasters and put

great pressure to Boeing Company, two of the world best research firms, ISS and Glass

Lewis are hired to support investors in making decisions to overcome the difficult

situation.

These two companies offered two advices to Boeing’s shareholders. Both

companies suggested that the duality condition of CEO and Chairman of the board should

be eliminated by separating the two positions which are now being hold by Dennis

Muilenburg. In addition, Glass Lewis recommended that the company’s board also vote

against Lawrence Kellner who is in charge of the board’s audit committee because he and

the committee failed to discover the flaws in 737 max.

Boeing decided to hold the vote at the annual meeting in Chicago on April 29th.

Its board members decided to vote against all the current directors including Kellner. But

they didn’t want to vote to separate CEO and Chairperson’s position. Instead, Muilenburg

announced that the company would form a new board committee with independent

directors to improve the company’s procedure.

Connection to Contents in the Textbook

Boeing’s accidents were results of failures in its strategic leadership effectiveness.

According to Chapter 12, effective strategic leadership leads to successful mission and

visions that will generate successful strategic actions. Companies can only gain above-

average returns if they form the right strategies and implement them accordingly. Boeing

737 max crashes were a result of wrong strategies caused by violations of mission and

visions which state that Boeing should value integrity, safety and quality. The problem

that leads to the crashes was just a malfunction of a sensor which detected the airplane

was climbing up fast when it was actually flying steadily. The automation system tried to

reduce the climbing speed but resulted in forcing the airplane to crash to ground. Though

the problem was easy to detect, Boeing obviously didn’t recognize the problem during

the quality check process. If it had followed its mission and vision, it should have focused

more on the quality check and run simulations more carefully to avoid such mistakes.

Besides, the duality is also mentioned in Chapter 12. According to the textbook,

when duality exists, board members tend to monitor the CEO and top management team

with less effort. This can explain why the board refused to vote to separate the two

positions because the complexity of the board relationships and the tendency to reduce

the monitor strength on TMT made them unwilling to change the current structure. The

duality may also play a role in the accidents of 737 max as the low monitoring degree can

lead to careless quality check by audit committee.

How Others Learn from the Situation

From the news, companies and investors can learn three things.

Firstly, board members should pay close attention to the effectiveness of

company’s strategic leadership and prevent unreasonable strategies. Quality and

reputation are more important than temporary profits.

Secondly, company requires effective oversight system to monitor its operations,

detect potential problems and eliminate risks. Duality may increase leaders’ power and

benefit the company in the short term, but the lack of monitor strength may result in

disastrous outcomes. Once duality exists, it will be hard to separate the two positions

again. An effective audit committee is also essential for company’s operations.

Last but not least, companies can turn to research firms for help when they lack

certain experience or knowledge to make good strategic decisions. There are a number of

research firms out there for investors to ask for help and investors can make more

reasonable decisions if they can get their help.

Link:

https://www.cnn.com/2019/04/16/business/boeing-737-max-shareholder-vote/index.html

References:

Hitt, M., Ireland, R. & Hoskisson, R. (2015). Strategic Management Competitiveness & Globalization 11e. Stanford, CT. Cengage Learning.