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Transcript
- Lucas: There's a number that has stuck with me since I read the House Transportation Committee's report on the Boeing 737 MAX crashes. Between 2013 and 2018, Boeing spent $43 billion on share buybacks. In that same window, R&D spending as a percentage of revenue dropped from about 3.5% to just under 2%. Luna: Forty-three billion dollars buying back stock while the engineering budget got squeezed. That is a board-level decision, right? The board signs off on capital allocation. Lucas: Exactly. The board approved those buybacks. And the question this episode is about — how did Boeing's board become so focused on financial metrics that they lost sight of safety culture? Because this wasn't a one-quarter mistake. This was a governance failure that built up over years. Luna: Let's start with who was on that board. I remember looking at the 2017 proxy statement. The audit committee chair was a former finance executive. The compensation committee had a marketing CEO. There was exactly one person with deep aviation engineering experience — and he was retired from the Air Force, not from Boeing. Lucas: Right. That was General John Allen, a four-star Marine, not an aircraft designer. The board had two pilots — one was the CEO himself, Dennis Muilenburg, and the other was a commercial airline pilot. But nobody on the board had ever designed a plane or run a complex engineering program at Boeing's scale. Luna: And the one committee that should have been obsessed with safety — the board's safety committee — met exactly twice a year. Two meetings. In a company where one flawed sensor design contributed to two crashes that killed 346 people. Lucas: Let's step back. The board structure Boeing had in 2017 looks like a textbook case of what governance scholars call 'competence drift.' Boards at large industrial firms often recruit directors with financial or political connections because those backgrounds are seen as valuable for capital allocation and regulatory navigation. But Boeing's product is a 400,000-pound machine that flies at 35,000 feet. The core risk is catastrophic failure. Luna: So the board's expertise didn't match the company's primary risk. And the incentive structure made it worse. Lucas: Exactly. Executive compensation at Boeing was heavily weighted toward earnings per share growth and return on invested capital. Those metrics reward financial engineering — buybacks, cost-cutting, supply chain squeezing. They don't reward investing in redundant sensor systems or extra pilot training hours. The board designed a pay plan that told Muilenburg: maximize the stock price. Luna: And he did. Boeing's stock tripled between 2013 and early 2019. The board must have thought they had the perfect CEO. Lucas: Until the Lion Air crash in October 2018, then the Ethiopian Airlines crash five months later. After the second crash, the board's response was revealing. They stripped Muilenburg of his chairman title but kept him as CEO for another four months. The board didn't remove him until after news broke that he had personally been involved in communications with test pilots about the MCAS system. Luna: So the board was slow to act even after it was clear there was a systemic problem. That suggests they were also defending their own decisions — because if you approve the strategy, you're implicated in the failure. Lucas: That's the governance trap. The same board that approved the buyback strategy, approved the compensation plan, and approved the decision to keep the 737 MAX in production without requiring a full new simulator training for pilots — that board now had to investigate itself. And when they hired former U.S. Attorney General Eric Holder to do an independent review, the resulting report — the Aldridge Report — was remarkably blunt. Luna: What did it say exactly? Lucas: It said the board's safety committee lacked 'meaningful engagement' with safety data. It said the board received safety reports that were too high-level and too infrequent. And it said that the board's culture discouraged dissent — that directors were reluctant to challenge management on technical matters because they didn't have the expertise to do so credibly. Luna: That last part is huge. If a director doesn't feel qualified to push back on a technical question, they won't. And if the CEO knows that, they can steer the conversation toward financial metrics where the board is more comfortable. Lucas: This is a dynamic that shows up in boardrooms far beyond Boeing. But Boeing is the most tragic example because the consequence was fatal. Let's talk about what's changed — and what hasn't. Luna: I know the board added a few directors with aviation backgrounds after the crashes. But the deeper question is whether the incentive structure changed. Lucas: Quick honest thing — a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many of these episodes. If these conversations have moved your work forward in some small way, it's a direct line to keeping the show ad-free. Luna: Yeah, it's a small group, and it makes a real difference. No pressure, just if it fits. Lucas: Back to Boeing. The post-crash board added Admiral James Stavridis, a former NATO commander with no aircraft design background, and a few executives from aerospace suppliers. But as of 2025, the safety committee still met only four times a year — up from two, but not exactly a radical change. Luna: And compensation? I saw that the new CEO, Dave Calhoun, had a pay package that included safety metrics — but they were qualitative, not quantitative. Things like 'employee safety perception scores.' Luna: Hard to audit a perception score. Lucas: Exactly. Compare that to a metric like 'number of audit findings closed within 30 days' or 'percentage of critical safety reports escalated to board level.' Boeing's board didn't embed safety into the compensation formula in a way that a director could independently verify. The Aldridge Report recommended that at least one director have 'deep technical aviation safety experience' — but the board hasn't defined what that means. Luna: So the structural fix is incomplete. The culture fix might be even harder. Lucas: And that's the lesson for any board at a complex industrial firm. You can add a safety committee, you can hire a chief safety officer — but if the board's own composition doesn't include people who can read a design change impact analysis, and if the compensation structure still rewards financial returns above all else, the underlying incentive hasn't changed. Luna: There's a parallel here to what we talked about with the Toyota recall board. Toyota's board added a chief safety officer and created a quality committee, but they also changed the board composition to include more engineers. That took years. Lucas: Boeing is on a similar path, but slower. And the question going forward is whether the board can truly hold management accountable when the pressure to deliver quarterly earnings returns. Because the 737 MAX is back in production, deliveries are ramping up, and the financial incentives are creeping back. Luna: So the real test isn't the reforms announced in 2020. It's what happens in 2026 or 2027 when the crisis memories fade. Lucas: That's exactly the governance challenge. Boeing's board now has a chance to prove that the lesson stuck — but the evidence so far is mixed. And for every other board that operates in a high-risk industry, the question is: are you Boeing before the crashes, or Boeing after?