:: April 2005 Letter ::


Dear Fellow CEOs-In-Training,

Sex. Harrry Stonecipher. Didn’t think I’d ever write those words together in the same paragraph. Nope. NoSiree Bob. And neither did the rest of the world. Just for grins, I googled “Sex+Stonecipher” and got 16,800 hits, of which 16,100 appeared in the last three months (I assume the other 700 older hits were just happenstance). Clearly, no one saw that coming. Or perhaps they just preferred to not think about it.

So Harry ended his long career on a decidedly oafish note. This letter is kind of late to the game, but what does it all mean? First, let’s see if I can capture Stonecipher’s legacy in a paragraph. He increased shareholder value (ironically, Boeing was just hitting a multi year high when the news broke). The company accumulated a pile of cash. While accused of neglecting the civil side for much of his career, the 787 was launched while he was in charge. He started the current WTO complaint. He managed to lose the Joint Strike Fighter contest twice in his career. A lot of other bad things happened on his watch, most of which were not his fault. But does it matter who succeeds him? Do CEOs matter?

The myth of the imperial CEO is one of those great legacies of the 1990s. Many companies found someone to promote as a visionary. How else do you justify overvaluations of companies with minimal profitability and sluggish growth? How else do you establish brand equity in the mind of Attention Deficit Disordered investors? How else do you promote morale in the dwindling ranks of downsizing survivors? Simple. You find a deity to worship, a cult of personality. Someone ominipotent and technocratic. Like Keanu Reeves in The Matrix.

The CEO myth has little validity, particularly in aerospace, where companies rise and fall on the strength of their products and the market. The CEO might be important for long-term direction, but he has limited operational impact. Look at Lockheed Martin. Their good and bad times are unlinked to leadership. A while ago, the company was run by industry legend and visionary Norm Augustine. LMCO did fine at first, but suffered badly during the end of the cold war and as it struggled to absorb its industrial acquisitions. A few years later, the company was run by a very competent man named Vance who spent much of his time doing a Level Two Diagnostic on the Forward Sensor Array. LMCO did fine. LMCO is now run by the more charismatic Bob Stevens. LMCO is still doing fine.

There are extreme cases, of course. Jack Welch had a big impact at GE. He might not have been perfect, and he helped create the cult of the imperial CEO, but at least he did a lot of good. At the other end of the spectrum, see the excellent Canadian movie The Arrow for a portrait of what a human train wreck of a CEO — Crawford Gordon — did to Avro’s prospects. But few mortals inhabit the extreme ends of that spectrum, and even when they do it seldom matters.

What does a CEO actually create? Take the 787. It’s arriving due to a confluence of Boeing’s technical prowess, economic clout, and market requirements. BCA chief Alan Mulally certainly plays a role, but the CEO’s most notable contribution was to not object to the 787’s launch. Similarly, some kind of A350 will happen, regardless of who takes the reins at Airbus. On the military side, Boeing is emphasizing net-centric warfare, again because of the company’s technical prowess and market requirements. Jim Albaugh plays a major role as head of IDS, but the CEO was there to look presidential.

It’s also noteworthy what a CEO can’t do. Bombardier’s CEO could be a brilliant hybrid clone of Rockefeller, Einstein, and Henry Ford. That wouldn’t be enough to make the C-Series jetliner family happen. The technical prowess, economic clout, and market requirement are absent. In fact, a good CEO would tell Bombardier’s owners that the C-Series was impossible. Paul Tellier might have done exactly that. He was fired.

On an equally futile note, Stonecipher started a dialog with Senator McCain to smooth things over. Boeing could send in Abe Lincoln and it wouldn’t do much good. McCain wants to be a reformer, despite a party line voting record, and going after “waste, fraud, and abuse” (real or otherwise) is a great way to look like a reformer. Fortune cookie business advice: Don’t spend too much time explaining your actions. Your friends don’t need it, and your enemies won’t listen.

That imperial CEO myth is easy for anyone to believe, despite its obvious limits. The EU, for example, wanted to believe that the WTO trade complaint would go away with Stonecipher out of the picture. But the complaint wasn’t just a CEO creation; it was due mostly to the 787 launch and Airbus’s A350 response. Those factors are still in play. The WTO complaint has traction without Harry. The US was forced to break off talks to show the EU that it meant business.

The imperial CEO myth may fade. Yet the interesting aspect of Stonecipher’s reign was the amount of power vested in him. He and his close ally John McDonnell are the two biggest individual investors in Boeing. They are also two of the most active Boeing board members. Oh, and one of them was also Boeing CEO. From a corporate governance standpoint, this was dumb. Regardless of his faults and virtues, Stonecipher was in a position of power that would have been catastrophic for Boeing if he were venal or incompetent. Michael Eisner, for all his excesses, could only dream of this level of power at Disney. Yet even with this awful corporate structure, Stonecipher couldn’t abuse this power. The circumstance of his firing is evidence of that.

Regarding succession, I’m sure Jim Albaugh or Alan Mulally will do just fine (they might well be looking at outsiders like Jim McNerney or Dave Calhoun, but then again no search firms have contacted me yet).

There you have it—CEOs don’t matter. But I’m not sure my job does either. April’s Teal Aircraft reports include our 15th annual business jet Overview, plus updates of Eurofighter, Gripen, 737/MMA, P-3, Mirage 2000, the Challenger/Global Express, EA-6B, and the EC 135. Have a great month. And remember the anarchist graffiti: “Nobody For President”? Nobody For CEO, too.

Yours, ‘Til That Search Firm Calls,

Richard Aboulafia


© Richard Aboulafia 1997-2006, All rights reserved.
  ~  Last updated on January 08, 2006