Boeing named aerospace industry veteran Kelly Ortberg as its new CEO this week, a critical step in the challenging process of restoring the airplane manufacturer to respectability after several years of quality and safety lapses that contributed to two downed aircraft that killed 346 people, resulted in multiple lawsuits and more than $1 billion in losses during the most recent quarterly earnings report. The Boeing board is making good on its declaration earlier this year to replace Dave Calhoun as CEO before year’s end. Board chair Larry Kellner has also pledged to not stand for reelection as part of the company’s turnaround effort.
Here are some positive aspects of the Boeing board’s handling of the company’s CEO transition:
The board made a quick decision on an experienced, well-respected CEO replacement.
Credit the Boeing board for its decisive choice of an experienced outsider to execute what will be an extremely difficult turnaround. The choice of Kelly Ortberg was received positively by analysts on Wall Street. Ortberg is an industry veteran with over 30 years of experience in the aerospace and defense industries. Having served as former chairman and CEO of Rockwell Collins and CEO of Collins Aerospace, he is well versed in Boeing’s core businesses and has experience integrating large acquisitions which will come in handy as the company integrates Spirit AeroSystems into its operations in the coming year. His service as chairman of the Aerospace Industries Association assures his familiarity with regulators which will help him reestablish trust as Boeing continues to work on quality and safety concerns. His strong industry reputation and the speed at which he was selected suggest the board’s succession planning process had merit.
The board was flexible when determining the best candidate for the position.
Sometimes difficult problems require difficult decisions be made, and the Boeing board used its discretion to waive its age requirement when selecting Ortberg as the new CEO. Although Boeing has a mandatory retirement age of 65, the company selected Ortberg, 64, as CEO because of the difficult nature of the turnaround, his experience, industry contacts and stellar reputation. His qualifications were so strong that the board reasoned that he was the best candidate to be able to lay a foundation for quality and safety improvements, repair company relationships with regulators as well as manage the integration of a recent acquisition. His appointment was in the best interest of the shareholders, but disregarding the mandatory age requirement shouldn’t be indefinite. As the new regime implements its turnaround and growth strategies, a succession plan for the next potential CEO, who would likely be groomed from within Boeing, should be agreed upon by the board and implemented as well (with potential candidate searches started immediately).
There will likely be board and management changes shortly after the turnaround plan is underway.
The Boeing board has come under great scrutiny over the last three years as the company has experienced major financial losses, been the subject of federal investigations and hit with multiple lawsuits. While some reports suggest major management changes are not expected, Ortberg will have significant leverage to nudge directors and others out if he believes an infusion of surrogates that know how to implement changes he wants can get things done faster and more efficiently than those currently on the ground. Shareholders will likely support any changes Ortberg wants, so directors who are not key contributors may choose to leave before disagreements on policy develop.
