Boeing announced this morning that CEO Dave Calhoun would be leaving the company and that an executive with three decades of experience at the $117 billion manufacturing company, Stephanie Pope would take the lead. As Pope takes the reins of a company in crisis, investors are eagerly awaiting what Pope plans to do in the next 12 months – and how Boeing will hold them accountable.
Pope has a murky road ahead with regulators, investors and customers to reshape the company’s culture and then prove to the world that people can trust him. Boeing was already plagued by problems before Calhoun even took on the role of CEO in 2019, replacing Dennis Muilenburg after 346 people died while flying Boeing-made planes. The US Department of Justice later Boeing was fined $2.5 billion to resolve criminal charges of conspiracy to defraud the Federal Aviation Association’s aircraft rating group in January 2021. Three years later, Calhoun leaves the company due to a severe lack of trust among customers and the public after parts of Boeing-made aircraft exploded in mid-flight; last week members of the Boeing boardincluding waiters, began holding meetings with major clients without Calhoun present.
“They’ve had a few years to figure out what’s going on with the design and assembly process, and they haven’t diagnosed the situation yet,” said Jason Schloetzer, an associate professor at Georgetown University who studies succession and effectiveness CEOs have dealt with it. “You want to clean up to some extent and bring in a new team with fresh eyes and new incentives to solve the problem – because you can’t make change if you can’t even assess the situation and figure out what needs to be fixed , let alone come up with a plan to fix the problem.”
A Boeing insider is probably more cost-effective than an outside look
Choosing Pope as an in-house CEO is likely far cheaper than hiring someone from outside Boeing, said Maria Vu, senior director of North American compensation research at proxy advisory firm Glass Lewis. A CEO from outside the company would have demanded that Boeing offer the executive “make-whole” payments to offset the equity they would have left with a previous employer. In addition, companies in distress often have to provide a lot of incentives to persuade managers from other companies to take over a company 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 a $1.2 million salary plus a $2 million annual cash bonus and a $10 long-term incentive million US dollars. Once Boeing discloses Pope’s goals, investors will likely watch them for signs of how the board plans to hold Pope accountable for the turnaround in Boeing’s culture, she said.
“There appears to be significant risk to the company if corporate culture is not meaningfully considered,” Vu said. “It shows how serious the board is about changing the culture when you look at the things they encourage Ms. Pope to do in their incentive programs.”
With Pope, the company is relying on an experienced executive to turn the company around, and on the one hand, “that’s great,” said Schloetzer. She is “someone who knows the business very well, has been there for a long time and is very knowledgeable,” he said. On the other hand, Pope is also “a person who was there while these problems were unfolding.”
“It’s not easy to find someone who can think for themselves in an organization like Boeing. “That’s why it makes sense to have an internal person, but that’s not a direct hit,” said Schloetzer. Schloetzer said there could also be hiring below the C-suite and NEO levels to bring new perspectives to Boeing.
In addition to the passing of the Calhoun-Pope baton, the management bloodletting at the top also includes Stan Deal, president and CEO of Boeing’s commercial airline division, and Chairman Larry Kellner, who took over the role in 2019 when Calhoun moved from the executive position to the CEO. The company has also seen departures from other leadership positions in recent years, including Leanne Caret, president and CEO of Boeing’s defense, space and security division, and senior vice president and treasurer David Dohnalek. The Boeing board selected Steve Mollenkopf as Kellner’s successor.
Boeing announced this in January Calhoun had hired Admiral Kirkland Donald as special consultant to study Boeing’s quality management system for commercial plans. Kirkland, chairman of the $11.5 billion military shipbuilding company Huntington Ingalls, was expected to provide a report and recommendations to the Calhoun-Boeing Aerospace Safety Committee. Its review is ongoing, a Boeing spokesman said in a statement Assets.
For Calhoun, the majority of his salary of more than $20 million was to come from his long-term incentive compensation, which was set at $17 million. He should ensure that the 737 MAX is safely returned to service by the end of 2023; realignment of the engineering function; 777X Commissioning of the twin-engine jet as well as delivery and production ramp-up. According to the company, the award was not transferred.
“In order to incentivize an executive to take something seriously and make significant changes, particularly if it poses a significant risk to the company, we generally expect some revisions to incentive programs to address this issue,” Vu said.
As for Calhoun, he’s looking at at least $20 million and possibly another $45.5 million depending on how Pope fares in the CEO role. However, Boeing’s board could grant him additional compensation as part of his departure or decline to do so to avoid additional scrutiny.
“How they view his departure is a conversation they will likely have as part of negotiations with him,” Vu said.