When management decisions motivated by self interest jeopardize the entire economy of a region, we may indeed eventually see the scenario as a question of ethics…
There is no doubt in my mind that the story that continues to unfold at Boeing with the debacle of the “next big thing in air travel” is destined to become a classic management case study in business schools around the world.
Earlier this month Steve Denning offered a compelling two-part analysis of the continuing saga of Boeing’s management and what has become the nightmarish legend of the Dreamliner 787. Denning writes for Forbes and is considered a leading light within the community of proponents for a shift to 21st Century Management Practices.
In Part 1 subtitled “Seven Lessons Every CEO Must Learn” Denning asserts a related set of “must learns”…
- Use the right metrics to evaluate offshoring
- Review whether earlier outsourcing decisions made sense
- Don’t outsource mission critical components
- Bring some manufacturing back
- Adequately assess the risk factors of offshoring
- Adequately value the role of innovation
These six lessons stem from a single major mistake, a commitment to maximizing shareholder value. He puts it bluntly when bottom lining the management errors that have taken place at Boeing over the past several years.
“Why did all these smart, highly educated people make all of these mistakes? The root cause of these errors is a focus on the dumbest idea in the world: maximizing shareholder value….”
Denning then goes on to chastise Boeing management for the “the destruction of vast quantities of long term shareholder value.” What he doesn’t say in this article and the question I want to raise here is this: when the actions of management put the livelihoods of thousands of employees at risk as well as the associated ancillary services that form an interdependent economic community, might we not really talking about a question of ethics? Are we afraid of the question?
If you have lived in a community that suffered through the unstoppable decline of a major employer’s business such as what occurred in Rochester, NY, as I have, you are acutely aware of the consequence of such events. When they are somewhat understandable, the pain is as real but you can get your head around the “why” and have it all make sense in the context of business and the inherent risks and eventually get to some sort of acceptance. Such was the case with Kodak which was undone by a technological shift of unprecedented proportions with the rise of digital photography and imaging. Kodak management simply did not have an answer to digital that would have allowed them to maintain either shareholder value or employment at anything close to historic levels.
I strongly suspect that in the case of Boeing and the manufacturing of the 787 executive compensation formulas tied to maximizing shareholder value drove many of what seem now like questionable (i.e., naive maybe even stupid) decisions to outsource and offshore. We have all heard of or seen numerous examples of management decisions that led to layoffs without apparent consequences for the decision makers. OK, sometimes these are simply bad decisions based on poor judgment or maybe even honest mistakes based on misunderstandings of the business climate. In the Boeing case major force reductions have yet to happen but we are still in the “all hands on deck” phase of this story. However, I am raising the question of this being something other than simple management error or poor decision making.
Eventually, I think we are going to review the succession of failures at Boeing as a set-up to fail ,fueled by unfortunately designed executive compensation schemes, that could have been avoided and a serious issue of corporate malfeasance that will likely never be fully vetted from this perspective.
An unrelated article from the Drucker Institute, also appearing in January titled ‘The Relevance of Organized Labor’, offered an insight from Peter Drucker that may well apply for those of us who continue to stand idly by while situations like this threaten the livelihood of our neighbors and other communities.
Some years back, when asked by labor leaders for his view on the future viability of organized labor, Drucker was not enthusiastic. Among factors working against organized labor’s viability he made this observation:
“ … union members, by investing heavily in the stock market through their pension funds, were not merely employees but also owners, creating conflicts of interest.”
I would suggest that it is the nature of our relationship to our own economic interests both personally and as a nation that has created a grand conspiracy of conflicting self-interests that guarantees that the Boeing 787 debacle will not be the last of its kind. Until and unless we own our own culpability for looking the other way while ethics are disregarded and self-interest dominates we have not much of a future together.