Where Is Boeing’s Board?

3
647
            You know Boeing has a bad legal case when it begins lobbying.  If a company, particularly a large publicly traded company, has any kind of case the last thing it wants is a politician pressuring a regulator.  If it is going to lose, if the regulator is already against the company, then at that point Congress is the only hope.
            The press, with its usual conventional and limited range of inquiry, began its coverage of the case at the end not at the beginning.  Most of the ink on this story is about the dispute in Congress between the Republican support for Boeing and the Obama administration and the Democrats.  It is a great political issue for both parties.
            But the real place to start is with the big losers of this self-inflicted debacle.  Start with the shareholders and their interest.  The board of directors in its supervisory role over executive management and executive management in its day-to-day running of the company have an absolute obligation to maximize shareholder profits within the law.  One obvious tool in maximizing shareholder value is executives must not waste company assets.
            The lives of individuals, organizations such as the government and charity, are often stressed, twisted, and turned by competing interests.  Do I send this kid to private school, knowing we can only afford one tuition?  Do, we authorize more infrastructure spending in one Congressional district because the country needs it, even though that district’s congressman is from another party?  If we change our church’s position on family planning to expand our hospital services to the poor, will we lose our way spiritually?  Large public companies have a much narrower focus.
            For senior management in a public company all the complexities of compliance, customer demands, vendor relations, employee productivity, research and development, boil down to one simple equation.  If we do x, will it yield y profit, equaling increased shareholder value?  If we have executives on camera admit that we are setting up a new facility in South Carolina because the union keeps striking, does that generate a profit and increase shareholder value?  If we have other executives at Boeing essentially say the same thing publicly, are we increasing profits or wasting assets?
            Having spent more than a decade as the Chief Legal Officer of two public companies, I can tell you that Boeing’s actions generated massive legal bills, business uncertainty and disruption of a major capital investment, and diverted management from generating profits building planes.  The beginning of this story and the only one that should matter to shareholders during the next proxy season is that through a series of stupid blunders senior management made public statements that any junior lawyer or any executive with union experience would never make.  Regardless of your real thinking, regardless of your political leanings, executives are never entitled to waste shareholder money unnecessarily.
            There is no real dispute that the plant in South Carolina would open on time if Boeing executives had simply said they were moving to South Carolina because it made sense and maintained discipline in their electronic and public communications.  Boeing’s executive team either intentionally or negligently opened the door to union attack.  You simply cannot publicly say anything intimidating about the rights of unions in your plant.  And the most basic right after collective bargaining is the right to strike.
            Leave aside Boeing’s pitifully weak legal posture and public statements after the NLRB charge.  You can pay any great law firm to defend you, to come up with a strategy, and to arrange for the lobbying you need because ultimately you are going to lose in an unbiased forum.  Your only hope is an intentionally biased forum such as Congress.  But you cannot confuse that defense with finding the root cause of the problem and fixing it.
            Executives can never justify wasting assets on foot faults.  And what a foot fault!  All Boeing had to do was say nothing about the union and strikes and they avoid millions of dollars in legal fees, and even tens of millions if they lose on the merits.  And lose they will without political interference.
            I have discussed the case with blue-collar workers in Nebraska, private equity executives, and everyone else I can find in between.  The overriding ignorance of the law and the facts is the ultimate indictment of the press coverage.
Here is the conversation with one private equity executive.
            “Unions are terrible.”
            “Look, I get no member of management or the investor class wants a union, but you just can’t say what they said.”
            “This is a free country.  I can say whatever I want and move a plant.”
            “It’s against the law to say what they said, it’s not against the law to set up that plant.”
            Light bulb goes off.
            “Well that’s a stupid law.”
            “Don’t you think you ought to change a stupid law before you violate it with the shareholders’ money?”
            Sitting in a tiny diner in rural Nebraska with a couple of hunting guides with weekday jobs, things start and end the same.
            “Listen if we had unions in our plants in town, we wouldn’t have plants in town.”
            “No argument here, but I’m just saying if they had kept their mouth’s shut and moved the plant, it would be up and running in South Carolina without a union.”
            “So, it’s just like some guy spouting off as he sticks it to them?”
            “I don’t know, you tell me, I’m just saying if they don’t mention the union there is no case.”
            Part of the problem with the both the charge and the press coverage is the failure to understand both the law against retaliation for union activities and how boards and executives actually run companies.  It is settled decades old law that you cannot threaten or retaliate against a union or its members for engaging in protected union activity.  After firing an employee for trying to organize a union, retaliating against lawful strikers is in my experience the most common and obvious mistake an inexperienced or incompetent executive team can make in union dealings.
            In any company I worked in the types of public and recorded errors in the Boeing case would result in fair disciplinary hearings followed on these facts by termination of several executives.  In a case of this magnitude, which so jeopardizes the company’s core mission of building and selling planes to generate shareholder value within the law, the CEO would be worried.  The CEO would be worried because the board and the shareholders do not care about politics, they care about money.
            The board members at Boeing want to be associated with a rising stock price and the opportunity that brings, not a long, expensive, public, and no-win lawsuit.  You cannot win at great cost a lawsuit you could have avoided at no cost.  The shareholders did not invest in Boeing to show a union who is really boss or to further Republican politics.  They invested to make money.  And there is no way making the type of stupid recorded statements makes money.
            It probably does not help that Boeing’s General Counsel, Michael Luttig, is not really a business lawyer, but rather a politician and former judge.  If you are a politician or a judge arguing and winning are legitimate goals.  If you are the general counsel of a public company, keeping your client out of arguments is job one.  Job two is putting out fires.  If your client makes ill disciplined decisions on the law resulting in avoidable fires you will not have a long career as a general counsel.
            What Boeing needs to do now is admit to itself that it has already lost because of internal stupidity.  It needs to hold the responsible executives accountable, which will have both a positive public and regulatory effect.  Then using that credibility Boeing must cut the best deal possible with the NLRB and the union.  It is in the settlement discussions that lobbying may have some real behind the scenes effect. Unfortunately, it may take the shareholders or the board to force such a change in direction.
            Executives who make mistakes often enter a bunker mentality.  They can believe the trial strategies of high priced and high quality lawyers who are paid to defend them are the same thing as maximizing shareholder return.  But the fundamental moment in a case you cannot win is to face your mistake.  Until you do that you can waste a lot more shareholder value paying your lobbyists and lawyers over your own ego.
            The mistake is clear.  This was an avoidable case.  From the shareholder’s perspective Boeing has already lost.  The question now is will Boeing’s CEO and board fix the problem or waste more shareholder value?

3 COMMENTS

LEAVE A REPLY