Opinion
Succession: Like Biden, Boeing’s new CEO should only be an aerobridge leader
Summary
- Boeing has undergone so much turbulence that restoring stability is what its board will rely on CEO Ortberg for. It’s a heavy agenda he must fulfill, but for the US aircraft maker to regain its former altitude and success, it must start planning already for Ortberg’s successor.
Boeing Company has gotten a lot very wrong over the last few years, at times with devastating consequences. But when its board announced its new pick for CEO, the market seemed to think it had finally gotten something right. Investors sent the stock up 2% on the news that Kelly Ortberg would be its next chief.
Ortberg seems to check all the boxes: a company outsider untainted by past Boeing scandals, industry experience, a background in mechanical engineering, and, perhaps most important to the board and Wall Street, he’s been a CEO before. He ran Rockwell Collins, a maker of cockpit controls, beginning in 2013 and sold it to what was then United Technologies in 2018.
The Boeing board’s logic is that Ortberg’s past CEO experience means he can jump into the job without the learning curve that first-time big bosses often experience.
Also read: Who is Robert ’Kelly’ Ortberg, Boeing’s new CEO? Here are the five things to know about him
That’s especially important right now for Boeing, which faces challenges that would be daunting for even the most seasoned executive: cratering sales and profits, a much-needed cultural overhaul, upcoming union negotiations, completing and integrating its acquisition of Spirit AeroSystems, and managing an incensed public and Washington.
This kind of turmoil is unique to Boeing, but the chaos of the global economy right now is not. The CEO job has never been more complicated, as companies grapple with everything from geopolitical tensions to an uncertain economic environment to the war on ‘woke capitalism.’
Hiring someone with a realistic grasp of what the job entails seems like it would be a real advantage, and boards are embracing that line of thinking.
Last year, 22% of incoming S&P 500 CEOs had previously held the job at another public company, up from just 4% in 1997, according to executive search firm Spencer Stuart. As it has noted, “For some, prior experience becomes a seemingly logical proxy for future performance."
But the data indicates that’s just not true. In a 2020 study of 855 S&P 500 CEOs over a 20-year period, Spencer Stuart found that while 97% of repeat CEOs had outperformed the market in their first CEO gig, only 38% did so in their next roles.
In fact, first-time CEOs have higher total shareholder returns and less volatility in performance than experienced CEOs. We need only look to Boeing for evidence that prior CEO experience isn’t the safe bet that boards hope it will be; two of its last three previous chiefs, David Calhoun and Jim McNerney, were both repeaters—and we all saw how that worked out.
Spencer Stuart found that repeat CEOs have an advantage in the early years of their tenure when they can rely on their old playbook, one that often focuses on short-term goals like improving efficiency and profitability.
Also read: What we learned about Boeing from the probe into Alaska Airlines 737 MAX blowout
But around year four, that playbook tends to stop working, and problems compound when an executive refuses to deviate from it. Meanwhile, first-timers generally have a longer-term focus, in part because they tend to have a longer tenure in the job.
Boeing has specific needs right now, and Ortberg may in fact be the right CEO at this point in the game. At Rockwell, he was known for being a regular presence on the factory floor and for having strong relationships with customers and regulators— a boon for Boeing as it rebuilds an engineering-first culture and its reputation.
But that doesn’t mean Ortberg is the perfect person to lead for the long term—a point the company seems to have recognized. The board waived its mandatory retirement age to hire the 64-year old, and unless it waives it again, Ortberg will depart before his 71st birthday in April 2031.
That would give him a 6.5-year tenure, below the average for an S&P 500 CEO. Just as President Joe Biden once referred to himself as a “bridge" to the next generation of leaders, the company should be thinking of Ortberg as a bridge CEO, and start its succession planning now.
At one time, Stephanie Pope, the company’s chief operating officer and head of its commercial aeroplanes unit, was considered a top CEO contender. Her background as both a Boeing insider and finance person made her the wrong person for the moment.
Also read: Boeing’s new CEO is hands on. He’s being handed a company in crisis.
But the board’s decision to pass her over is also representative of what happens when companies look to hire a repeater. The vast majority of CEOs are male and Caucasian—which means the pool of candidates looks more or less the same.
As Spencer Stuart writes, “Reliance on prior experience as an indicator of future success thus perpetuates the status quo and represents yet another barrier to underrepresented groups."
Now Boeing’s board has the chance to use these next six-plus years under Ortberg to prepare to make a different—and hopefully more out-of-the-box—choice the next time around. ©bloomberg
