10 April 2024

Project Syndicate's Pistor: Will Boeing Crash Shareholder Value?

Boeing’s self-inflicted woes hold broader lessons for contemporary corporate governance. Once again, we see how the misguided idea of shareholder value can serve powerful financial interests while destroying what business organizations are best at and leaving many other stakeholders worse off.

For half a century, maximizing shareholder value has been the overriding objective of corporate governance, especially in the United States and the United Kingdom. But Boeing’s disastrous performance on product and customer safety may mean that change is in the air.

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The crashes in 2018 and 2019 of Boeing’s 737 MAX model, in which 350 people were killed, should have served as a wakeup call. But it was not until the blowout of a side door on a recent US flight that it became obvious to everyone that there is a fundamental problem with how Boeing is being run. Since then, AerCap – the world’s largest aircraft leasing company and a major customer of Boeing – has demanded that financial targets “take a back seat,” so that the company can focus 100% “on quality and safety metrics.” Another customer, Emirates, has demanded that the company’s next CEO be an engineer. And Boeing’s largest union, the International Association of Machinists District 751, has demanded a board seat to “save this company from itself.”

 How did it come to this? For years, courts and academics have embraced shareholder value as the path to efficient management, as if focusing on this single goal and subjecting a company to the discipline of the market would reliably ensure top performance. Yet corporate management is far too complicated a task to be guided by the stock ticker. Every day, executives must make difficult decisions about how best to balance financial goals with product quality and safety, labor conditions, environmental impact, and so forth.

What shareholder value has done is turn corporations into ATM machines. Corporate bosses embraced the concept because they could partake in lucrative shareholder bonanzas through stock-option plans and extra bonuses. Perhaps not surprisingly, these cash channels are often misaligned with actual company performance. How else could Boeing’s CEO walk away with a 45% pay raise after causing even more damage to the company when he failed to fix its problems after the MAX crashes?

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