The last GE Man

Editor’s note (January 9th 2020): After this article was published, American media reported intelligence assessments that Ukrainian International Airlines’ Boeing passenger jet which crashed outside Tehran on January 8th had been brought down by Iranian anti-aircraft missiles, not mechanical failure.

IF ANYONE DOUBTS that David Calhoun, who becomes Boeing’s new boss on January 13th, is taking on one of the world’s most difficult jobs, think again. On January 8th the firm was caught up in a new tragedy: the deaths of 176 people aboard a Boeing 737-800 passenger jet bound for Ukraine that crashed shortly after take-off in Iran. The aircraft involved is different from the 737 MAX planes that went down in two air disasters, in October 2018 and last March, killing 346 people and plunging Boeing into crisis. All the same, getting to the bottom of the accident amid open hostility between Iran and America will be yet another headache for a new CEO fighting to save the skin of the world’s biggest aerospace company.

Lucky then, you might think, that Mr Calhoun is a “GE Man”: the latest in a long line of chief executives (all male) schooled at the knee of Jack Welch. Over the decades since Mr Welch gave up his Messianic leadership of GE in 2001, his subalterns like Mr Calhoun have walked tall—often literally, as in the case of Jeff Immelt, who succeeded Mr Welch at the industrial conglomerate—across the corporate landscape. They have run big American firms, such as 3M, Chrysler, Home Depot, Honeywell, and foreign ones, like ABB of Switzerland. Nowhere have GE veterans had such an impact as at Boeing, which has been under the sway of Mr Welch’s protégés almost constantly since its merger with McDonnell Douglas in 1997.

Yet GE Man’s legacy is a chequered one. With a few exceptions of which Mr Calhoun is probably one, Mr Welch mentored a fair share of duds (including Mr Immelt). This compounds Mr Calhoun’s difficulties, because even at Boeing, the GE lustre has lost its sparkle. Indeed, some go so far as to blame the mistakes that led to the 737 MAX disasters on GE-style focus on managerial efficiency (“bean-counting” to its critics) that infused Boeing as a result of the McDonnell Douglas tie-up, ending a long period of dominance by Boeing’s engineers.

Mr Calhoun must face up to these criticisms—but not before his immediate task of overseeing a response to the Iranian disaster. After that the overriding priority is to salvage Boeing by reassuring regulators, crews, airlines and passengers that a software fault that has led to the 737 MAX’s grounding is fixed, and the aircraft is safe to fly. Only then can he set Boeing on a path that is less managerial and more ambitious than before.

It will be tough. Mr Calhoun sat on Boeing’s board for a decade, and is as infused as anyone with GE culture. If he succeeds, he will be a rare example of a GE Man who finally lives up to the hype.

The Welch-era reputation rests on three pillars. The first is a high-testosterone leadership style, akin to jocks on a sports team. Mr Welch co-wrote a book called “Winning”; Mr Calhoun, who joined GE in 1979 and left in 2006, co-wrote one titled “How Companies Win”. No points for spotting the operative word. The second pillar is a corollary of the first: “ranking and yanking”. The losers, be they employees, executives or sub-par business units, are ruthlessly weeded out. In 2017 Mr Calhoun approvingly described the culture under Mr Welch: do something a bit better every time or “you were probably not going to survive the next day”.

The third is a disciplined focus on cash to bolster returns, rather than on breakthrough innovations. Mr Welch excelled at this while running GE (though a soaring stockmarket helped). So did David Cote, a GE veteran who led Honeywell from 2002 to 2017. Schumpeter’s back-of-the-envelope calculation of the impact of ex-GE Men on nine American firms they led at some stage between 2000 and today shows that, by and large, they improved margins and shovelled more cash to shareholders, but pared back investments. Putting aside Mr Cote’s success at Honeywell, their performance relative to the broader stockmarket was mediocre, though. Add to that the record of Mr Immelt, whose 16-year tenure left the firm on its knees. Mr Calhoun’s performance is harder to gauge, because he led Nielsen, a private company, from 2006 to 2013, and joined Blackstone, a private-equity group, thereafter.

His new role at Boeing is the final chance to rehabilitate the image of GE Man. Several of them have tried and ultimately failed. After the merger with McDonnell Douglas, that firm’s boss, Harry Stonecipher, also formerly of GE, led Boeing in 2003-05. For the next decade the firm was run by Jim McNerney, another ex-GE-er. In 2016 Kevin McAllister, yet another GE Man, became head of Boeing’s commercial-aircraft division, until he was ousted in October. He, like Mr Calhoun and Mr McNerney, once ran GE’s aviation business, which is Boeing’s biggest engine supplier.

Such men brought with them GE values. Taking a cue from Mr Welch, in 2001 Boeing moved its headquarters from Seattle to Chicago, putting distance between the suits in the C-suite and the engineers. As Mr Stonecipher put it in 2004: “When people say I changed the culture of Boeing, that was the intent, so it’s run like a business rather than a great engineering firm.” Shareholders loved it. Over the 15 years since, Richard Abaloufia of the Teal Group, an aviation consultancy, says $78bn was returned to shareholders, doing wonders for Boeing’s share price. But in the process, engineers’ input into decision-making was relegated, which may have contributed to the 737 MAX’s tragic design flaws. “The seeds of the MAX disaster were planted years ago,” he wrote recently.

Sleepless in Seattle

Putting Seattle’s finest back at the controls of Boeing is no guarantee of success. Dennis Muilenberg, whom Mr Calhoun helped oust as chief executive because of his poor response to the crisis, was an engineer. Mr Calhoun must start overhauling the company culture from the top down. As Michael Useem, a seasoned GE watcher at the Wharton School in Philadelphia, puts it, the complexities of business are much greater than in Mr Welch’s day: supply chains and customers span the world, and technology runs through everything. Before GE Man becomes a relic of history, he faces his toughest challenge yet. ■