Boeing announced this morning that CEO Dave Calhoun will leave the company and that an executive with three decades of tenure at the $117 billion manufacturing company, Stephanie Pope, will take the helm. As Pope takes leadership of a struggling company, investors are waiting in the wings to see what Pope’s plan will be for the next 12 months and how Boeing will hold her accountable.
Pope has a murky road ahead with regulators, investors and customers in reshaping the company’s culture and then proving to the world that people can trust her. Boeing was beset by problems even before Calhoun took over as CEO to replace Dennis Muilenburg in 2019, after 346 people died while flying on planes made by Boeing. The US Department of Justice subsequently fined Boeing $2.5 billion to resolve criminal charges of conspiracy to defraud the Federal Aviation Association’s aircraft rating panel in January 2021. Three years later, Calhoun se comes amid a severe lack of trust among customers and the public after parts of Boeing-made planes began taking off mid-flight; last week Boeing board members, including Kellner, began holding meetings with major customers without Calhoun present.
“They’ve had a couple of years to figure out what’s going on in the design and assembly process and they still haven’t diagnosed the situation,” said Jason Schloetzer, an associate professor at Georgetown University who has studied CEO succession and effectiveness. “They’re trying to clean up to some extent and bring in a new team with a fresh pair of eyes and new incentives to solve the problem, because you can’t affect change if you can’t even assess what the situation is.” is and figure out what needs fixing, let alone putting together a plan to fix it.
An insider at Boeing is probably cheaper than looking from the outside
Picking Pope as an internal CEO is likely much less expensive than hiring someone from outside Boeing, said Maria Vu, senior director of North American compensation research at proxy consultancy Glass Lewis. A CEO outside the company reportedly requested that Boeing offer executives “make-whole” payments, to compensate for the capital they would have left with a previous employer. Furthermore, troubled firms often must provide numerous incentives to induce executives of other firms to take over a failing firm. It’s unclear at this point whether Boeing will offer Pope more than the compensation he received as chief operating officer, which is $1.2 million in salary plus a $2 million annual cash bonus and a $10 million long-term incentive . Once Boeing makes Pope’s goals public, investors will likely scrutinize them for signs of how the board intends to hold Pope accountable for changing Boeing’s culture, she said.
“There appears to be significant risk to the company if company culture is not meaningfully addressed,” Vu said. “It will be indicative of how serious the board is about changing the culture if you look at the kinds of things they are incentivizing Ms. Pope for in her incentive programs.”
With Pope, the company is turning to an experienced executive to turn the company around, and on the one hand, “that’s great,” Schloetzer said. She is “someone who knows the industry very well and has been there a long time and is very well versed in what’s going on,” she said. On the other hand, Pope is also “a person who has been there while these issues have unfolded.”
“It’s not easy to find someone who can come in and think through an organization like Boeing, so it makes sense to have an internal person, but it’s not a simple thing,” Schloetzer said. According to Schloetzer, there may also be hires below the C-suite and NEO levels to bring new perspectives to Boeing.
Along with the Calhoun-Pope torch passing, the bloodshed at the top includes Stan Deal, president and CEO of Boeing’s commercial airline division, and board chairman Larry Kellner, who stepped into the role in 2019 when Calhoun moved on from ‘be a member of the board of the CEO. The company has also seen outflows from other executive roles in recent years, including Leanne Caret, president and CEO of Boeing’s defense, space and security unit, and senior vice president and treasurer David Dohnalek. Boeing’s board of directors elected Steve Mollenkopf to replace Kellner.
In January, Boeing announced that Calhoun had selected Admiral Kirkland Donald as a special consultant to investigate Boeing’s quality management system for commercial planes. Kirkland, who is chairman of the board of directors of Huntington Ingalls, an $11.5 billion military shipbuilding company, was expected to provide Calhoun and Boeing’s aerospace safety committee with a report and recommendations. Its review is still ongoing, a Boeing spokesperson said in a statement Fortune.
For Calhoun, the majority of his $20 million-plus compensation was expected to come from his long-term incentive award, which had a target of $17 million. By the end of 2023, he would see the 737 MAX safely returned to service; realignment of the engineering function; Twin-engine 777X aircraft entered service and increased deliveries and production. The prize was not awarded, according to company information.
“In general, to incentivize an executive to take something seriously and make substantive changes, especially if it is a material risk to the company, we would expect to see some revisions to incentive programs to help address this,” Vu said.
As for Calhoun, he has at least $20 million coming his way and potentially another $45.5 million, depending on how Pope fares in the CEO role. However, Boeing’s board of directors could provide him with additional compensation as part of his departure or could decline to do so to avoid further scrutiny.
“How they classify his departure is a conversation they will probably have with him in terms of negotiations,” Vu said.