What are some of the American companies with the worst ethical cultures in the news these days? You could probably start with The Boeing Company (Boeing). From the company’s stumbles around 737 Max and the two deadly air crashes and everything since, it has lurched from crisis to crisis. The company recently swapped out Chief Executives in hopes of moving the ball forward on regulatory approval for a revamped 737 Max so the company could get planes into production and hopefully make some sales. Then came the coronavirus health crisis, the stock bubble crash and the economic downturn. Current Boeing Chief Executive Officer (CEO) Dave Calhoun said that the company needed a $60 billion bailout from the federal government to support some 2.5 million US jobs dependent on the aerospace industry.
How do you feel about a company, which through its own fault, has lost so much money that it needs a $60 billion bailout from the federal government? Now put on top of that, the ethical failures and toxic culture of the company, starting with the very top of the organization all the way down through the organization. Is that the type of company which you and I as tax payors should bail out? Unfortunately, we have but no choice to bail out Boeing. The company is both too important to the US economy but also US national security.
According to the Washington Post, the “$58 billion the Senate package is providing in loans for cargo and passenger airlines, as well as the $425 billion in loans it is allocating to help firms, states and cities hurt by the current downturn.” But there is even more as buried in the Senate bill is an additional “$17 billion federal loan program for businesses deemed “critical to maintaining national security.” The provision does not mention Boeing by name but was crafted largely for the company’s benefit, two of the people said. Other firms could also receive a share of the money, one of the people said. The people spoke on the condition of anonymity to discuss sensitive internal deliberations.”
According to investors.com, for these monies Secretary of the Treasury, Steve Mnuchin, reportedly said the government could take stakes in airlines that get stimulus grants. However, in an interview on “Fox, Boeing chief executive Dave Calhoun said he would not be willing to give the government an equity stake in the company in exchange for a bailout, implying the company would accept assistance only on its own terms.” And you wonder at the culture at Boeing? Give us money because we are so important but we will only accept it on our terms. The article also dryly noted Boeing “has yet to offer help to the health care sector to treat the surging number of people infected with the coronavirus.”
We appear to be at the point where Boeing needs a bailout to keep operating and the US government needs to provide a bailout to Boeing to keep it operating because Boeing is so poorly run that it cannot do so its own. Obviously, the toxic corporate culture has been a major reason for Boeing’s imbroglio. Also, its overall compliance with the regulatory approval process has been less than sterling as well. I mean, how do we know that Boeing will actually use the money to purchase goods, pay suppliers and utilize its supply chain that is so critical to the US economy?
The clear answer is that the federal government should mandate a monitorship over Boeing for any bailout dollars. A corporate monitorship over Boeing would be an individual or team of individuals that are independent of both Boeing and the federal government. This person or group would bring a level of expertise, training and learning to this task where a true independent is needed to assess the validity of how Boeing would use the bailout monies, as that criteria is defined in the bailout legislation and agreement with Boeing.
The monitors would report to the oversight agency but work with Boeing as well. The cost of the monitorship would be borne by Boeing. This unique American model, which has been in existence for some 15+ years, is a unique model where an unrelated entity is overseen by the monitor under specific terms Interestingly, I put that question to David Holley, Executive Vice President, Americas at K2 Intelligence FIN. Holley said the following:
An independent monitor could be an effective approach to overseeing any monies provided to Boeing to ensure the appropriate use of the funds. We saw this on a larger scale with the US Treasury’s Troubled Asset Relief Program (“TARP”) and its Special Inspector General (“SIGTARP”) created to oversee compliance with the post-financial crisis bailout in late 2008. While there was some initial criticism of the program, in particular efforts by Treasury to limit SIGTARP’s authority and maintain oversight, SIGTARP was instrumental in shaping and enforcing the success of the program, including making recommendations for transparency, enhancements to the Public-Private Investment Program and advocating for more certainty in the requirements for executive compensation. SIGTARP also held the programs accountable for maximizing taxpayer returns from banks as times returned to normal.
While SIGTARP had the task of overseeing between $700 billion and up to $3 trillion committed for bailout, the amounts and parties at issue are far less in this situation. Keys to success of an independent monitor program would be: ensuring the monitor was appointed prior to and present during negotiations for the grant/receipt of any funds to ensure all parties are in agreement on terms and conditions from the outset, level setting when it comes to transparency requirements of the host organization, the degree to which any limits are placed upon the monitor, and clear and concise guidelines for dispute resolution, should the monitor and host entity find themselves at odds.
If Boeing does not want government ownership stake, it should approach the US government now and request independent monitor oversight. This will do more than any equity position the US government could hold to help make Boeing accountable. I want Boeing to succeed as much as anyone. You and I need Boeing to succeed for more than simply the economic health of the US but for our national security interest. Do I want my tax dollars going to a company who has a toxic and broken culture, lied to regulators and engaged in some of the worst corporate behavior in recent memory? No, but we have to revive Boeing and one of the only ways for the company to demonstrate it is worthy of our tax dollars would be through a voluntary independent monitor. Boeing must be accountable the people of the US as it is our money which will be bailing Boeing of the situation Boeing alone put itself into in the first place.
This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at email@example.com.
© Thomas R. Fox, 2020