Boeing again, and the power of systems thinking

It seems like Boeing just can’t stay out of the news these days. 

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  On Saturday, June 22, Korean Air 189—a Boeing plane—developed a leak half an hour after takeoff. Within ten minutes the cabin depressurized, triggering the emergency oxygen masks. The flight was bound from Incheon Airport in Seoul, South Korea, for Taichung International Airport in Taiwan. But when the cabin lost pressure the pilots started an emergency descent to bring the plane down to a safe altitude, dropping nearly 26,900 feet in fifteen minutes. While nobody was seriously injured, nineteen passengers were hospitalized for ear pain and nosebleeds.
• 
  A couple weeks before that, on June 5, two NASA test pilots blasted off for the International Space Station aboard Boeing’s Starliner capsule. They were supposed to spend a week. But the capsule had last-minute thruster trouble after it was already launched, which almost prevented it from docking with the ISS. (It also developed several small, unrelated helium leaks.) At this writing, the two pilots have been at the ISS for three weeks (not one) … and counting. Their return has been scheduled for three different dates—and canceled each time, as NASA and Boeing continue to trouble-shoot the equipment. But a Boeing spokesman offered reassurance that that “the astronauts are not stranded.”
• Last month, Justice Department prosecutors recommended that Boeing face criminal charges for violating a 2021 settlement related to crashes of the 737 MAX in 2018 and 2019. 
• And just last week, the National Transportation Safety Board sanctioned Boeing for making inappropriate comments to the media regarding the ongoing investigation of Alaska Airlines 1282. 

What’s an airline to do?

Asking the wrong question

I wrote, “What’s an airline to do?” but it’s not clear if that’s even the right question. Let’s think about it for a minute.

Of course, it’s difficult to turn around a whole organization, especially one as large as Boeing. Growing or healing a Quality culture is a big task, and it requires coordinating a lot of elements—even something as trivial as a box of doughnuts can help make a difference. If this were the first time that Boeing had had problems, we might expect the turnaround to take a while.

But it’s not the first time. Boeing’s Quality and safety cultures have gotten worldwide attention at any rate since the crashes of Lion Air 610 in October, 2018, and of Ethiopian Airlines 302 in March, 2019. And internal discussions had already begun years before those crashes. Boeing whistleblower John Barnett testified that he began raising Quality complaints internally back in 2011.

So if the deficiencies in Boeing’s Quality and safety cultures have been well-known for over a decade, why has the company seemingly made so little progress?

A couple of months ago in this blog, we looked at how the Mayo Clinic built their Quality culture, one that continues to be healthy and effective. One of the critical elements that made the Quality initiative succeed was solid, long-term management support. Barnett and others (including other whistleblowers) have said—to put it gently—that Boeing’s management did not offer the same kind of support when Quality concerns were raised. Their focus was profitability, pure and simple.  

The funny part is, you would think that a focus on profitability ought to be enough, if only the management took a wider perspective. When customers suffer from a bad product, they sue; their damages come out of the company’s profits. When courts convict companies of criminal activities, they assess fines; those fines are paid out of the company’s profits. Besides, as we discussed with respect to the Mayo Clinic, a reputation for high Quality can itself be a key to increased profitability. Surely if only Boeing’s management were sufficiently enlightened, they would do the right things out of self-interest. Wouldn’t they? Isn’t that how this is supposed to work?

Empirically, it doesn’t seem to.     

So maybe the real question is, What’s a judge to do? Boeing has already been assessed $2.5 billion in criminal penalties; they have been subject to litigation more or less continually since the Lion Air crash; and there is no clear evidence that anything meaningful has changed. If the DOJ prosecutors have their way and Boeing is assessed another $24 billion, do we really think that will finally make the difference, when other fines and damages have failed? Or will Boeing just write it off as a cost of doing business? 

One of the recurring lessons in the Quality profession is the need to study the objective consequences of the measures we take—in other words, to assess the effectiveness of our corrective actions. If we keep doing the same thing to fix a problem and it keeps not working, the odds are pretty good that doubling down one more time isn’t going to help. Assessing fines on corporate malefactors—not just Boeing, but others as well—doesn’t seem to make much difference. Maybe it’s time to try something else.

The systems perspective

We’re often encouraged to take a “systems perspective” to solve Quality problems, though it’s not always obvious what that means in practice. But I recently ran across an example in an unexpected place. In my spare time, I’ve been reading The Dictator’s Handbook: Why Bad Behavior Is Almost Always Good Politics, by Bruce Bueno de Mesquita and Alastair Smith.* One topic they discuss is government corruption (e.g., bribes); and they point out that enacting strict laws against corruption is, by itself, not nearly enough to curtail it.** (To be very clear, I am NOT accusing Boeing executives or the FAA of corruption! But this example is meant to show how a systems perspective can illuminate questions about enforcement in general.)

Why are those laws not enough? Well, they have to be enforced by someone in the government administration. So in case the administration is also corrupt (and in some countries it is), they will not enforce laws against their friends or allies. In such countries, strict anti-corruption laws are no more than a tool that the administration can use to weed out the disloyal by engaging in very selective prosecution for something that in reality everyone does.

What Bueno de Mesquita and Smith explain is that the best way to root out corruption is to increase the number of voters that the government depends on to keep power. In an autocracy or an oligarchy, where the administration depends on a tiny number of backers, they can afford to reward those people through corruption in exchange for support. But if more people are allowed to vote, then the number of supporters needed to keep a government in power grows much larger. It then becomes pragmatically impossible to pay so many for their votes. And at that point, the anti-corruption laws can finally do their job and the prevalence of corruption starts to recede because the system no longer supports it.

This is a systems argument! And while (once again) I’m certainly not accusing anyone at Boeing of corruption, I think the example highlights how we need to approach the problem of bringing our largest and most powerful corporations to heel. Working inside the existing system by assessing fines doesn’t appear to offer much traction. The alternative is to apply some other kind of pressure to any of the very few points where there is a chance for some leverage.  

An alternative to fines

The proposal that follows is only an example, but it relies on the same kinds of systems thinking that Bueno de Mesquita and Smith use. I owe this example to the blogger and public intellectual John Michael Greer, and I will quote his description extensively in what follows.***

Greer starts by pointing out that in certain parts of Europe during the early Middle Ages, most legal punishments took the form of fines (weregild)—the same way that our courts assess fines on corporations today. Someone who injured or murdered someone else could make restitution to the victim’s family by paying the appropriate amount of money, with no additional penalty. Unsurprisingly, this arrangement meant that the very rich could commit murder uninhibited, as long as they could afford the fine. Over time, the laws changed and weregild was replaced by imprisonment or execution. Greer’s proposal is that—since a corporation is presumed to be a “legal person”—we could make similar changes in corporate law today. He describes it like this:

Imagine that a corporation—we’ll call it the Shyster Company—has just been caught deliberately selling worthless securities to widows and orphans. The district attorney files charges of felony fraud and theft in state court. The trial date arrives, the lawyers bicker, the jury finds the defendant guilty as charged, and the judge sentences the corporation to ten years in the slammer. In practice, what happens is that the judge appoints a trustee, who takes control of Shyster and all its assets. For the next ten years, Shyster is a wholly owned subsidiary of the state government. Its stock pays no dividends and has no voting rights, its directors have to find something else to do with their time, and if the trustee decides that the CEO and other overpaid office fauna get to find new jobs, they get to find new jobs—assuming that they’re not doing time themselves, as they very well could be. All profits earned by Shyster during its period of imprisonment go to the state government, subject to set-asides that pay restitution to the victims of the crime.

Meanwhile another conglomerate—we’ll call this one Dirty Rotten Scoundrel Inc.—has been caught knowingly selling food products tainted with deadly bacteria, and a dozen people have died. This time the district attorney files charges of aggravated first degree murder. The trial date arrives, the media has a field day, the lawyers bicker, the jury returns a verdict of guilty as charged, the judge sentences DRSI to death and the appeals court upholds the sentence. In practice, what happens is that on the scheduled date of execution, DRSI ceases to exist. Its stock becomes worthless, its assets are sold off in an auction in which no former shareholder is allowed to bid, its name and trademarks can never again be used by anybody under penalty of law, and its creditors get whatever scraps are left once the victims’ families receive their settlements.

OK, I guess it’s an entertaining story, but where is the systems thinking?

Fair question: Greer explains that next. 

It’s crucial that the stockholders in both cases, and the creditors in the latter case, suffer for the behavior of the corporation…. Thus under this system, if word gets out that a corporation is pushing the limits of legality, the stockholders have a very strong incentive to sell, driving down the value of the stock. Equally, if lenders become aware that a corporation is engaging in really egregious behavior, they have a very strong incentive to charge higher interest rates or even to stop loaning money to the corporation. Neither has any such incentive under the current system, which is one reason why corporations act as though their quarterly profit statements are the only things that matter. To their stockholders and creditors, this is essentially the case; this proposal would change that.

In other words, this proposal changes the incentives that a corporation faces by applying leverage to the corporation’s stock price and its access to liquidity. This kind of leverage might make a difference.****

Would this help?

Of course I can’t know for sure whether laws like this would encourage Boeing to handle its Quality culture more conscientiously. In the short run, the chain of causality is probably too long to have an immediate effect. 

On the other hand, if one of these penalties ever were to be invoked, it would likely mean a wholesale change of the company’s top management. And if the management understood that risk today, they might be more willing to take the Quality culture seriously. As Samuel Johnson once remarked, “When a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully.”

Meanwhile if you have other proposals that take adequate account of the systems incentives which drive Boeing’s management, I’d love to hear them. Please leave a comment.        

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* (New York: PublicAffairs, Hachette Book Group, 2011, 2022). 

** See especially Chapter 6.

*** Quotations are all from John Michael Greer, The Wealth of Nature: Economics as if Survival Mattered, 2nd ed. (Founders House Publishing LLC, 2021), pp. 213-215. An earlier draft of the same proposal can be found in an archived blogpost here, dating from January, 2010.

**** Greer says more about the legal and political aspects of his proposal in the sources cited above.