On this week’s episode of Fortune‘s Leadership Next podcast, co-hosts Alan Murray and Michal Lev-Ram talk with Boeing CEO Dave Calhoun about leading Boeing through extraordinarily challenging times, transforming company culture, and how leadership has changed over the last two decades.
Listen to the episode or read the full transcript below.
Transcript
Alan Murray: Leadership Next is powered by the folks at Deloitte, who, like me, are exploring the changing rules of business leadership and how CEOs are navigating this change.
Welcome to Leadership Next, the podcast about the changing rules of business leadership. I’m Alan Murray.
Michal Lev-Ram: And I’m Michal Lev-Ram. Alan in the last month we've had quite a few CEOs on Leadership Next who have led their companies through some pretty extraordinary challenges. One was Ed Bastian of Delta, who was at the helm of the major airline during the pandemic, during the bankruptcy, even 9/11. Another being Emma Walmsley, who led GSK through a de-merger, sounds like a lot of fun, while some investors and activists were calling for her resignation. And then of course, we had Brian Cornell on just recently, who joined Target at a really low point for the retailer and he's turned it around. So we've got yet another turnaround CEO on the show today, one who you've written about yourself.
Murray: Yeah, that's right, Michal. Today's interview is with Dave Calhoun, who took over as CEO of Boeing in January of 2020, when the aircraft manufacturer was really in crisis. I mean, this is before the pandemic hit, but they had had two planes that had crashed the, the 737 Max catastrophes, and a real contentious back-and-forth with the public and the press over why they crashed. It was a very ugly moment for Boeing.
Lev-Ram: I thought he was such a straight shooter about it all. I'm sure it wasn't easy dealing with the press back then. And vice versa, obviously. But it was really interesting hearing his approach, not only overhauling the internal culture of Boeing, but also the company's entire safety protocol, which clearly needed to happen. And this was literally a life or death ask.
Murray: One of our writers asked him, "Is this the toughest job in America?" I think at that moment in time it might have been, but Dave has done a lot to right the company, and it hasn't been easy. He's had some pretty serious supply chain problems to deal with, which are still plaguing the company and still causing delays in delivery of airplanes that people have ordered.
Lev-Ram: Yeah, I think he semi-jokingly says that he just wants things to be boring again, like that's probably the goal for you know, this industry.
Murray: Go boring.
Lev-Ram: Yeah, go boring, we want more boring. But, you know, he got into how the company has changed over the past few years. I think it's important also, at the same time, you know, as we're talking about this turnaround, to point out just how big Boeing is, because that obviously makes steering and righting the ship even harder. So alongside their competitor, Airbus, they make up a duopoly, as we all know, on the aircraft manufacturer market, and Boeing has both a commercial and a military arm. As of late 2022 it was the third largest defense contractor.
Murray: Yeah, the other thing that's interesting about Dave Calhoun is that he was one of a string of corporate leaders who were protégée of the of the late Jack Welch, when he was CEO of General Electric, which is now more than two decades ago. And I always think, looking back at Jack Welch, how dramatically corporate leadership has changed in the two decades since he left the scene. We talk about that with Dave in this podcast.
Lev-Ram: Yeah, loved your question about that. It was a really fascinating conversation about leadership, about the industry, in particular transforming company culture. And we are excited to bring it all to you. So here's Dave Calhoun, CEO of Boeing.
[Music. Interview begins.]
Lev-Ram: Dave, thanks so much for joining us. I know you've seen some challenges in a short amount of time. But let's get started with perhaps the biggest challenge that you faced when you became CEO of Boeing, back in January 2020. And I know there was another one coming down the pipeline very, very quickly. We'll get to that. But there was a complete reevaluation of the safety of Boeing's aircrafts after the fatal crashes of the two Boeing 737 Maxes, and we want to start with that. I know it's a it's a big topic. But what has changed since, in the past three years? And what due to those challenges were some of the toughest decisions that you had to make right off the bat as CEO?
Dave Calhoun: Well, it was the toughest moment course I've ever seen in my career, and even with a long history and background in aerospace by virtue of my GE days. Yeah, this was a sort of a situation that was as tough as it gets. I might as well start from my perspective as a board member. Living through the period of time post the second crash where we had already grounded the fleet. So that on one hand, we knew there would be no forward safety concerns. It would give us time to evaluate the leadership and management system that oversaw all of this without taking additional safety risk. On the other hand, we also knew we had to be incredibly decisive. Otherwise, the population that we employ everywhere in the world and our customers would lose faith. So we knew there was a clock running. We had a plan with respect to decisive action, if we needed to do it, I was that plan. We had sort of three successive moments post the second crash where the leadership team had discerned the issue with respect to those particular accidents, and had worked with the FAA to recertify that airplane so that we could again get back into the business of delivering airplanes. And they kept predicting every three months that the cert would be in hand and then we missed on our third. And that is when the board decided it had to move and move quickly. In moving quickly, everybody knows when you have to make a leadership change, sometimes that in and of itself, especially if you don't know who's coming, is going to take time. In our case, this took us about three weeks. So I knew that I would have to close up shop at my existing employer, which I loved, and get into this and get into it quickly. With respect to what I found. You know, the, the issue with respect to the Max, our relationship with the FAA, the most important two elements of that were going to be stop predicting when the FAA would ultimately discover for themselves when the airplane would be recertified because that is their right and we should not try to jump ahead of them in any way, shape, or form. And then secondly, be transparent with literally everything, no matter how uncomfortable the data is or the conversation is, you have to tell everybody, everything, including the media, and you're gonna get whacked along the way and that's life. But for us to regain trust, number one with our own people, and then two the flying public, they were going to have to believe that that was us and that was the culture we were going to carry forward.
Murray: Dave, at some point, we should do a separate podcast on why in March of 2019, you said yes. Because this was one hell of a big challenge that you were taking on. But let me ask you, I mean, I feel like cultural problems are the biggest, most difficult problems that a CEO has to deal with. So let me ask you, first of all, do you buy the critique that Boeing had a fundamental culture problem in March of 2019, that it was prioritizing quarterly profits over safety? And if not, what was the culture problem?
Calhoun: You know, Alan, we had a, we had a culture problem. I'll characterize it quite a bit differently then the media liked to characterize it. The idea that anybody, any human being makes a trade of quarterly profits over safety is just a that's a flawed notion. Like who can do that? Who can look in a mirror and say, Hey, let's compromise safety today? Right? It's just not what happens. What I do think I found was an organization and a company, a culture that was having a hard time being honest with one another, about where programs stood, how much time was required, what things still needed to get completed. And as a result, you know, leadership became disconnected with the ground troops. And that can never happen. It can never happen. As you know, I've seen big companies, I know how that can break up. But the role of leadership in that particular aspect to me is paramount. And we had lost that. We had lost that. I think the symptom, the notion that we could every three months predict we'd have a success cert with an FAA regulator who is looking at everything all the time, and our own people submitting documents and suffering inquiry, without talking to them, that's how you get that's how you create these problems. Every three months, we're gonna get it. Why? Because some, somebody mastermind has a critical path? No, that's not that's not what it takes. The culture has to be willing to talk about what it's facing and the difficulties it's facing. Getting back to that transparent relationship across the company to me was the biggest cultural upside that I could bring.
Lev-Ram: Rebuilding that trust internally and externally, and the role that transparency plays, I wonder if you can talk a little bit more about that, and just where that comes for you? I know we'll get into your years at GE a little bit later. But I think it's just fascinating, the difficulty that even leaders in very top positions have with difficult conversations. And you know, you said you knew you'd get whacked along the way but that this was the the best approach. So is that something that you developed over time? Is that something that you're developing in other leaders at Boeing? And how do you do that?
Calhoun: You know, in the world of and particularly in public governance and public companies and the quarterly focus and the desire to always have good news about everything, CEOs are particularly impacted by that. They have to be. Because they always want to present a way forward for everybody. Investors are paramount, but also their employees, etc. So if you let that get carried away and it stops you from reconciling what are more difficult circumstances on the ground with what you would like to project and then you compromise that delicate balance, that's what gets you in trouble. You know, I, I worked for a guy, Alan, you remember him well, Jack Welsh. The one thing you could count on from Jack was pure reality and pure clarity every step of the way. He told you everything he thought about you, about your business, what he heard from the people he visited with at Crotonville the day before, he just went at it. He happened to be sharp and good and he kept us ahead of that game. I grew up in that situation and it just became really important to me. I carried that into my Nielsen life. That whole idea around transparency, how people's confidence grows, when they're confident they can be transparent. And then that hit me right between the eyeballs when I got to Boeing in the CEO role. And yes, I talk about it. There's not a day goes by I don't use the word. I talk about it at the top. I talk about it at the bottom of the organization. I create expectations in the media and with investors that they're not going to like what they hear in many cases. We talk about every little problem that occurs inside our production facility. It creates issues for our regulator. It creates issues with our investor. Our customers appreciate it. They really appreciate it. And we're on that journey.
[Music starts]
Murray: Jason Girzadas, the CEO of Deloitte US is the sponsor of this podcast and joins me today. Welcome, Jason.
Jason Girzadas: Thank you, Alan. It's great to be here.
Murray: Jason, everyone in business is talking about A.I. It clearly has the potential to dramatically disrupt almost every industry, but a lot of companies are struggling. What are some of the barriers that companies are facing in creating business value with A.I.?
Girzadas: Yeah, Alan, I think A.I. is on every client’s agenda. I think every CEO and board interaction and conversation that I’m a part of proves the fact that the promise of A.I. is widely held, and the hope is far and deep that it creates business value. But there’s challenges to be sure. What we’ve seen is that the probability of success increases dramatically with strong executive sponsorship and leadership. There has to be a portfolio of investments around A.I., as well as to link the business ownership with technology leadership to see the value of A.I.-related investments. Over time, we’re optimistic and confident that the value will result, but it will be a portfolio where either short-term opportunities for automation improvements around productivity and cost takeout and then longer-term, medium-term opportunities for business model innovation that are truly transformational. So this is a classic case where it won’t be a single approach that realizes value for A.I.
Murray: It sounds like you take it a step at a time.
Girzadas: I think it’s definitely time, and also a portfolio recognizing that some investments will have short-term benefit where you can see immediate use cases creating financial and business impact, but longer-term opportunities to really invent different customer experiences, different business models, and ultimately create a longer-term benefit that we can’t even fully appreciate at this point in time.
Murray: Jason, thanks for your perspective. And thanks for sponsoring Leadership Next.
Girzadas: Thank you.
[Music ends]
Murray: You took on Boeing in March of 2019, when you had a serious problem with the 737 Max crashes. And then in March of 2020, on top of that, you had a global pandemic and serious supply chain challenges that have really held the company back for the last few years, just getting the parts in place. And you know, you said, some of your customers, you talk turkey with your customers, you tell them exactly what's going on. But they're not terribly happy about it. They don't like the delays. They don't like the fact that they can't get their new planes in place, particularly when when travel is is booming. Have you gotten beyond the supply chain challenges? Where are you in that part of the journey?
Calhoun: No, no, we haven't gotten by them. Our industry has not gotten by them. Maybe to reflect on the immediacy with which COVID came on top of our Max issue. I mean, both of them ended up being existential in their own right. But largely because they were dependent on each other. So we couldn't supply and now all of a sudden nobody wanted them. So we're sort of faced with, Oh, my gosh. The supply chain issues in aerospace, and I use that term to define the industry, I think really relate to the demographic issue the industry has had for quite some time. Our demographics have been working against us for quite a while. We have a lot of incredibly experienced engineers at every level of the value chain. So yes, Boeing at the design and assembly level, but also every single one of our supply chain participants, many of which are sole source, because remember, we only make what, a couple 1000 of these things a year? So you can't have two or three sources for every part that goes on two or 3000 airplanes. So it is a highly fragmented supply chain. With that demographic issue who had to face into cutbacks during the COVID moments and now is in the process of rebuilding. It's rarely now a story of can I get the people? It's can I train the people? Can I get them up to speed where all my experienced engineers who may have decided to retire, can I get them up to speed fast enough? They're not, I don't typically run into, we don't typically run into physical capacity constraints. It's technical constraints amongst the leading and best engineers in that supply chain. And it's impacting both manufacturers. So that, yeah, maybe you can relax for a minute that it's not just you. On the other hand, it means our industry is likely to be supply constrained for quite some time.
Lev-Ram: Well, so what does that timeline look like do you think if it's if it's more of a training issue? That sounds like that could take a while.
Calhoun: My view is it takes roughly two years, starting at the beginning of this year, to get through our supply chains' capability capacity to then meet the demands of myself and the other player. It will then take, based on the demand that we see now, probably three more years for us to get to real rates that satisfy reasonably current demand, maybe three years worth of demand. Right now, we're out there selling 567 years from now.
Lev-Ram: So, and a follow up question there, because Boeing, of course, has both commercial and military businesses, but I'm assuming the supply chain issues impact both and there's, you know, yes, people need to get to Paris and wherever they want to go for vacation, but I'm assuming the military implications of a backlog there, there is slightly higher stakes, right?
Calhoun: Higher stakes, but it's exactly the same issue that we face, many common shared suppliers. And I think if you survey my counterparts across the defense side, you get exactly the same response.
Murray: You know, one of the problems in this industry is that the your customers are dependent on either you or Airbus. They really only have two choices. I think we saw some news this morning that the Chinese are trying to give them a third choice. Are you worried that this delay will give a big leg up to your competition?
Calhoun: No, I'm not. I do believe patience is virtue in this industry, and it always has been. And a long term outlook is a big advantage if you can keep it. So we have two guys, and you're right, we've been at it for quite a long time. Relative parity, we enjoy some advantages in wide bodies, they enjoy some advantages in the narrow body. But basically parity from my point of view. New airplanes get introduced about every 10 years, and I think about 10 years from now we'll see new airplanes come to the market. The 919 as you mentioned, Alan, was introduced this morning. It's going to be a capable airplane. I don't think it can compete in the West yet with with Airbus and Boeing. But do I discount that they will eventually? No, they will. And then I ask myself the question: In 2050, if all the regulators in the world move in their direction for all the right reasons, and they're able to ramp up production at rates commensurate with what maybe Airbus or Boeing had done in their heydays, where would we be in 2050? And the answer is not the most devastating answer in the world. It's a growing market. It will continue to grow from now until 2050. There'll be three players instead of two. Two will have reasonably dominant chairs, and one will probably have 10% to 15% if everything goes right. And I look at my peers in industry, and as you know, coming from GE with so many different industrial interests, three competitors and a growing global market of this size and scale should not intimidate anyone.
Murray: Yeah, yeah. So if this were a drinking game, and we had to take a drink every time you mentioned GE or Jack Welch, we would all be getting a little tipsy by now. So let me, Michal, if I can let me dive into...
Lev-Ram: It's not even noon in California, so I'm not there quite yet.
Murray: So let me dive into that one and ask you about Jack Welch. And remember that at Fortune, we were all in. I mean, we named the man manager of the century for the 20th century. And certainly candor and transparency was one of his hallmarks straight from the gut, as his book was called. But there are other parts of the Jack Welch legacy that have not aged as well. The smoothing of quarterly earnings. The kind of rank and yank, not Jack's term, but the rank and yank method of, you know, hiring people at the bottom of the ratings distribution. The notion that there is no such thing as a work-life balance. It feels like the world of management has changed dramatically in the 20 years or 23 years since he stepped down, and I wonder how you feel about that?
Calhoun: Again, it's a different time and a different context. Leaders have to change and adapt to the circumstances that we're faced with and we do. But then I ask the question, do I think Jack would have adapted and lead in those changing circumstances as well as he did back then? I think the answer is yes. Because one of the things he did really, really well is keep a pulse on what was going on around him and he always found a way to stay ahead of the game. Did I like quarterly gotta make it, period? No, I never did. I still don't. I have never used it in my subsequent career. And by the way, he knew that. It's just, uh, you know, for me, I don't like managing around edges and I didn't think it was necessary even at GE. I think there were moments when we may have had breakout opportunity. So I just do it a little differently. But do I disrespect and or fault him as that some major, you know, shortcoming? Answer is no. That was the way he coped with managing a incredibly diverse set of businesses and simplify the communication with his investors.
Lev-Ram: Before we let you go, Dave, I wanted to end on a, I guess, another culture question really. And just going back to the the crises that you stepped into, multiple crises, and given the competition that is out there and the supply chain issues and everything that you're up against, how do you kind of get things back to boring, in a way, to just working? To making sure that you know, manufacturing, that, that all of these things are ticking along as as they should be, and especially in this industry, while at the same time making sure that you're driving your employees to innovate, to compete? So many different technologies out there. Sustainability obviously is a big issue these days. So how do you strike that balance and make sure that you're setting the right tone culture-wise going forward?
Calhoun: Yeah, I try to divide the world into two things. One is how we deliver and service the airplanes that we know how to build. That's all things supply chain. And I use the word stability and predictability all the time. That's our goal, stability and predictability. It may sound boring, but right now, every customer in a global aviation world would celebrate that moment. So that's the way we talk about it. And then the other dimension of our company, that we are heavily invested in, is development. How do we develop the technologies and capabilities that will then create that next new airplane? We have to sustain the investment, we have to keep our people motivated. And I always say, if you just want to inventory the landscape, we have three major commercial airplanes in development as we speak yet to be certified. Two in the Max family, one in the 777 family, all of which incredibly competitive, incredibly strong. We have a defense portfolio that has two autonomous players. One that is a refueling tanker for the Navy, the other one is a teamer and both of those airplanes fly today, autonomously. And if you could see the tasks that they take on, it would blow your mind. And I can't even talk about the classified programs we've been involved with. For all of these years, throughout every minute of these downturns and existential moments, we never stopped investing, we didn't shortchange any of them. And all of them have incredible promises we move forward. So we just talk about it in those ways. And I have to admit, until we got recertified on the Max, until we restarted our 87 production line, and started prancing our way back or marching our way back to that stability and predictability, it was hard to talk about development. But I'm incredibly proud of all the things that we've done to sustain that throughout this period. And so I would suggest everyone maybe ask our competitor what they're doing on this, and match it up against this.
Murray: We will do that. One more quick question. One more quick question: How long is it going to be before you can produce an airplane that doesn't contribute to carbon pollution?
Calhoun: Well, I think as an industry, the goal of 2050 will be challenged. But we can make so much progress against that with technologies we know we can get. Almost all of it is built around sustainable aviation fuels. As you may know, most of the engines today that get delivered on new airplanes are capable of running on sustainable fuels. We have a lot of formulations of sustainable fuels. And what it's going to boil down to are the feedstocks, feedstocks that support those fuels. And can aviation, we only represent 2% of global emissions, in carbon, 2%, will it be prioritized over other uses of those feedstocks? That's really where the battle is. We need policymakers to help us. But I do like our chances. I really do. Whether we get all the way to net zero at 2050 I'm not sure. Hydrogen will not be ready. Hydrogen might contribute significantly in the second half of the century. Won't be this one. Electric will help us at the low end. It will replace loud, noisy, inefficient high-emission helicopters. But it won't make a big dent in the overall carbon emission numbers.
Lev-Ram: Well, Dave, we appreciate the real talk. I personally find it very refreshing. I don't know about you, Alan.
Murray: No, no, it's straight from the gut. I like it. Thank you for your candor.
Calhoun: Well, Michal, I enjoyed it. Thank you. Nice to meet you. Alan, I'm not sure who refers to Jack more—you or me.
Murray: Thank you.
Murray: Leadership Next is edited and produced by Alexis Haut. Our theme is by Jason Snell. Our executive producer is Megan Arnold. Leadership Next is a product of Fortune Media.
Leadership Next episodes are produced by Fortune‘s editorial team. The views and opinions expressed by podcast speakers and guests are solely their own and do not reflect the opinions of Deloitte or its personnel. Nor does Deloitte advocate or endorse any individuals or entities featured on the episodes.
