For example downsizing their Washington manufacturing facilities and outsourcing critical R&D to cheaper countries didn't come from McDonnell Douglas.
The problem is Boeing.
Protecting Boeing from blame is precisely the opposite of what we should be doing.
The problem is Boeing.
As usual, there's a kids educational show to drive the concept home (fast forward to 3:30 for the meat of it):
https://www.youtube.com/watch?v=7Wegg7ewXC8
With the associated music video:
https://www.cnn.com/2023/04/25/business/bed-bath-beyond-shar...
"The $11.8 billion Bed Bath & Beyond spent on its own stock since 2004 comes to more than twice the $5.2 billion in debt it had on its books in its most recent SEC filing, a debt load that proved crushing for the company. It left the company unable to buy the inventory required to create the sales it needed to reverse losses.
“The company’s stewardship of their capital failed,” said Declan Gargan, retail director and credit analyst who follows Bed Bath & Beyond for S&P Global Ratings."
The only reason that companies use stock buy backs instead of dividends to return capital to shareholders is double taxation. If Congress eliminated the double taxation then there would be little reason for stock buy backs.
Businesses fail for all sorts of reasons. Sometimes they get too aggressive with the capital structure and blow up. This is a feature, not a bug. While the experience may be painful for some stakeholders in the short term, over the long term this creative destruction unlocks latent value and increases economic growth.
And if old shareholders want to prevent new shareholders from having the ability to destroy the company then that's easily accomplished. Just establish separate share classes with different voting rights. Many companies already do this.
But when they come on top of:
- cutting R&D and QA budgets
- losing money year after year and amassing further debt and liabilities
- buying your own stock at market highs
they are just reckless.
At that point why don't just buy another's company stock instead of your insanely overvalued one. It's nonsense.
There's a reason why Buffett buys back Berkshire, but only if he finds the stock being undervalued. Otherwise it's not the best use of Berkshire money, it's just stupidity.
Please understand that buybacks are just one way to use money a company has and they are not always the best usage of money and they aren't even the best way to return money to shareholders (e.g. buying your own stock at market highs is a terrific way to burn equity as Meta has learned few years ago). It really can be nothing more than money burning.
As for R&D and QA budgets, what is the correct amount? There is no reliable evidence that Boeing's recent troubles are caused by any particular spending amount on those line items. From the outside the problems seem to stem from culture and lack of discipline than from spending levels. But the reality is that all of us here are just guessing and don't know what's really going on.
And don't presume to condescendingly tell me what to understand. I understand stock buybacks perfectly well. In many cases they are the most tax efficient way to return capital to investors.
And if you're certain that "management doesn't have it" and can convince enough other investors to provide funding then you can take over the entire company and run it as you see fit. Activist investors like Pershing Square Capital Management do this all the time, and despite some high profile failures on average they are very successful.
And there is fundamentally no major difference between paying dividends versus stock buybacks, just a matter of tax efficiency. It's sad to see people (who likely aren't even shareholders) complaining about buybacks without understanding that.
> just a matter of tax efficiency
Yes, and that shouldn't be how it works. Its basically tax evasion.
> It's sad to see people (who likely aren't even shareholders) complaining about buybacks without understanding that.
Understanding it isn't the issue, its just different having different values.
It's hilarious how you put these two sentences together completely ignoring the possibility of selling you shares on the open market if you "prefer to get your capital back". That's a real display of ignorance.
They have, but they have left the cultural infestation behind. You'd need a complete purge of Boeing's leadership, as well as a re-integration of Spirit Aerosystems.
We're all experts now.
Boeing's timeline of failure actually matches the trajectory of other MBAified companies.
There’s no such thing as being “MBAified.” An MBA is a generalist degree that contains the bare minimum information you need to operate a corporation.
You know how in undergraduate computer engineering you learn many different subjects like power systems, microcontroller programming, computer programming, transistors, basic processor design, digital/analog circuit design? And how nobody is going to use all those subjects in the real world? That’s exactly what an MBA is like: it’s got subjects like corporate finance, organizational behavior, information systems management, marketing, etc. Just about nobody with an MBA is going to use ever single one of those subjects on a daily basis.
Nobody else is being judged by their degree. It’s ridiculous, and kind of disgusting that people act like learning the set of knowledge contained in an MBA makes you a worse manager. Armchair engineers seem to think they could run a multi-billion dollar aircraft manufacturer using avionics engineering skills alone without understanding the concepts you learn in an MBA like inventory turnover, cash flow, global operations, or how to design the organizational structure of a company with tens of thousands of employees. In what way does an engineering degree prepare you to do that job?
Imagine if you were a nurse and you got told that you were a worse nurse because you got a nursing degree. That’s what the engineer-types who dunk on MBAs are doing.
The whole idea that no matter what a company does, a generic degree holder, with an education heavily centered on accounting and finance can be the ultimate decision maker without taking into input any other aspect behind financials and accounting.
Most business type have this misguided idea that we engineers don't value business and financial knowledge. We do, what we question is the hubris of business people that seem to believe that domain knowledge is not important, and that managing a soft-drink manufacturer is the same as manufacturing a tech company. It is not.
The problem with your analogy, is that no nurse are being taught on nursing programs that all that matters is what they learn on their programs. If this happened, yes, nurses would be worse nurses by having those degrees.
My courses emphasized gathering feedback from employees and empowering them to make decisions. We learned about multiple different ways to compete which were very often not based on “cost cutting.”
MBA also can't really be compared to Nursing, or really most other degrees. Nursing is a real thing, that can have completely quantified measurement on success.
MBA is...not. In some capacity MBAs are a self-fulfilling role, where the existence of the degree and the artificial rarity associated with the "big schools" around it, create a necessity for more MBAs in the future.
The impact of MBAs can't really be quantified either. First, we don't know what firms are working with what employers sometimes until decades later due to the various NDAs and secrecy around them. Sometimes going as far as the firms taking on obvious conflict of interests, but being able to keep them hidden (e.g. taking on the FDA, and addictive drug manufacturers at the same time.) Second, due to how these firms operate, and the impact of short term vs long term thinking - the negative results of MBAified management strategies do not come across for years. And when the negative results do happen, the blame is either pointed at ${politicians}, ${immigrants}, or ${economy}. When was the last time a firm took responsibility for destroying a company? Even if you think MBAs don't actually destroy companies all the time, by just nature of it being an intervention it's bound to happen at least __once__ right? When has a firm taken responsibility for this happening?
And this is again, one of the differences MBAs have with nursing. Nurses do absolutely from time to time make the situation worse for patients. But responsibility is given and understood.
I'd probably start by saying that not all people with MBAs are in the executive leadership team, CEOs, board members, etc. They're not all "the fat cats in charge." In fact, most aren't. You have people like business and financial analysts, salespeople, and people managers with those degrees. For example, a couple of my classes involved learning about effective people management, the kind of thing that would benefit an engineering manager.
> MBA also can't really be compared to Nursing, or really most other degrees.
How so? It's got classes, tests, math, writing, reading, analyzing. It sure felt like a degree to me when I was writing papers, citing sources, putting formulas in spreadsheets, etc.
> In some capacity MBAs are a self-fulfilling role, where the existence of the degree and the artificial rarity associated with the "big schools" around it, create a necessity for more MBAs in the future.
I would ask how is this different than any other job that asks for the candidate to have a degree or a presigious degree? Do I need an engineering degree to write code? Technically, no. For an MBA there really isn't any scarcity unless you are looking for an extremely prestigious job that wants a prestigious degree program, which is the the exact same thing that engineering firms hiring MIT graduates do. It's way easier to find accreddited online MBA programs than it is to find online accredited engineering programs, especially for engineering programs that require in-person lab work.
> First, we don't know what firms are working with what employers sometimes until decades later due to the various NDAs and secrecy around them.
This is quite literally untrue in the context of public companies that have mandatory disclosures like the 10-K. Also, you know how Hacker News has a bunch of articles about the goings-on of businesses on the front page every day? Yeah, those are articles that can be used as information for analysis. I cited TechCrunch a decent number of times during my time as a student. How do you think business leaders analyze their competition? They don't just sit there and twiddle their thumbs and say "I don't know what my competitor is doing, they won't tell me, it's behind an NDA!" No, they gather information about their industry to benchmark just like you and I do.
And sure, the case studies we used in class were sometimes 10 years old but that didn't make them worthless, and quite often they were much newer than that. Some car companies could still learn a thing or two from the Toyota Production System from the 1980s.
Now, let's talk about your last two paragraphs. You are essentially saying that business leaders never take blame for anything, and that everyone else takes responsibility and blame. But that's really not true either: business leaders are more frequently compensated with performance incentives and company stock compared to engineers, nurses, etc. That means that poor long-term company performance will lower their pay.
Sure, there are cases where executives abuse these compensation schemes, but overall those compensation schemes are there to make sure the executive leadership makes the kind of decisions that grow the company and make its shares more valuable.
> When was the last time a firm took responsibility for destroying a company?
When was the last time an engineer took responsibility for destroying a company? Or a nurse or doctor took responsibility for destroying a medical practice? How many doctors are out there agreeing that they engaged malpractice when they get sued? It's kind of a ridiculous question, isn't it? Who is raising their hand and saying "blame me” as a generality? I don't know a lot of general humans like that who volunteer to be fired, be thrown in jail, or face fines.
That's logical, isn't it? If your claim is that the company cut the long-term philosophy and squeezed short-term benefits, the most profitable time for the company is logically going to be the time where benefits go up while long-term investments are no longer made.
I'm not saying that you're wrong, just that your rebuttal isn't going to convince someone thinking like that.
There's some kind of inertia, were bad and good decisions take some time to have their effects felt.
Likewise, due to the same inertia, unless something dramatic happens, the current administration of a company is downstream the culture of previous administrations, as the people at the helm in the present were promoted, hired mostly based on the criteria of the the last past dramatical cultural change, that was the managerial takeover by the MD bureaucrats post-merge.
Pointing to Dennis as a failure of an "engineering CEO" because of the MAX incident isn't accurate.
According to the Seattle Times [0], it was in 2016 that MCAS was made more powerful and it was determined that a 10-second reaction time would be required to avoid catastrophe. In that year, in spite of the fact that they changed MCAS, they did not submit the new hazard assessment documents to the FAA. That article also seems to indicate that it was after 2016 that they scrubbed all references to MCAS from the manual.
[0] https://www.seattletimes.com/business/boeing-aerospace/inspe...
You might assume that this was after the first test flight (also 2016), and that the lead engineer on the system decided to increase the lift MCAS applies after a real-world test. Would they run that by the CEO? Surely not. Was the MCAS system already approved before Dennis? Yea. Would Dennis take a massive risk by cancelling a 6 year project as he became CEO? Definitely. He's between a rock and a hard place. I can't see that he's at fault.
The people who are at fault are the ones who green lit. IIRC, that was an MBA CEO, obviously in tandem with an engineering team who came up with the idea.
You're inventing a false dichotomy here. The problem with MCAS was not that it was approved at all, the problem was that it was scrubbed from the documentation and that the company decided to not train pilots on it. The 10 second reaction time would be plenty if the pilots had a mental model for what the hell was happening, but they didn't because Boeing decided to skip training on it and pretend that flying the Max 8 was the same as flying any of the older models.
Muilenburg was in the driver's seat during the interval between first test flight and FAA approval. He was in the driver's seat when the first plane was delivered. He was in the driver's seat when the first crash happened. He was in the driver's seat when the second crash happened. We can speculate about whether or not he was looped in on any one of the decisions that led here, but it was ultimately his responsbility to be looped in where needed and to set expectations for how Boeing was run.
I get that there's a strong desire among engineers on HN to believe that "our people" wouldn't let things like this happen, but you're going to great speculative lengths to place the blame on MBAs when the simpler answer is that an engineer as CEO actually did allow this to happen and then, when pressed, repeatedly refused to acknowledge that Boeing screwed up [0].
To be clear, I'm not saying this to vilify Muilenburg, I'm simply saying that the narrative that this is a question of McDonnell Douglas MBAs vs old-school Boeing engineers is wrong. The system is much more complicated than that, and people who place the blame on MBAs are projecting their own career frustrations, not rationally analyzing the facts.
[0] https://www.c-span.org/video/?460231-1/boeing-shareholders-m...
> Muilenburg held numerous management and engineering positions on various Boeing programs, including the X-32 (Boeing's entry in the Joint Strike Fighter competition); Boeing's participation in the Lockheed Martin F-22 Raptor fighter; the YAL-1 747 Airborne Laser; the High Speed Civil Transport; and the Condor unmanned reconnaissance aircraft. He was later vice president of the Boeing combat systems division and program manager for the Army Future Combat Systems program.[10] Muilenburg was president and chief executive officer of Boeing Integrated Defense Systems, later renamed Boeing Defense, Space & Security (BDS), from September 2009 to 2015.
> In December 2013, Muilenburg became the president of Boeing.
https://arstechnica.com/health/2024/01/hospitals-slash-staff...
I don't know if you're being sarcastic, but my impression is private equity makes the same kind of detrimental changes that Boeing has already been making. IIRC, they're known for cost cutting and cashing out goodwill, not making expensive culture changes to pursue engineering excellence.
"It turns out the same thing can happen in technology companies that get monopolies, like IBM or Xerox. If you were a product person at IBM or Xerox, so you make a better copier or computer. So what? When you have monopoly market share, the company's not any more successful.
So the people that can make the company more successful are sales and marketing people, and they end up running the companies. And the product people get driven out of the decision making forums, and the companies forget what it means to make great products. The product sensibility and the product genius that brought them to that monopolistic position gets rotted out by people running these companies that have no conception of a good product versus a bad product.
They have no conception of the craftsmanship that's required to take a good idea and turn it into a good product. And they really have no feeling in their hearts, usually, about wanting to really help the customers."
You could argue I'm just saying they're high quality, which may be true, but the software has been degrading and I have no options if I value openness _and_ quality.
I can flip it and mention features that Apple products don't have that I like.
But this isn't actually an argument for monopoly. That just an argument that you like a company more then the other.
Anticompetitive market structure is bad for consumers loooong before it results in an actual literal "only one company in a broadly defined niche" monopoly.
The examples of IBM and Xerox were truly dominant in their day.
I'm not going to get into the definition of "monopoly" here. But there's a reason for the "No one ever got fired for buying IBM" quote, and there's a reason that "Xerox" is/was basically synonymous with "photocopy". No one calls an Android device an "iPhone".
Apple captures basically 100% of the market excitement and profit, but not sales or penetration. Apple is not dominant anywhere near what IBM and Xerox were.
So, for me this fails the test of ~"sales and marketing running the company and not bringing forward great new products". Apple is still delivering.
Apple is not all things to all people -- but no one is without choice. I think Apple, and Apple customers, are happy with Apple.
But then they'd be providing value to the clients and not shareholders. We can't have that, can we.
Friendly reminder that Boeing has recently had a series (EDIT: one, also terrible) of engineers as CEOs. The MBA trope is a noughties-era Silicon Valley meme.
The current CEO is an accountant. While he went to Virginia Tech, it wasn't for engineering.
The prior CEO was an engineer.
CEO before that was an MBA with an American Studies degree. He oversaw the MAX program.
Plenty have looked for the connection. It hasn’t surfaced. The problem is short-term incentives, a lack of a principled culture and corruption. We each like to think our in group is immune from those forces, and some certainly are more than others, but none in totality.
The Mad Dog nickname came not only from its MD initials but also because it took off like a rocket and makes a hell of a lot of noise. Unlike later automated planes, the Mad Dog also needs full hands-on attention from the pilot during takeoff and landing. (i.e. doesn't kill you with MCAS)
Source: https://simpleflying.com/why-was-the-md-80-called-the-mad-do...