James McNerney was officially crowned a corporate superstar yesterday when Boeing announced he'll be chairman, president and chief executive...
James McNerney was officially crowned a corporate superstar yesterday when Boeing announced he’ll be chairman, president and chief executive — a triple title signifying free rein to take over and push the company in the direction he chooses.
Surprised by the news, since McNerney had publicly turned down the job only two months ago, Wall Street and industry analysts uniformly celebrated the ascension of a man with a sterling management reputation.
Union leaders and some Boeing engineers took a more cautious approach, wary of McNerney’s downsizing moves at 3M and his background at General Electric with its relentless focus on the bottom line.
At a morning teleconference with analysts and media from corporate headquarters in Chicago, and in a phone interview later, McNerney ably handled a wide range of questions. He acknowledged Boeing’s struggles but spoke of a “bright future” and a company now poised to take off.
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He also touted the company’s technical strength. “The technology we have is awesome,” he said.
That emphasis drew an enthusiastic response from Alan Mulally, who heads the commercial airplane division here in Puget Sound and was a contender for the CEO job.
“I find it very interesting that he’s talking about technical excellence … and using the technology to deliver value based on dynamite engineering and manufacturing,” said Mulally, speaking by cellphone from a vacation in Montana. “That tells everyone a lot about what drives Jim (McNerney).”
Compensation for Joining Boeing
Boeing will disclose details of James McNerney’s compensation package next Tuesday. But Lewis Platt, Boeing chairman until yesterday, gave some detail.
“This was a pay package that keeps Jim (McNerney) whole,” said Platt. “It basically moves him across from 3M at essentially the same salary and bonus, and makes payment for some equity that he will leave behind and for a supplemental executive retirement program that he’ll leave behind.”
“There were no inducements or big numbers to convince him to move.”
The terms of McNerney’s compensation at 3M, available through the latest proxy statement, show that he took home $5.9 million in salary, bonus and other compensation last year (including $126,627 in company-paid improvements to his home security system), and received options on 436,247 company shares.
Platt was also asked yesterday about Alan Mulally and Jim Albaugh, heads of Boeing’s major units who were candidates for the top job. He said Boeing has not “at this point” offered any packages to encourage senior executives to stay on.
“They all seem quite committed to staying with the company,” Platt said.
Amid all the acclaim, McNerney also offered, in a Chicago-centered way, an antidote to what one analyst suggested might be his major problem: the hype and expectation around his arrival at Boeing.
“We all stay pretty grounded around here,” he said. “This is a Midwestern company now. I’m a Midwestern guy. The excitement comes from the business, not necessarily because some hotshot showed up here.”
The first item of business was for McNerney, 55, who arrives from the top spot at 3M, to explain why he first refused the Boeing job but then took it.
“I felt tremendous allegiance to 3M,” he said. “I loved that company and I loved the people there. A sense of loyalty there made it very difficult.”
McNerney said he had “a late change of heart” at the time of the Paris Air Show two weeks ago. Then-Chairman Lewis Platt, in Paris, negotiated the job offer with him in a couple of phone calls.
Platt, who ran the CEO search and now becomes lead director on the board, said the directors were “thrilled” and that McNerney “quickly became a unanimous choice.” The details of his compensation package were finalized after the show.
McNerney said he is excited now at the challenge ahead. “I certainly view this as my last job,” he said.
Looking back at Boeing’s recent problems, McNerney acknowledged the difficulties it had absorbing a string of large acquisitions: the aerospace units of Rockwell Collins in 1996; McDonnell Douglas in 1997; and the satellite division of Hughes Electronics in 2000.
“To be honest, we’re still in a post-digestion era,” he said, though he called the deals “strategically sound” acquisitions that are “paying off for us now.”
As for the scandals that have blackened the company’s reputation with the federal government — the botched Air Force tanker deal; the stealing of Lockheed documents to win a rocket contract — he said the company is positioned to move past them.
“We still have a bit of a hole to climb out of,” he said. “You have to live your reputation every day. You can’t look back.
“I’m feeling very good about the progress we’ve made,” he added.
McNerney gave a confident assessment of the rivalry with Airbus.
“Rarely has the strategy of the two companies been more differentiated than they are today,” he said, referring to Airbus’ emphasis on larger planes and Boeing’s focus on smaller ones.
“We’ll get a look over the next few years as to which strategy is the right one,” he added. “I personally think the Boeing strategy is the right one and that could result in an increasing number of orders. I think we are going to sell a lot more airplanes than we have the last couple of years.”
Yet for many here in the Northwest, especially employees, the measure of the new man will be in his treatment of employees.
In four years at 3M, McNerney turned the company’s financial and operational performance around, but at a cost of more than 10,000 jobs.
In Puget Sound, some Boeing workers took a less-gushing view yesterday of the new boss than the financial analysts.
A few Boeing engineers passed around sour comments about McNerney’s performance that were posted yesterday on an Internet bulletin board by disaffected 3M employees, upset at both the downsizing and a culture of relentless performance reviews that McNerney introduced.
“You will be cost-controlled to death,” one posting warned Boeing workers.
While further downsizing in Puget Sound is unlikely anytime soon — as the cycle swings up, Boeing is in hiring mode — McNerney’s by-the-financial-numbers management focus could make the labor talks here this year contentious.
Contract negotiations with the International Association of Machinists are already under way and those with the Society of Professional Engineering Employees in Aerospace (SPEEA) will start this fall.
Yesterday, McNerney spoke of the need to balance the demands of Boeing workers against “an outcome that’s right for our customers and our industry” — that is, keeping the company’s costs competitive.
Yesterday Charles Bofferding, SPEEA executive director, offered McNerney a cautious welcome.
Speaking from Wichita, Kan., where he is still embroiled in bitter negotiations after the sale of the Boeing plant there, Bofferding said he would withhold judgment until he knows more of McNerney’s intentions.
“We’re engineers. Show me the data,” said Bofferding. “We’re going to have to wait and see. He seems to have management skills.”
Mark Blondin, president of the local IAM, reached in Washington, D.C., declined comment.
Wall Street was not so circumspect.
Byron Callan of Merrill Lynch has rated Boeing stock as “neutral” for the past year. In a note to clients yesterday, he upgraded to “buy” and said McNerney’s appointment could lead to higher earnings. Such advice sent the stock shooting up almost 7 percent to close at $66.
Yet Callan agreed that the labor talks will be McNerney’s first big test.
“The general reputation of people who come out of GE is that they do tend to run businesses by the numbers,” Callan said. “But you can’t always do that. This business is made up of the intellectual capital and skills that are in the company. It’s something to keep an eye on.”
Still, Callan has sufficient confidence in McNerney to issue that “buy” rating.
“This is the easy part. The stock’s up. Everybody’s happy,” he said. “The real proof will be two or three years from now.”
McNerney will have no shortage of challenges, Callan suggested. “Let’s see how well the 787 goes. What really is going to happen with civil airplane demand? How do they correct these issue that have bedeviled them on their large defense programs? It’s not a cakewalk, but I feel pretty good about the person brought into this.”
“In Boeing’s context he’s still a relatively young guy,” Callan said. “He will leave his mark. Assuming he’s there through his mid-60s, he should have a major role in shaping or reshaping Boeing.”
Dominic Gates: 206-464-2963 or email@example.com