Case 1-9 Case 1: FAILURE BY DESIGN: BOEING AND THE 737 MAX TEACHING NOTE
This case illustrates the following themes and concepts discussed in the chapters listed: Theme/Concept
Chapter
Conflict of Interest
5
Organizational Ethics
6
Business Government Relations; Government Regulation
7
Product Safety
14
Case Synopsis On Monday, October 29, 2018, Lion Air Flight 610 crashed into the Java Sea in Indonesia shortly after takeoff, killing all 189 people on board. The aircraft was a nearly new Boeing 737 MAX, delivered to Lion Air, a low-cost regional carrier and one of Boeing’s major customers, just four months earlier. The MAX was Boeing’s newest aircraft and the centerpiece of the company’s strategy for the short to mid-range commercial market. CEO Dennis Muilenburg faced an urgent an urgent task: to determine what had gone wrong and why with Boeing’s newest and so-far successful new model. The case presents the history of Boeing and its external competitive environment; the evolution of its strategy, governance, and ethics practices; and its relationship with U.S. regulators during the design and certification of the 737 MAX. What organizational and environmental factors had contributed to Boeing’s development of an apparently unsafe aircraft? What could Boeing, government regulators, and its airline customers
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and other stakeholders do to prevent unsafe aircraft from being manufactured and sold in the future?
TEACHING TIP: WHERE TO USE THE CASE IN THE COURSE This case is integrative, in that it draws on many themes in the text. Instructors may use it at the end of the course as a final, integrative assignment, or with the study of Chapters 5 and 6 (Ethical Reasoning and Organizational Ethics) or Chapter 7 (Business Government Relations).
TEACHING TIP: VIDEO Instructors may wish to introduce the class discussion with a short video of the Lion Air flight. The first 4 minutes of this 9-minute segment depicts the fatal flight of Lion Air 610, in which a journalist rides in a simulator with an experienced 737 pilot who recreates the flight from the perspective of the cockpit. (The remainder of the clip depicts the Ethiopian Airlines crash and is not relevant to the case.) Viewers may find the video clip disturbing, even terrifying. www.youtube.com/watch?v=OxPsxmU_ocI
TEACHING TIP: STARTING A CASE DISCUSSION One was to start a class discussion of this case is to ask students to huddle in groups of 2 to 4. Give them 5 minutes to write one or two sentences beginning with: ―One reason that Boeing produced an unsafe aircraft was…‖ They should then have a representative write their sentence(s) on the board or share on a common electronic platform. The instructor may then categorize the answers and use them as a jumping off point for taking up various issues raised by the discussion questions. Sample answers: One reason that Boeing produced an unsafe aircraft was… The culture of Boeing had shifted from a focus on engineering excellence to a focus on shareholder returns. The company’s capabilities for aircraft design had deteriorated. The FAA delegated most of the work of certifying the 737 MAX to Boeing itself, so the regulators were unable to exercise effective oversight. Boeing was under tremendous pressure because of competition from Airbus, so they decided to update the 737 rather than design an all-new plane. This created an unsolvable engineering problem, because the bigger more fuel-efficient engines they wanted to use did not fit under the wings of 737.
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Boeing’s top executives and directors emphasized shareholder returns over engineering excellence. Cost and efficiency were more important to them than the quality of the aircraft. Boeing had spent so much money on stock buybacks and shareholder dividends that they did not have enough left over to invest properly in R&D and aircraft engineering. Boeing had a code of ethics but did not seem to enforce it. It ignored worrisome survey results and did not listen to series warnings from senior managers. Manufacturing of the MAX was rushed, possibly leading to defects in aircraft delivered to customers. The FAA basically allowed Boeing to certify the safety of its own plane. Boeing’s strategy was to acquire other manufacturers (e.g., McDonnell Douglas) and keep updating their old models, rather than to design new aircraft. Over the years, they lost much of their engineering know-how. Instructor Tip: ―C‖ students may answer this question by describing characteristics of the unsafe plane or its design flaws. For example, ―One reason Boeing produced an unsafe aircraft was relying on just one sensor.‖ ―A‖ students will understand the distinction between the problem itself (an unsafe design) and the cause of the problem (e.g., organizational culture, regulatory failures, external competition). The instructor may need to point out that the question asks for the reason Boeing produced an unsafe plane, not the reason the plane was unsafe. (Question 1, below, addresses the reason(s) the plane was unsafe.)
Discussion Questions and Answers
1.
What were the immediate technical causes of the crash of Lion Air Flight 610?
Based on information in the case, students will conclude: A faulty angle of attack sensor fed erroneous data into the plane’s computers, triggering the maneuvering characteristics augmentation system, or MCAS. The plane’s computer relied on only one sensor at a time (a single point of failure), and the aircraft did not have an active cockpit alert for disagreement between the two sensors. Once MCAS was activated, it repeatedly forced the nose of the plane down, destabilizing the aircraft. The Lion Air pilots had not been trained on a simulator, were unaware of MCAS and its capabilities, and their flight manual did not include relevant information. Eventually, the pilots lost control of the aircraft and it crashed nose down into the sea, killing all on board. 2. Describe the culture of the Boeing organization. How did the company’s culture affect the development and production of the 737 MAX?
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The textbook defines corporate culture as ―a blend of ideas, customs, traditional practices, company rules, and shared meanings that help define normal behavior for everyone who works at a company‖ (Chapter 6). The textbook points out that weak ethical cultures can foster unethical behavior. To help students unpack this question, the instructor may wish to elaborate by pointing out that corporate or organizational culture is often understood as having three layers: basic assumptions, values and norms, and artifacts (Schein, 2004; Chatman, 2014). Basic assumptions are deeply held values about the organization’s purpose and reason for existence. Norms are unwritten expectations for appropriate behavior that reflect these values. Artifacts are visible organizational practices that communicate values, such as rituals, stories, and language. One way to organize this discussion is to prompt students to fill in a board grid, showing how these three layers of Boeing’s culture changed following the company’s acquisition of McDonnell Douglas (1997). Boeing’s Organizational Culture Before and After the Acquisition of McDonnell Douglas Level Basic Assumptions
Past Boeing is a trendsetter in aircraft technology. The purpose of the company is to design better planes that fly higher, faster, farther.
Values and Norms
Core values are quality, innovation, and safety. Engineering excellence is valued. Investment in research and development is prioritized. Stories about William Boeing’s attention to quality, innovation, and safety were part of the company folklore. The company was described as an ―association of engineers.‖
Artifacts
Present Boeing is an aircraft manufacturer. The company’s purpose is to create the best value for its customers and the highest possible returns for its investors. Shareholder value is prioritized. Core values are efficiency, profitability, and low cost. Shareholder value is prioritized. Common slogans were ―We’re in business‖ and ―We’re managing for value.‖
Summary: Over time, Boeing culture had shifted from a focus on quality, innovation, and safety to a focus on efficiency, profitability, and shareholder value. This affected the development of the 737 MAX, as it led to decisions to re-tool an old model (the 737) rather develop than a new, clean-sheet model, to keep costs down and speed up delivery to key customers. (The decisions made by Boeing during the development of the MAX are further explored in the response to Question 4, below.) 3. Describe the ethics policies and practices of Boeing. What ethical safeguards were in place to promote safety? Evaluate the effectiveness of these safeguards during the development and production of the 737 MAX.
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Chapter 6 describes how companies can institutionalize ethics by building ethical safeguards into their everyday routines. The case shows that Boeing had in place the key elements of a robust ethics and compliance program, including:
A code of conduct and values statement. A senior executive with responsibility for ethics and compliance (Diana Sands). A requirement that employees annually sign the code of conduct. Periodic training. Regular surveys of employees. An ethics reporting system and periodic review of complaints filed in this system.
However, in practice the system failed, in that it did not prevent the design and production of unsafe aircraft. Why did it fail? Students might make several arguments:
The complaints process failed in practice, as exemplified by the experiences of Edward Pierson and others. Senior managers failed to respond proactively to serious concerns Pierson and others raised about safety and quality. The ethics and compliance function was headed by an accountant. Presumably she was mainly concerned with financial returns and investor relations; she may not have had sufficient expertise in ethics. Complaints made through the reporting system were not disclosed, e.g., by being turned over to the FAA or other external pary for review. The pressures for robust shareholder returns and accelerated speed to market simply overwhelmed the ethics procedures, including responses to surveys and whistleblower complaints.
Summary: Strong ethics and compliance programs and policies by themselves were insufficient to prevent the production of an unsafe aircraft. They were staffed by individuals without appropriate expertise, were not vigorously enforced, and complaints were not promptly addressed. 4. Evaluate the external competitive environment of Boeing. How did external competition contribute to the development of an unsafe aircraft? In the early 2010s, Boeing faced intense competition from the European consortium, Airbus, with which it competed in all segments of the commercial aircraft market. In 2010, Airbus announced its intention to develop the A320neo, a more fuel-efficient aircraft in the in the highly competitive market for short-to-medium range, narrow-body twinjets, long dominated by Boeing’s 737. The case shows that Boeing’s 2011 decision to upgrade the 737, rather than develop a clean-sheet aircraft, was a response to an immediate threat that a major customer, American Airlines, would defect to the Airbus 320neo. The intense competition with Airbus may have influenced Boeing to make several decisions that, in retrospect, appeared misguided. Mounting a larger engine on a low-slung aircraft. 5 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.