Ironically, I think the poster child for how to properly structure compensation away from this is Hank Greenberg's AIG, where not only was his compensation basically all deferred stock options, they were deferred until retirement, so about as long-term a view as you can get. He was very risk-averse, and his biggest flaw wasn't under his operational ownership but under successor and personnel selection (looking at you, Welch).
But at some level, it was just bad people making bad calls. I don't think McNerney thought that this would wreck Boeing, he was just wrong. Even if he was left predictably destitute at the end of such a failure, he probably wouldn't have changed his choices because he thought they were good. You could claim that this is a failure of boards and governance (and, truly, I think boards are by and large really bad and I wish there was a much more pervasive activist investor culture) but at some level I'm not sure how much of this is solvable.
I don't know. There's probably a way to do boards well enough that this isn't a problem.
People keep repeating this without context. The auto companies are strategically significant. That didn't prevent them from going bankrupt [1][2]. Wiping shareholders doesn't mean blowing up the factories.
I'm increasingly convinced Boeing needs to go bankrupt. It can then shed unprofitable units--through spin-offs, sales or liquidations--and restructure its obligations. I'm not convinced the union comes out of that better off than it is now. But America sure does.
[1] https://en.wikipedia.org/wiki/Chrysler_Chapter_11_reorganiza...
[2] https://en.wikipedia.org/wiki/General_Motors_Chapter_11_reor...
Not really, they're more politically significant than economically critical. I've certainly never owned an american car and never plan to. We'll be fine continuing to rely on foreign companies to produce our vehicles. Foreigners certainly don't want our cars (outside of maybe tesla in the nordics, i guess?). None of this is true for the plane market, or at least not until boeing acquired its current popular reputation of not being very good at making planes (deserved or not)
The fact we bailed out the companies but refused to take ownership should be considered treason. Same for the banks, the car companies, the airline industry we bailed out for more than its entire value, etc etc. completely corrupt and incompetent governance
IBM made machine guns on typewriter lines in WW2.
This is not 1940, and the US simply doesn't have the strategic industrial base it used to.
Off-shoring made some people a lot of money and lowered consumer costs (while simultaneously cutting consumer pay.)
But it was economically and strategically unwise. The US is set up to run small-scale wars against technologically inferior opponents. It has no ability to sustain a prolonged multi-year slug-fest against an opponent with a superior manufacturing base.
Now granted I might be unfair to the US here; the Middle East is known as the graveyard of empires for a reason.
2) I’m not sure the military was doing just fine in all of those. Vietnam comes to mind, but also Afghanistan—reading the Afghanistan papers, the brass seems to have given up on any kind of actual goals or accountability in favor of a system that let them continually cycle officers through and let them claim they succeeded at their mission (funny, they all keep achieving their mission, but facts on the ground remain exactly the same or worse!), for years and years. Fighting fitness may have been OK throughout, but military leadership in the military itself was absolutely not committed to any kind of winnable mission, let alone to actually winning it. That may have been driven (I’m sure it was) largely by civilian leadership, but the entire upper echelon of military leadership betrayed their commands and the soldiers counting on them, to keep up a convenient (to their careers, and a bunch of junior and mid-tier officers who got a big boost to their careers…) political fiction at the cost of any hope of something resembling actual success, and all it took was shitting all over their soldiers and the trust of the American people.
I bet Iraq (part 2) was similar. I have some grave concerns about the state of our more-politicized-and-static professional officer corps since roughly Vietnam.
Disagree on point #1. We occupied Afghanistan for 20 years. We operated with nearly absolute impunity in all population centers, through all trade routes, and all agricultural areas. Our casualties were a minuscule amount our total forces. Our culture completely transformed theirs (in a way that old school hardliners lament publicly). We killed a huge number of Taliban (and foreign fighters).
Clausewitz says that "the political object is the goal, war is the means of reaching it." Can you tell articulate what the political goal of the war was?
Thinking back to 2001 (I was in middle school), the goal was retribution. I believe the military achieved that in spades. Yes, in the end Afghanistan did not turn into a US vassal state or a US colony. But was that the goal?
The goal was to eradicate the Taliban, remove terroristic sentiments, rebuild Afghanistan, bring the country to 21st century democratic standards, and prevent future 9/11s.
Did we achieve it? Hell no.
Verdict: We lost. Over 20 years of bloodshed and misery on both sides for fucking nothing. We failed on every single fucking count. Every. Single. Count.
You haven't shown a military failure.
I also disagree with that list of objectives and their current status. Let's go through 1 by 1:
+Eradicate Taliban. Complete. This is a new gen of fighters and the movement shares very little outside the name. Nearly all the Taliban from 2001 are dead of violent causes.
+Remove terroristic sentiments. Not a goal, but also has Afghanistan committed many terror acts in the last 15 years? Current status is trending green.
+Rebuild Afghanistan. Not an original goal (ie in Oct-2001). Also not a DoD goal, this was a State Dept goal after the military victory was secured. Also I'd argue that Afghanistan today has better infra than it did in Aug-2001, so this is complete.
+Democratic standards. Not an original goal. Also not a DoD goal, this was a State Dept goal after the military victory was secured. Not met.
+Prevent future 9/11s. Current status is trending green.
So we met all but 1 goal. That's not bad as wars go.
While I started off with the former, overall it is both.
>You haven't shown a military failure.
It has been demonstrated by Afghanistan, Iraq, Vietnam and others that the best way to defeat America is to engage in low tech guerilla warfare. We have lost every single one of them.
Even more embarrasing is that the Houthi are demonstrating that the age old adage of "Don't touch America's ships!" also isn't true anymore. Our Navy hasn't adequately responded to some deranged goat herders lobbing missiles into one of the world's biggest sea lanes.
>Eradicate Taliban. Complete.
Are you drunk? The Taliban is literally back in power ruling over Afghanistan with an iron fist.
>Remove terroristic sentiments. Not a goal,
Lest we forget, we waged "The War On Terror".
>Rebuild Afghanistan. Not an original goal
You can not remove hate until the people thereof can live comfortable lives, which is still not the case.
>Democratic standards. Not an original goal.
See above.
>Prevent future 9/11s. Current status is trending green.
I've lost count on the acts of terror we've seen across the west, America and otherwise.
Democracy (and "comfortable lives") was not a military objective. The military provided security for the State Dept and NGOs to pursue those goals.
Since 9/11, Afghanistan has not prosecuted any terrorist acts on the West in my recent memory.
The Taliban of 2001 was largely killed off. Yes, there are people in charge of Afghanistan today who call themselves Taliban, have some limited pre-9/11 leadership, but are largely a completely different set of people than existed back then and this occurred because of military action, not old age.
> The United States has given Israel extensive military aid and vetoed multiple UN Security Council ceasefire resolutions.
> United States provided advice and intelligence to Israeli forces during the raid, through its "hostage cell" stationed in Israel. The attack resulted in the deaths of 274 Palestinians.
How would that work in your mind? Call that one for Harris because Biden is mentally unfit?
Neither Trump nor Biden started a war. They had wars happening around them that we were to various degrees involved.
By my quick count, Obama (awarded the Nobel Peace Prize) started seven wars, Trump started zero wars, and Biden so far started one war. All three Presidents were involved in a war started by a predecessor.
So, yeah. Trump started no wars, and he is the most rejected POTUS by the Powers That Be(tm) for that and other reasons.
>“We’re sort of on the verge of the Houthis being able to mount the kinds of attacks that the U.S. can’t stop every time, and then we will start to see substantial damage. … If you let it fester, the Houthis are going to get to be a much more capable, competent, experienced force.”
https://www.navytimes.com/news/your-navy/2024/06/16/navy-fac...
Worth noting, this is an entire USN carrier strike group. This is simply embarassing.
Vietnam: limiting Cambodia ops, the DMZ, limiting bombing of N Vietnam
Afghanistan: limiting Pakistan ops, focusing on creating a stable democracy rather than killing Taliban then leaving
Also the military.
A war effort involves the entire country: The entire economy beyond just the military industrial complex, all branches of politics, and the military including both officers and rank-and-file soldiers.
this is just wrong.
The US didn't really have that industrial base in 1940 either. We developed it fast over a couple years of war.
To the extent the US had an industrial base, we still do. US manufactures more than we did in 1940 - we just do it with far fewer people in factories via automation.
In fact, we dump our cheap overproduced food on third world countries and collapse their ag. sector. If we stopped producing and switched to importing we would boost their economies.
Since food can be grown in almost any country on earth, we would have a diverse supply chain. I'm sure nothing would go wrong with this plan./s
Years of startup problems but when it finally started humming they were building a B-24 every 63 minutes! In the meantime existing factories were winning the war.
As Americans we tend to glorify the industrial feats of WWII but the US government used a very heavy hand to pull that off. Public-private partnership is the preferred euphemism today but essentially we were a socialist economy.
Today the US military budget is 3.4% of GDP. Can you imagine it being ten times as much?
There's a limit to how long USA can print petrodollars to make up for the trade deficit. And the limit doesn't seem that far off.
The Nordics are not all the same, Norway is far ahead (20% of private cars already full EVs) of the rest with Denmark a distant second when it comes to electrification of transport.
But also the Tesla Model Y was the best selling car in the WORLD in the last twelve months, not just Norway. Of course quite a few of those were built outside the US so perhaps they don't count as US cars.
Actually, in the private marked it was 96.7% !
Links to info (in Norwegian)
- https://elbil.no/vi-kan-klare-hundre-prosent/
- https://ofv.no/aktuelt/2024/nybilsalget-i-august-h%C3%B8yest...
I know, I live there. Been driving electric since 2017.
> Foreigners certainly don't want our cars
Then why are they always bitching about their neighbors who buy large American vehicles that are too wide for their streets?
It’s clear that Boeing was able to squeeze costs centers at the expense of quality and business investment all while keeping the coin under shell in the form of regular old stock buybacks.
But if/when Boeing goes under who is going to vet all this NDI sitting in their portfolios? They’re just gonna spin it off to another buyer—consisting of who exactly? McDonnel Douglas? Elon Musk? Tencent?
Seems like a nightmare for someone, not sure for whom.
Idk, pick one that's American or closely allied [1]. Ideally not one of the three larger than Boeing.
Worst case: audit and re-assign the contracts. We'll be better for it in the long run. And I'm not convinced it wouldn't result in quicker, higher-quality deliverables in the short.
[1] https://en.wikipedia.org/wiki/List_of_defense_contractors
Its military stuff.
I agree and hope they do go bankrupt, but I hope so because the country needs a fucking wake up call: American Exceptionalism(tm) is simply no longer true.
I sincerely think we need to see one (Boeing), maybe even a few (Intel? US Steel?) paragons of American Excellence(tm) go down in smoking ruins so we have to accept that we are not 1970s America taking mankind to the Moon and beyond anymore.
Once we realize that, we can actually get started on Making America Great Again in a real, meaningful way instead of a dumb political catchphrase.
I see no reason to believe this will happen rather than a continued slow decline and eventual collapse.
So, technically, you are correct. The business entities of June 2009 failed. However, the consumer DGAF who owns www.gm.com or www.chrysler.com. They can still go to their local dealer and purchase a vehicle "made by" these companies. The "companies" live on.
So... remove the need to actually produce planes, or anything at all for that matter, subsidize their continued failures?
Well, he was stupid not to - there's no way he didn't know thay focusing on the short term stock price won't have negative effects on the quality and future of an engineering organisation whose main business, building and selling airplanes, is extremely capital intensive. He came from McDonnell Douglas who nearly bankrupted themselves doing the same sort of crap (pushing suppliers to the edge, cost cutting at every opportunity).
Cite? Wiki[1] appears to suggest otherwise.
[1] https://en.wikipedia.org/wiki/James_McNerney#Career_path
That being said, McDonnell Douglas' history was visible to everyone - what they were doing hadn't been working for decades (first as Douglas, then as McDonnell Douglas).
It did the opposite.
Humans respond - on some level - to incentives.
Tying compensation to short-term performance creates perverse incentives which make it much harder to accept the idea that your plans might be ruining the company.
Of course this “short term thinking” trope is just a meme that the armchair commentators like to pedal out. If the system was dysfunctional enough to prioritise short term profit seeking to this extent, then all a competitor would have to do to monopolise any market is do enough “long term thinking” to outlast all their failing competitors. Investors would notice this and reallocate their capital accordingly.
But none of this is what happens in reality. If anything I would say the market is over-interested in long term strategies. The popularity of the growth over profit model that we observe amongst most prolific capital allocators takes “long term thinking” to absurd lengths.
This makes it sound like my broker, the finance community in general, or maybe the state is better able to handle long term thinking than our industry leaders, but why would anyone believe that? Aren’t they all looking quarter to quarter and retiring next year no matter how bad they wreck the company/economy/country?
Sure in 30 years they may be eventually pushed out but they can coast 2 generations of successful careers till then.
isn't this exactly what's going on with Boeing?
> Airbus last year topped Boeing for the fifth straight year in the orders race, with 2,094 net orders and 735 delivered planes. Boeing had 1,314 net orders and delivered 528 aircraft.[0]
I 100% agree the majority of investors don't seem to take the long view, and that's been the case for a while.
[0] https://apnews.com/article/boeing-airbus-airline-safety-manu...
Half of them would look like job hoppers with such short tenures on their resume. Some of them have simultaneous executive positions at other companies.
If you want some evidence of short-term thinking not being a meme, it's probably that.
The Board of Directors at most major corporations is made up largely of current or former executives, many of whom come from the same industry. It's in their personal interest to normalize lucrative and exploitable compensation plans.
You would also be shocked to know what people control the lion's share of investment dollars.
This reasoning was always flawed. The Stock Market is not real life. It consists of the opinions of a bunch of guys who sit in towers in New York, London, Shanghai, etc... In theory there are fundamentals that should drive the price, but in practice the market is not rational. It's not a good metric for the long term health of a company. Even worse, Goodhart's law applies in spades:
"When a measure becomes a target, it ceases to be a good measure."
Time and time again we see CEOs playing games with the stock price in order to get a big payday. We see management sacrificing long term stability in order to maximize their year end bonus.
Imagine if every time you remember a now dead company do a stock buyback they instead invested that money into R&D, or simply lowered their prices to be more competitive in the market? Maybe they paid their employees better and didn't have constant turnover problems and had higher quality output. How many of those now failed companies would still be around today?
Absolutely stunning - those guys will walk away from this mess with more money than God and American aviation will take a backwards step that may take decades to fix if at all... fuming here.
Oh, and make executive and BoDs personally and criminally liable for safety fiascos like the 737MAX. I bet you'll see culture change in a hurry under those circumstances
https://en.wikipedia.org/wiki/Income_tax_in_the_United_State...
https://www.newyorker.com/magazine/2020/03/09/thomas-piketty...
> In 2019, following the discovery of exterior damage on planes manufactured in Charleston [the non-unionized factory], for a time Qatar Airways would only accept delivery of Dreamliners assembled in Everett [the unionized factory]. (from https://en.wikipedia.org/wiki/Boeing_South_Carolina#Quality-...)
But then they moved all 787 production to North Charleston, so problem solved.
That better be some top shelf sarcasm.
It’s shameful what’s happened to Boeing. I worked there during the fall. After the bribery scandal, but before MD broke it. It was still okay-ish until they butchered their R&D dept. That’s not a healthy company.
Boeing share price was up almost 400% in that period. If the business goal was to maximise share price and therefore return for investors over that period it was a cracking success.
Since the US government will always pick up the pieces in the event of a failure its a minimal risk stratagy.
This is not true, but seems to come up a lot. I guess it makes for one of those fun "internet facts" that people like to repeat without any investigation. Bonus points for blaming Reagan.
Stock buybacks were not illegal before 1982. If you sit down even think through it, it doesn't even make sense they were illegal. Just like issuing new shares (or doing a stock split), companies have legitimate business needs to buy back stock (reduce the quantity of outstanding shares).
What happened in 1982 was that the government made Rule 10b-18, which outlined the "safe harbor" requirements for stock buybacks, where if followed, the company could not be found liable for stock manipulation.
https://www.skadden.com/-/media/files/publications/2020/03/t...
So stock buy backs were legal before 1982, but companies faced a risk of stock manipulation if they were reckless in how they did it.
Sounds like a much better state of affairs.
I think that's a good thing. I'd rather have it be clear to all parties what is acceptable and what isn't, rather that a murky legal framework where you never know if you're breaking the law.
Stock buybacks were legal and happened before 1982.
The “thanks Reagan indeed” is just your own internal biases. The President didn’t draft the law and the Democratic Congress passed it.
So quite odd to blame a single person.
It should be a warning against believing things on the internet because they conform to your biases. Check your sources.
And you keep acting like the 1982 law had no effect when it made the largely marginalized practice of stock buybacks mainstream. Maybe you should check your biases.
https://corpgov.law.harvard.edu/2020/10/23/the-dangers-of-bu...
https://crsreports.congress.gov/product/pdf/LSB/LSB10266
https://www.vox.com/2018/8/2/17639762/stock-buybacks-tax-cut...
https://www.sciencedirect.com/science/article/abs/pii/S01651...
And yes, people track that, and yes taking loans to pay dividends is a favorite trick of dying companies.
Ordinary people have to sell assets to take advantage of appreciation. So unless they can time sales to optimize taxes - really only an option for retirees - they might as well get regular dividends.
Not entirely true.. Ordinary people can take advantage of appreciation of their home value via a standard home equity loan.
Also rich people get way, way lower interest rates borrowing against their assets than us poors do on HELOCs.
For most ordinary Americans, the largest asset they will ever own is their house. Owning that asset is the essence of the old American Dream. So it seems like your original comment was primarily about housing assets.
Anyone can get a home equity loan to access the appreciation the house might have. They dont pay taxes on the loan, and many people use the money on improvements that further increase at value of the asset. That combined with further asset appreciation and the loan pays for itself when the house is later sold.
Ordinary people can and do do this. The rich just do it at a much larger scale.
Finally primary homes don't have any capital gains tax on sale (or at least not up to a pretty high limit). So this whole discussion is irrelevant. Ordinary people can always sell their "biggest asset" without paying much in tax.
Eliminating the double taxation of dividends would likely solve most of the buyback problems.
A stock buyback of 1000 shares means that your one share now represents 1/999,000th of the company, not 1/1,000,000th. Thus the share is worth more. It isn't income until you sell the share and pay taxes on the gains. This flexibility is useful and can result in tax savings depending on the situation.
Stock buybacks are cashing in your chips, a one-off payment.
I am also not sure why the stock buybacks are worth mentioning. There are many reasons why a buyback may be the right thing for a company to do. I am aware that sometimes it can be a manipulation of executive compensation by artificially raising the stock price (and may have been so here). And obviously I don’t support that. But I feel like the practice of buying back is attacked by many without adequate understanding of what it is for and how it can be financially good for the company, helping support future investments.
> I am also not sure why the stock buybacks are worth mentioning
Because Boeing is a very capital intensive business that is currently in mountains of expensive debt, with multiple projects delayed with years, and a recovery time of 5 years minimum. The idiots in charge wasted billions on the wrong things, and now the company is a very bad situation.
Aren't those identical? If you do a bad job, we could have got the same bad job from someone else, who we could have paid less...
From the perspective of other board members, upper management and the shareholders at the time.
The saying of "oh if you don't give big bucks then you won't hire good talents" is only true to certain extends. Einstein doesn't figure out GR because he wants the cash from Nobel's prize, actually none of the winners probably achieve because of the money. Scientists won't stop inventing because they don't get the big bucks (most don't get big bucks anyway). Carmack would still pump out great code if he stays indie. As long as properly paid, pretty much every real talent would be happy and do whatever they love to do.
Giving disproportional pay to executives ONLY attract bad players and TBH some 500 are probably better NOT have an executive. It also creates sort of toxic culture everywhere that people are forced to chase big bucks because average pay is screwed.
If they aren't sufficiently excited by the mere idea of being in charge of the company's products, services, and future direction, doing a good job for customers, shareholders, and employees, then they should look for a different job.
I am very sympathetic to this line of criticism but I also find that "stock buybacks" are misunderstood and, as a result, overly demonized. So I just want to explain a few things for anyone who reads this.
The question with a corporation is what to do with surplus profits. The first iteration of this was to pay dividends. These legally are paid equally among shareholders. If you distribute $1B in profits and have 100M shares issued then each share gets a $10 dividend. Simple. Additionally, dividends had to be profits so corporate taxes were paid on those.
So there are two problems here:
1. Not every shareholder may want a dividend; and
2. The US tax treatment of dividends is bad, specifically double-taxing. as an example, the company may pay 15% corporate tax, pay a dividend with the remaining 85% and then the individual may 50% federal and state taxes on that, leading marginal tax rates of upwards of 60%, possibly higher.
(2) has led to some screwy legislation (eg passthrough corporation discounts) so solve what is otherwise a simple problem. Australia has completely solved this problem with so-called "franking credits". This means that $1B of profit is made, 30% taxes are paid and $700M is distributed but it comes with $300M in tax credits. So if you get a $700 dividend, you also get $300 credit with the ATO. If your marginal tax rate is higher than 30% is higher, you may have to pay a little more. If it's lower, you'll get a refund.
Now you generally can't borrow to pay dividends until you historically pay dividends. There are a lot of rules around this.
Enter share buybacks. This is where the company buys back its own stock on the open market. This reduces supply and hopefully raises the price for remaining shareholders.
Some will argue this is market manipulation but it really isn't. It's just a different way of distributin gmoney to shareholders. Unlike dividends, you can choose to take it or not by selling or not.
A share buyback has none of the dividend tax problems but it's even better. If you've held for 12+ months you're paying the long-term capital gains tax rate, which can be substantially lower than the marginal income tax rate.
But here's the big problem: it's completely fine to borrow money for a share buyback. This loophole needs to be closed.
Prior to the IRA and Trump tax cuts, it would work like this: you would leave profits overseas so you wouldn't have to pay corporate tax on them. You'd then borrow money used those overseas profits as collateral and do a share buyback. This should've been illegal. Or, in the very least, any borrowing against foreign profits should be treated by the IRS as repatriation of profits and thus tax is owed.
The Trump tax cuts changed how foreign profits are treated. The IRA further changed this with the 15% minimum tax, which was a very good change and one that didn't get a lot of attention.
Should a company pay out shareholders or pay its workers more? I absolutely favor the latter. But we shouldn't focus solely on share buybacks because that's a small part of the problem. I'd say what we need is:
1. A higher corporate tax rate;
2. An end to passthrough corporations;
3. End the double-taxing of dividends. Just do what Australia does;
4. All share buybacks have to come from profits only; and
5. An aggressive attack on profit-shifting / transfer pricing to offshore profits.
Which if stocks come with voting rights means shedding influence of shareholders. You can't say that a buyback is equivalently classed to a dividend (by being a transfer of money to exiting shareholders), if you don't account for the second and higher order effects.
I'm not defending share buybacks, for the record. They're only one piece of the puzzle however. The real issue is what companies should do with profits and that includes share buybacks and dividends. You can't really be against share buybacks without being against dividends. And tit's fine to be against both. Being against one but not the other is kinda silly though.
Stock buybacks should be illegal or at least very difficult to do. They provide short-term gain to shareholders (and the executives who authorize them to prop up the stock price on which their bonuses depend) but can be extremely damaging to the company long-term (by which time the CEO is out anyway, and shareholders may have reaped their profits and moved on), with workers, and the local economy, left paying the price. The worst kind of capitalist poison.
> To support its share price, the company under McNerney poured billions into stock buybacks instead of investing profits into the kind of research and development needed to stay competitive. McNerney decided not to spend billions of dollars building a new plane to replace the 737. Instead, Boeing tweaked and updated the existing model and called it the 737 Max, outfitting it with larger, more efficient engines for increased economy. Compensating for the resulting instability was a secretive automated system called MCAS that would adjust the plane’s pitch without input from the pilot.
> McNerney also fought to deeply cut costs. On his watch, the company opened its first non-unionized aircraft production line and initiated a program called “Partnering for Success” that pushed suppliers to cut their prices by 15 percent or more. Many feared that squeezing suppliers would harm the quality of their components, but McNerney was determined to recoup the cost of the 787’s development; if the subcontractors complained, they could find their work taken away from them, as happened to landing-gear-maker United Technologies Aerospace Systems.
> McNerney retired in 2015, handpicking his successor, president and COO Dennis Muilenburg. Over the next three years, Boeing’s stock price more than doubled as it sold new planes the world over. (As Bloomberg News reported, Muilenberg and McNerney “had personal reasons to emphasize productivity and cost-cutting” because their compensation was tied to share performance. Together they took $209 million in total pay over seven years.)
https://nymag.com/intelligencer/article/boeing-planes-proble...