The CEO's Balancing Act

As Boeing’s high-profile crisis continues, I’ve been reading Peter Robison’s book on the company, Flying Blind.

One passage struck me as resonant of an issue I see CEOs struggle with almost universally. Discussing Boeing’s priorities in the 2000s, Robison writes:

Boeing’s incentive structure practically guaranteed [creating risk]. The compensation of McNerney, Luttig, and other top executives was tied to boosting free cash flow and the net return from assets on hand—the sort of metrics that tend to favor investors over employees and customers.

Robison points out that back in the 1990s, executive performance had been tied to more balanced measurements. These included earnings from operations as well as customer and employee satisfaction metrics. But by 2007, executives were encouraged to focus primarily on one metric: “optimizing net assets.” The company specified how this could be done: “through more efficient process, cost containment and minimized inventory.”

Boeing of course continued …