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Real leaders leave a legacy. They capture the hearts and minds of their teams. Their origin story puts the safety and well-being of their people first. Great companies ubiquitously have safe, yet productive operations. For those companies, safety is an investment, not a cost for the C-suite. It’s a real topic of daily focus. This is the Safety Guru with your host, Eric Michrowskiy, a globally recognized ops and safety guru, public speaker and author. Are you ready to leave a safety legacy? Your legacy success story begins now.

Hi, and welcome to the Safety Guru. Today, I’m very excited to have with me Dr Andrew Hopkins. He’s Professor Emeritus at the Australian National University in Canberra. He’s written multiple books. So, Andrew, welcome to the show. Very excited to have you with me.

Well, thank you, Eric. It’s actually a pleasure to be talking to this particular audience, people who are either in the C-suite or sensitive to what goes on in the C-suite. That’s very much my concern as well. I thought I’d just say something about how I came to write this most recent book; The book is called Boeing: The 737 Max Crisis and Aviation Safety: The Perils of Profit-driven Engineering. The Perils of Profit-driven Engineering. That last subtitle really sums up what the book is about. So, the question is, how did I come to write it? Well, I’m a sociologist, and sociologists are interested in many things. I’m particularly interested in the sociologist community of organizations and how they operate, how they fail, and why they fail, and what leads them to behave in negative kinds of ways, in indeed negligent kinds of ways. That’s one of the drivers behind this book, is that professional concern. But there is another one, of course, that motivates me in all of much of what I do, because reading these accounts of accidents, of major accidents, such as the, well, this one, the Boeing accidents, and for the BP’s Deepwater Horizon, oil well blowout in the Gulf of Mexico in 2010.

All these accidents are characterized by big companies who are behaving in truly negligent ways, and they are pursuing profit above all else, and certainly above safety. They’re very careless with respect to safety, especially major accident risks, which rarely result in a major accident. But when they do, it’s major. It really is often life-threatening. They often are very focused on lost time injuries or other injury rate data because it is good data, and they can look at that and seek to drive that down. But they don’t pay attention to the really the major risks because for most companies, they seem rather theoretical and far off and distant. But the net result is when these accidents happen, one is overwhelmed by, I should say, I am overwhelmed by a sense of outrage that they were indeed so careless. That outrage is one of the drivers. It’s not a useful emotion in terms of creating a sensible analysis, an analysis which highlights what needs to be done, but I have to acknowledge it’s one of the drivers there in the background. Okay, so these books then that I write are all aimed at identifying lessons, particularly lessons that boards can learn from these accidents and this one, this accident is particularly useful from that point of view because there’s a lot that I can say and will say about the failures of the board.

But let me start with the story. Sure. We have these two crashes of the new Boeing 737 MAX aircraft in 2018 and 2019. The first one, in 2018, the aircraft had just taken off from an airport in Jakarta, actually. It’s irrelevant where they were because the location plays no part in this. Just taken off from the airport, and it was climbing away from the airport when suddenly the nose of the aircraft dropped, suddenly dropped, and it headed for the ocean below, steep descent in towards the ocean. Of course, the pilots didn’t understand what was happening, and they were terrified, and they worked hard to pull back on the to pull the aircraft back on course, back onto its normal rate of ascent, and they managed to pull the nose back up. One can imagine the sense of relief they felt, but straight away, the nose dropped again suddenly. It’s as if the aircraft had a mind of its own. They must have been totally bewildered by what was happening. Again, they fought to bring the nose back up, but again and again, the nose dropped, and it was like a It must have been like they were on a bucking bronco trying to control this aircraft.

It seemed set on diving into the sea. Finally, the aircraft went, and it dived at a very steep angle into the sea, killing everybody on board. Now, the same thing happened then, just four months later, another one of these aircraft, 737 maxes, taking off from a different airport. It was climbing away from the airport, and the same thing happened. The nose dropped, and a struggle ensued between the pilots and the aircraft to try and keep the nose up, and the pilots ultimately failed, and the aircraft drove itself into the ground, killing everybody on board. Now, of course, when two aircraft do this in quick succession, it’s clear there’s something very seriously wrong, and the regulators around the world grounded the 737 have MAX until further notice, and they remained grounded for two years until that problem was sorted out. What was the problem? There was a design failure. The MAX was just the latest model of the 737, each new model involves new design features, basically the same aircraft as first took to the skies in 1967, I think it was. It was the original model was… The original design was very old. It was a very good design.

It had served the Boeing and the traveling public well. But each time there was one of these one of these design modifications, it introduced the possibility of failure. There was a particular failure which was introduced in this most recent model in 2017, around that time, as this new aircraft was about to go into production. A new hazard was introduced. I won’t try and talk in detail about that hazard, except that it was a tendency to stall in certain circumstances. It was intended to stall. Sure. Stalling involves when the nose of the aircraft rises too sharply and the aircraft is trying to climb too steeply, it loses lift, and the aircraft will stall and fall out of the sky. This was a hazard which was introduced in the most recent design modifications. The engineers then in the design process, in the testing process prior to production, came up with a solution to how to deal with this. They introduced a piece of software. It’s always whenever you introduce These modifications like this, when you’re adding on something to increase the safety, these add-ons often introduce additional hazards of their own, and that’s what happened on this occasion.

This additional piece of software, it was designed so that it would automatically force the nose of the aircraft down if it detected that the nose was too far up and that the aircraft was about to stall. This would be totally automatic and be beyond the control and indeed beyond the knowledge of the pilots. The pilots were not told that the aircraft would behave in this way at all. But that’s the new piece of software which was sitting there in the background ready to swing into action. How is this software to be triggered? What would trigger it? Well, there’s a tiny sensor on the side of the aircraft fuselage that sensors what the angle of the aircraft is and whether it is approaching any dangerous angle. If it detects that that is the case, then it will send a message to the software and the nose of the aircraft automatically drops. It’s a very vulnerable little thing, very easily damaged. This is what happened in these two cases. In the first case, the aircraft, as it was taking off, hit a bird, and this damaged the sensor, and the sensor began to send through haywire kinds of commands to the software.

In the second case, I think there was a maintenance error on the ground just before the aircraft took off. Again, the sensor started sending through wildly inaccurate information to the software. That’s really the technical detail of what happened. But the point to notice about this was this whole thing dependent It depended on a highly vulnerable piece of equipment. It depended on a single point operating as it should. There is a principle in aircraft design that you should never be vulnerable to a single point failure. Yet this design, this design which they had introduced, was vulnerable to that single point failure. The question then is, why did the engineers allow this to happen? We’re now going to get into what I want to do look at the history of the company a little bit and talk about some of the forces that were at work on that company that led to this apparent carelessness by the engineers in this situation. Boeing had been a very successful company, and still is, of course. But in the early days, it started in 1916. It was started by engineers. It was owned by engineers. Engineering excellence was the absolute touch shown of everything they did.

They would never sacrifice engineering excellence to any other motivation. But around about the year 2000, there was a significant shift in Boeing’s approach to these matters, and they began to focus very much on shareholder return. That became the dominant criterion by which everything was assessed. What is the shareholder return? How are we maximizing shareholder return? In the process, engineering excellence gets downgraded. Engineering becomes how well we’re doing as engineers is a secondary consideration. That was a decision that was made quite consciously by the Boeing Board and the Boeing CEO. There was a bit of a problem, though, for them because the engineers were still in power, and the engineers were wielding too much power as far as the top management was concerned. Everyone was located in Seattle. The engineers, the top management of the company, all located in Seattle. The top management, the CEO, decided the only way to cope with this pressure from the engineers, because it was a conservative pressure. Safety always involves conservative decision making. Engineers were on the conservative side when it came to making a decision. The only way that the top management could deal with this was to move their location away from Seattle to Chicago.

To Chicago, right. So, the headquarters of Boeing moved. It then moved later, again, elsewhere. But this part of the story, they moved to Chicago where they were, I don’t know, it was a thousand kilometers away from Seattle. I don’t know exactly, but it’s a long way. In that way, they were cut off absolutely from any day-to-day contact with the engineers. Engineers didn’t have that direct access to the people at the top, which they previously had. The result was that the engineers ended up disempowered and unable to insist on engineering excellence. Their reporting lines changed. They reported to lower-level business managers, and their voice was muffled as a result of that. They were not heard at the top of the company. This was a very deliberate strategy. I think the CEO at the said, this has been a great engineering firm. We need to change it from being a great engineering firm to being a great business firm. That was the conscious state of mind of the top management. Now, Boeing was not alone in this, and we need to understand that other companies are doing the same thing. The other one that I’ve studied was BP and its blowout in the Gulf of Mexico, which I mentioned before, was attributable to the engineers being disempowered.

They had been disempowered. One of the lessons that BP learned was the need after that to re-empower them so that they would be heard and listened to. But the point is this was part of a more general change in the nature of capitalism. After World War II, capitalism developed in a way that took account of all quite a range of stakeholders, not just shareholders, but also passengers or customers. Customers, in this case, would be the airlines, workers. Government itself, government has an interest in the quality of what goes on because they draw taxation from these companies, and vendors, and lenders, all these people are stakeholders. The way capitalism developed and the way it was regulated was designed ensure that all these stakeholders’ voices were heard. But that attitude changed dramatically. It began to change with Ronald Reagan in the 1980s. The move was to move away from stakeholder capitalism to shareholder capitalism, where shareholders’ interests are paramount, everything else is secondary. That’s what happened. This is part of a much more general phenomenon. In many companies, and certainly in companies like Boeing, the way this was achieved was by setting in place a system of bonuses, very large bonuses, which the CEO and the very top managers received if they were entirely dependent on the share market stock price.

These were the so-called long-term bonuses. Long-term bonuses, they’re paid three years after they’re earned, depending on what the share price does. Sure. Of course, there are many other bonuses that operate in these companies, but it’s the ones at the very top that are critical because this drives the decision-making of the CEO and the top management. These long-term bonuses are very, very large. They’re worth 10 to 15 times the salaries of these individuals. There are massive bonuses which dwarf their salaries. They’re very effective keeping the attention of top management absolutely focused on maximizing return on investment. As I say, this has nothing to do with Boeing specifically, but it’s a universal phenomenon that was going on at the time. It leads to a loss. The top management absolutely lost their any focus on safety. In fact, many of them thought that safety was not their business. One of the interesting consequences of this is that it really places the regulator in a more difficult position. The regulator now becomes, if you like, almost the last line of defense against things going wrong in a catastrophic way. Regulators must be willing and able to exercise the power to ensure that these companies are not heading for disaster.

In this case, the regulator is the FAA, the Federal Aviation Administration. But FAA and regulators frequently, it was not adequately resourced. It was unable to carry out this new and more critical watchdog role that it had in this emerging form of capitalism. This was very relevant in the 737 MAX case because the FAA had to certify that this aircraft, this new version of the 737, was safe before it could go on sale, before it takes to the skies. How did it do this? Well, in the end, it had to rely on Boeing’s own engineers for the information which they would need to certify the aircraft as safe. Now, you can hardly imagine a more horrifying conflict of interest that these engineers are in. They’re under enormous pressure to speed things up so that the company can start selling these aircraft generating a stream of revenue. Enormous pressure to speed things up, on the one hand, from the company and on the other, the engineers who’d been appointed by FAA to act as that watchdog, they were under pressure from the FAA to ensure excellence was not being compromised. It’s an impossible conflict of interest. It’s unbelievably crazy.

That’s what was, I guess, one of the major factors which contributed to this accident. It meant that the FAA did not know anything about this single point failure when it certified the aircraft as safe. It certified the aircraft in ignorance of one of the most significant changes in the design at that point. Again, it’s a story. It’s not unique to Boeing, and it’s one from which we can all learn. Finally, then you might then ask, Well, what about the board? Does it have a role in ensuring safety? These boards are very far distant physically and in every respect from the day-to-day operations of a company like Boeing. But do they still have a role in relation to safety? Certainly, they do. The fact of the interesting thing is that this board, Boeing’s board, did not ever ask questions about the safety of the new aircraft. As far as it was concerned, safety was a responsibility of others, in particular, Boeing’s engineers, but also the FAA. The board was simply relying on the FAA certification to ensure that the aircraft was safe. As far as the board was concerned, the FAA was just another bureaucratic hurdle that had to be jumped.

They frequently ask, How’s the FAA going in relation to this certification? It’s an ongoing process that takes years, actually. How’s it going? But the only reason they were interested in what was happening with the FAA was that this was standing in the way of this stream of revenue which they were expecting as soon as that aircraft could take to the skies. That was their focus. It was not on, well, is the FAA discovering Is it covering any safety problems? Is it having difficulty with any aspect of the design? They were not thinking in those terms at all. Let’s ask the question, what should the board have been doing? What might the board have been doing? There’s some very important information that became available in this particular case, in the Boeing case, because of a particular legal action. The shareholders in Boeing sued the company on the ground that the board of directors had failed them. Now, this is a very unusual thing, and they sued them. This is a civil action for damages. The damages to the shareholders were that they lost share value.

Significant share value.

Yes, significant share value. Most of the actions that have come out of this crash, and others like it, are from people who were killed or their relatives, or their families who are demanding compensation for that damage. But this is about purely financial damages to the shareholders. They took this action, and they won. It was before a judge, and the judge came to the conclusion. The judgment says that the board had been entirely negligent with respect to safety. In some respects, dishonest, which is a very strong thing to be saying. This judgment actually went on beyond that to say, well, these are the things which it should have been doing and wasn’t doing. That’s why this judgment is so valuable, because it tells us it’s an authoritative statement about what boards should be doing.

There are several things that I want to talk about coming out of this judgment. The first important point that he made was that boards need to be skeptical. They need to be skeptical of the information which they’re being fed because as we all know, good news passes upwards in any organization quickly. The bad news follows way behind if it ever does. Boards need to understand that and must be willing to ask pointed questions and pursue those questions as far as they can. Skepticism was about the safety, about the certification process. That skepticism is a state of mind which boards need to aspire to and exercise. More generally, the attitude can be expressed as challenging the good news and embracing the bad news because the boards are constantly fed these reports which say that everything is okay, all our indicators are on track, etc. Boards who generally say, That’s great, good. What they should be doing is saying, well, tell us about these indicators. How reliable are they? Can we trust them? The moment you started asking questions about the reliability of the information, if they’d been asking, in this case, about FAA’s conclusion that the aircraft was safe, if they’d asked those more penetrating questions, they would have got to maybe had a glimmering of understanding of the incredible conflict of interest which Boeing’s engineers were placed in and how dangerous that was.

But they didn’t go anywhere near that. They didn’t challenge the good news and embrace the bad news. Now, embracing the bad news and looking for the bad news is a very important part of this state of mind because there are always warning signs before a major accident occurs. There are always warning signs, and I stress this is always the case, that things are not as they need to be. Things are not going well. Something’s wrong, and if something is not done about it, then a major accident is likely to ensue. The boards need to be on the lookout for this bad news. When they identify it, they need to explore it as far as possible, learn from it, and understand what needs to be done to deal with that situation. For example, they need to ask the CEO to pass through to them any information that he or she is getting from whistleblowers. They didn’t hear. There were lots of whistleblowers in Boeing, but the board never got to hear about them because the CEO and top management protected the board from that bad news. This is why this is such an important slogan.

It’s often put in metaphorical terms, the traffic light metaphor of green and red, of challenge the green and embrace the red. It’s a really simple idea, but powerful. It’s about state of mind the boards need to exercise. This board went nowhere near that. Some of the other things, the more detailed things that the board, that the judgment highlighted were that there was nobody on the board who had any aeronautical expertise, aeronautical engineering expertise. Nobody on the board who had any understanding of the fundament, the most serious risks, that safety risks, quality risks, risks that confronted Boeing in the manufacture of these aircraft. All boards need to have, said this judge, all boards need to have at least one specialist, someone who’s a specialist in the technology, in the risks, in the major hazards which confront the organization. This, by the way, these findings now by the judge actually echo a lot of conclusions that the authorities have come to elsewhere in other countries, particularly in the UK. These ideas have been understood for quite a while. So, boards need to have these kinds of specialists. Boards need to have subcommittees whose job it is to focus on these major accident risks which confront a major hazard company, a company which deals with major hazards, as this is the case with oil companies or aircraft companies or mining companies.

All these companies confront possibilities of catastrophic risks which can kill hundreds of people. Boards need to have subcommittees which specialize or focus on those kinds of questions and develop information about those which they can then pass on to other board members about how well those risks are being managed. It’s a way of directing at least part of the board to focus on these kinds of things. That’s another thing that the aspect that came out of the judgment, which is now being implemented. A lot of these things have been implemented in Boeing to some degree. Unfortunately, not completely, but to some degree.

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Another aspect of this accident, which is quite typical, is that when it happens, the companies try and blame the frontline operators for making mistakes. In this case, it’s the pilots. The concept of pilot error is the first resort of a company when it’s faced with this crisis. Indeed, the CEO of Boeing, after the first crash and questions were raised, the CEO was able to say, this was pilot error. There was nothing wrong with the aircraft. The aircraft is safe. If only the pilots had followed the correct procedure, this wouldn’t have happened. This is a very standard response that happens. What it betrays is a complete failure to understand the human factors that lie behind these accidents. Because it is true that the pilots were lost. They didn’t understand what was going on. There were some actions they might have taken which would have prevented that accident, but they didn’t understand what they were. They were so overwhelmed by what was happening to them that they weren’t thinking rationally.

It’s predictable that pilots in this people, human beings in these kinds of situations will not think rationally, will not stand back and say, well, what should we be doing? They won’t consult the manuals. They haven’t got time to consult the manuals. They will make mistakes which to the outsider seem irrational, and that’s certainly one of the things that happened here. But Boeing was actually very much at fault for the state of mind of the pilots because Here was this change that they’d introduced in the aircraft, this piece of software, which in certain circumstances would thrust the nose down. They’d introduced this, and they didn’t tell the pilots. In fact, they decided that the pilots ought not to know about this and shouldn’t know about this because it wasn’t necessary, they thought, Boeing thought. There was an economic reason for this. They said, if pilots don’t need to know about this. There’s nothing really new in this aircraft. They don’t need… Pilots will not need additional training. In particular, they won’t need to be trained on simulators, which is a standard form of pilot training these days, simulators on the ground. They won’t need that training.

Now, this was a major selling point to the airline industry because simulated training for pilots or retraining, as would have been required if this matter had been taken seriously, Simulator training is expensive. Because Boeing was able to promise the airlines that there would be no additional simulated training necessary, this was a big selling point, which when they announced that this new aircraft was going on the market was an important reason why they began to pick up orders. The result was that pilots were entirely unaware. They were entirely unaware of what was this new development. They had to go back, and they would have had to go back and try and work out, okay, in a crisis like this, this is what we do. We don’t know exactly what it’s all about, but this is what we should be doing. We should be canceling the automation on the flight and trying to fly the aircraft manually. Had they done all that, then maybe they would have avoided the accidents. But they weren’t thinking in those ways because they hadn’t been trained to, they weren’t aware. Boeing’s decision to keep the pilots in the dark and not to provide additional training to them was a key factor, I think, in why it was that the pilots made the errors that they did.

This is a human factor angle in all these accidents that you need to consider how will people react in these situations. If you had considered how will the pilots react in these crisis situations knowing nothing about it, it was quite predictable that they would and fail to do what they might have done had they been thinking about it in a simulator on the ground. Boeing had cut back on its human factor’s expertise. What it should have done in the design of this aircraft was ask itself seriously, how will pilots cope with this new situation? And run a series of experiments to see how will pilots cope with this new situation? They didn’t do that. And so that’s, I think one of the ways in which Boeing itself contributed to the pilot error.

The last thing I want to talk about here is the way of re-empowering the engineers, which is vital in this case and in all the other major accidents that I’ve studied. Ways need to be found to re-empower the engineers. It’s about organizational redesign. It’s about redesigning the structure of reporting, reporting lines so that engineers are not reporting to relatively low-level business managers. The reason why they mustn’t be reporting to low-level business managers is because the Those business managers, their primary concern is maximizing profit and production.

When they’re talking to their engineers, they will not be asking the question, Is this design good practice? Is this engineering good practice that you’re using in your design? But the question is, Is it good enough? Is it good enough? That’s a fundamentally different question because it’s inviting the engineers to cut as many corners as they possibly can, provided that what remains is good enough to ensure safety. That way of phrasing it, as you can understand, is going to over time corrupt the judgment of those engineers, especially as their bonuses are determined by these managers. These managers will be warding bonuses on the basis of how pliable and how compliant these engineers are with the needs of that business manager. Now, the only way around that is to stop, is to alter these lines of reporting and ensure that the working engineers don’t report in that way but report up to a more senior engineer who reports further up an engineering line, ultimately to a chief engineer who then reports to the CEO. Now, of course, engineers can’t operate entirely independently of commercial pressures. They have to be subordinated to the company at some point. If they’re subordinated at the point of the CEO, what that means is that their concerns will flow upwards freely to that very top of the company.

It’s the CEO who will be making those decisions and will be accountable for those decisions. As things stand, all those critical decisions are buried, and the CEO and top management never gets to hear the compromises that are being made. We have to find a way to ensure that the CEO, in a sense that his face, his or her face is rubbed in the facts of what is going on. They realize that the pressure on their engineers is to give them an answer that, okay, this is good enough. Once the responsibility is put on the shoulders of the CEO, you’re going to get a better outcome because they don’t want to be tolerating something which is not good enough. Sure. Yeah. Then, of course, the other feature of this is that that chief engineer also has a reporting line to the board, and that’s really important. The chief engineer will have dual reporting lines, one to the CEO, but he’s in a position to speak to the board independently of the CEO. If he or she thinks that the CEO is not passing on the relevant information to the board, then the chief engineer is in a position to do that.

These are some of the things that came out of that inquiry. This is one of the reasons I think that the Boeing case is such an important one to study because it dealt with these matters. It’s just something I think that boards operating in all major hazard industries need to be aware of the kinds of lessons which come out of this particular accident.

I think one of the pieces you bring up, you talk about the reporting lines of engineers. I would draw a parallel as well of reporting lines of safety functions in most organizations in that if it’s embedded inside the operational areas, you have a risk that the information remains there. They advise the same issues you talked about from an engineering standpoint may not percolate to the right levels of the organization. In the same way that you wouldn’t want audit to report to the lines of business.

Yes, that’s right. Auditors need to report to the top of the company. They need to find… It’s very interesting because audit firms are appointed by the company. If they provide a positive view of what the company is doing, they’re likely to be reappointed. That’s an unfortunate conflict of interest that they are often in. In far too many cases, auditors have failed to report things that are wrong because they’ve… Or at least the way they’ve expressed it has not raised alarm, and it’s deliberately designed not to raise alarm because they’re ultimately concerned about the next contract. That’s another conflict of interest. I think we have to be very aware of conflict of interest and design systems, design organizations, so that we don’t have those conflicts of interest. In the area of safety, that would mean that safety auditing auditors should not be appointed by the company. They should be appointed by… This is one possibility. They could be appointed by the regulator. You might have a pool of auditors available to the regulator, and the regulator would pull one of those out of the hat and say, okay, your job this year is to audit Boeing, if it has the relevant expertise.

That way, you’re removing that conflict because they have no more, no less chance of being appointed to Boeing next time around, regardless of the findings that they come up with. I think this is what I’ve seen in every single accident I’ve looked at, is that so many people are compromised in various ways. This is, I think, why boards need to be so alert to what can be going wrong, be asking questions all the time about what compromises is being made in the development of the information which we are seeing.

I think the same point I would make around when you talked about at Boeing, the need to have expertise specialists at the board level, in addition to a subcommittee, I would say it’s something as well, same in terms of operational expertise, expertise and safety. So, beyond the Boeing case study, it’s obviously around engineers and engineering safety. But in in a mining organization or in different other organizations, it may just be somebody who understands the context, the operational needs, and the safety elements and safety risks, some awareness of it, and potentially even value in having better awareness and training for board members around safety and what does it mean to have the right safety culture within an organization.

Yeah, I think this is right. I think each organization will be different. It’s a question of working out what is critical and then ensuring that you’ve got people on the board who understand the critical issues. They will be different. In health care, for example, this is another situation where these are in hospitals. This is another situation where It’s vital that people with expertise in what can go wrong are there in decision-making roles. I don’t know whether you know that there’s a very famous accident analyst by the name of Jim Reeson, and He’s done a lot of work on major accidents in the oil and gas sector. But in the last part of his life, he was working on the medical sector. Medical accidents, which involve accidents to patients who are in hospital for other reasons. Nevertheless, there are accidents which can cost the lives of these patients. The issues are very similar. It’s about identifying what’s going on, having people whose job it is to focus on what might be going wrong and learning from that.

One other thought that comes through is you talk a lot about shareholder value versus stakeholder value. The thing that strikes me, you mentioned BP as an example. We are obviously talking about Boeing. In both instances, short term shareholder value appears to be what was prioritized. But the long-term value of both BP and Boeing took an incredible dive following these incidents. Is there a need to really rethink what shareholder value means?

Yes. The story of share buybacks is a very important one here. You’re right that the rewards that go to the top company, the top managers in the company, are based upon annual performance. That means that everything is short term, and the long-term horizon disappears from their view for the most part. One of the, I suppose, most dramatic and most extraordinary examples of this is the phenomenon of the share buyback. This became popular, was made much easier than previously, and it became popular during the era of the Reagan residency in the 1980s. What share buybacks involved was… Well, you have to think of it in this way. Company makes a lot of money in one year. Big profit. What does it do with that big profit? Well, the new avenue which has opened up to them in the 1980s was to use that big pool of money for the company to buy shares, buy back shares on the stock market. Now, this is an extraordinary… It’s a puzzle, really, how this can happen. How can a company buy shares in itself? But that’s what’s going on. That’s what’s going on. The company uses a lot of this under the instruction of the board and the CEO, the company itself buys back a lot of shares in itself and then cancels them.

There are now fewer shares in this company. The total value of the company has remained unchanged, but there are fewer shareholders, which means that every share individually is worth more. After the share buyback process has been executed, the remaining shareholders are winners in this situation. Their share price, their share value has gone up, and therefore the top management, they’re winners. Their bonuses depend upon the share price going up, and this is what’s happened. And so, they’re reaping these massive rewards. And that’s fine for them. But what does it mean? It means that this money which had been earned by the company is being looted, as somebody said. It’s being looted by the shareholders, and it’s not being used in ways that will benefit the company itself. It’s not being used to do research and development. It’s not being used to develop new ideas, new aircraft in the case of Boeing. It means that the company can stagnate. This is what was happening to Boeing at the time. It was stagnating because it was resting on its laurels and redistributing all its profits in the way I’ve described. Now, the consequence of this was that Boeing was in a competition with Airbus, as everyone knows, and it was a very fierce competition.

At this time, around the year 2000, Airbus was marketing a new aircraft, which was a direct competitor with the 737, and it was recognized by many to be a much better deal than the existing 737, and Airbus was getting all the orders. Now, this was a crisis for Boeing, in fact, because I think it was American Airlines, which had previously bought only Boeing aircraft and a sense of loyalty to Boeing, placed a major order for Airbus aircraft. This was a crisis, as I say, for Boeing. It was a shock. They said, we need a new aircraft. It was too late at that point to be doing the R&D, the research and development for new aircraft. They said, well, we’ve got to do something. What we’ll do is simply put bigger and better engines on the existing design and go to market with those. Now, that was the design change which led to the 737 max. Because it was a shortcut and a spur of the moment decision to do this, they didn’t think through and didn’t have the time to think through what the consequences would be. This design change actually introduced this tendency to nose up that I spoke about before. But yeah, so Boeing was not in a position to develop a new aircraft which would compete effectively with Airbus. This really is one of the critical steps in the story as to why these defects went through to market.

Excellent. Andrew, thank you very much for joining me today. You’ve written numerous books on various events, the latest one published by CRC Press, Boeing: The 737 MAX Crisis and Aviation Safety. You talked about BP investigating multiple different at incidents, published multiple different articles, including some recent ones I was looking at on your LinkedIn profile, on risk matrices and so forth. What’s the best way for somebody to keep in touch, to learn more about some of your articles, your publications, and your books?

Well, I’m always available on email. My email is [email protected]. That stands for Australian National University, Au. Edu. Au. But I think the other thing is I’m also on LinkedIn, if you want to contact me on LinkedIn. The books are widely… If you know the name of the book that you want to access, it’s available in bookstores. Amazon has a lot of these books, and that’s a way to get in touch with me. But I do answer my emails, so please feel free to Contact me.

Excellent. Thank you so much.

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