By Stanley Holmes
It was during the Paris Air Show in mid-June that Boeing's (BA ) new Chairman and CEO W. James McNerney had a "change of heart." As head of 3M (MMM ), he had declared in a press release in April that he wouldn't be a candidate for the Boeing job. But in Paris, he decided he wanted to throw his name back into contention to lead the world's largest aerospace company -- and informed Boeing officials as much.
The intensity of the negotiations picked up immediately after Boeing Chairman Lew Platt returned to Chicago. Several phone calls later, McNerney accepted the Boeing board's offer on June 30, thus ending one of the longest corporate courtships in the aerospace industry.
As Boeing entered the final stages of its search for a viable candidate, McNerney sat down and really thought about the Boeing opportunity and what he wanted to do for the balance of his career. Over time, as Platt and McNerney talked about Boeing candidates, McNereney told Platt that he was having trouble living with the decision he made about staying at 3M. "Things like that do lead to people changing their minds," Platt said at a press conference announcing McNerney's appointment on June 30. "It wasn't too long ago that it became clear he was becoming a candidate."
McNerney, 55, who officially joins Boeing on July 1, said the decision to leave 3M was difficult. "My sense of loyalty there made it very difficult for me to contemplate leaving," McNerney said at the June 30 press conference. "Lew [Platt] and the board were pretty persuasive. At the end of the day, I made the call. And as I sit here today, I couldn't be happier."
The new Boeing management team will look like this: McNerney will serve as chairman, president, and chief executive officer. James A. Bell, who has served as president and CEO on an interim basis, will remain chief financial officer. And former Nonexecutive Chairman Platt will become lead director. Boeing's top two division executives -- Boeing Commercial Airplane CEO Alan Mulally and Integrated Defense Systems Chief Executive James Albaugh -- have told Platt they support McNerney and will remain at Boeing.
Wall Street applauded the news of McNerney's announcement, sending Boeing shares up sharply. In heavy trading after the announcement, Boeing's stock rose 7%, to around $66.11 a share. Investors had long hoped that Boeing would be able to attract someone with the stature and skills of McNerney. "He has been the top choice for several years, as he has proven operating skills as well as an aerospace and defense background," wrote veteran Citigroup Smith Barney aerospace analyst George Shapiro.
BACK TO THE TOP.
McNerney, already a Boeing director, had turned down the job at least twice in the last two years. But Boeing's board has had a long love affair with him. The group had approached McNerney as early as 1998 during Boeing's production snafus to see if the then General Electric Aircraft Engine exec was interested in replacing then Boeing CEO Philip M. Condit.
At the time, McNerney was one of the leading candidates to replace GE (GE ) CEO Jack Welch, so he declined the Boeing overtures, say people familiar with the matter. Following Condit's resignation in November, 2003, McNerney turned down the offer again, and the board elected fellow director Harry Stonecipher. When the board asked Stonecipher to resign in March following disclosures that he had had an affair with another Boeing employee, McNerney immediately vaulted to the top of the list of possible successors again, despite his protestations otherwise.
The long courtship appears to worth the wait, however. Platt said Boeing's businesses are performing well, and the board sought a CEO with the experience and credentials needed to continue the momentum and take Boeing to the next level (see BW Online, 6/16/05, "Boeing's Duel With Complacency"). "Jim met all the board's criteria. He is, in the unanimous judgment of our board members, the ideal person to lead Boeing," Platt said. "Jim wins respect for his integrity, ethical leadership and personal business style wherever he goes."
McNerney faces some challenging tasks at Boeing. He'll inherit two high-risk aerospace programs still in their early stages: the new fuel-efficient 787 Dreamliner airplane and the Future Combat Systems, a vast and complex information network for the U.S. Army. And he'll have to win back the trust of skeptical U.S. senators and Pentagon officials who have been infuriated by Boeing's aggressiveness and ethical violations.
The good news for McNerney: He's taking over at a time when Boeing's two primary divisions -- commercial airplanes and integrated defense systems -- are snapping back and generating lots of operating profit. Both divisions are benefiting from the early successes of new 787 sales and a recovery in the commercial airplane market, as well as continued strong defense spending by the U.S. government.
At his press conference, McNerney said he doesn't plan to make any major strategic changes in either the commercial airplane or defense businesses. "I think this company has got some pretty sharply defined and competitive strategies in place," he said. "I don't think strategy is an issue."
Rather, McNerney said he's going to focus on making sure Boeing executes on its key programs and makes sure the aerospace behemoth is agile enough to respond to abrupt changes in market opportunities. He also intends to spend lots of time learning about Boeing's technology and rallying employees.
"My focus will be on the fundamentals," he said. "I want to take some deep dives on technology here. It is awesome, and its deployment is a critical decision. This is less about big structural, financial, and strategic fixes, and more becoming part of the team."
McNerney certainly fits the key requirements Platt has said are fundamental to leading the nation's top exporter and No. 2 defense contractor. As head of 3M, McNerney oversaw a global $20 billion manufacturing business. His previous stint at GE's Aircraft Engine division and his current status as a Boeing board member mean he knows Boeing's commercial and defense customers. He'll now head a $52 billion conglomerate.
INSIDE THE BELTWAY.
McNerney said he believes Boeing has already reestablished the mechanics of a business relationship with the federal government and now just has to earn trust back over time, putting past defense contract scandals behind it. "You earn your reputation every day," McNerney said. "You can't look back. Your reputation will take care of itself if you do that. Boeing has the right processes in place. I'm feeling very good about the progress we've made."
It's a safe bet McNerney will be spending much of his time in Washington making sure the relations with its biggest customer continue to improve.
McNerney has long been on the short list to lead many top U.S. companies. He lost the coveted GE post in 2000 to colleague Jeffrey Immelt. So he took the 3M board's offer to be chairman and CEO instead a year later. McNerney said Boeing is his final stop. "I certainly view this as my last job and I am certainly happy about that," he said. That's welcome news for Boeing.
Holmes is a correspondent in BusinessWeek's Seattle bureau
Edited by Douglas Harbrecht