3M's McNerney Lands at Boeing

In a turnabout, the polished exec -- and Boeing board member -- will take over a corner office in dire need of a steady hand

By Stanley Holmes

The Boeing Co. (BA ) confirmed this morning that its board of directors has elected W. James McNerney Jr. chairman, president, and chief executive officer. He begins July 1. James A. Bell, who has served as president and chief executive officer on an interim basis, will remain chief financial officer, and former nonexecutive chairman Lewis E. Platt will become lead director.

McNerney had long been Boeing's top candidate, even though he had rebuffed the jetmaker twice in the past. In April, he went so far as to put out a statement through 3M (MMM )-- where he was serving as chairman and CEO -- saying he wasn't a candidate for heading the world's largest aerospace company. But Boeing Chairman Lewis Platt responded that McNerney's public disavowals didn't mean he was out of the running. How Boeing's board was able to persuade McNerney to change his mind remains unclear.


  But the group had been under increasing pressure to find a marquee name, capable of running the complex, $52 billion conglomerate. Such a candidate also needed to have the kind of corporate experience and toughness to be willing to change what many observers say has been an ethically challenged corporate culture.

Boeing CFO James Bell served as the acting CEO while the board searched for someone to replace Harry Stonecipher, who was forced to resign in March after admitting to having an affair with a female Boeing executive.

McNerney, 55, faces a challenging task 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 (see BW Online, 6/16/05, "Boeing's Duel With Complacency".


  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.

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 (GE ) Aircraft Engine division and his current status as a Boeing board member mean he knows Boeing's commercial and defense customers.

A savvy executive with apparently no ethical skeletons in his closet, McNerney should be a popular choice on Wall Street. He's generally regarded as having strong people skills and solid knowledge of the Pentagon, which should help Boeing improve tarnished relations inside the Beltway.


  Boeing could use some polish. It has had its share of scandals of late, as well as upheaval among its senior executive ranks, including the abrupt removal of both CEO Stonecipher and his predecessor, Philip M. Condit, within 15 months of each other. Stonecipher, a board member, came out of semiretirement to replace Condit in November, 2003, after allegations surfaced that Boeing CFO Michael M. Sears engaged in illegal hiring discussions with a former Air Force procurement official, Darleen A. Druyun, during Condit's tenure. Sears and Druyun were sentenced to prison terms resulting from the charges.

McNerney joined GE in 1982 after four years at McKinsey & Co. He was one of the key executives to rise under the tutelage of GE's legendary CEO Jack Welch. In a 15-year GE career, McNerney managed other GE divisions such its lighting unit, and he oversaw its Asia-Pacific businesses in addition to running the $15 billion aircraft-engine division.

McNerney has long been on the short list to lead many top U.S. companies. He was even one of the prime contenders to succeed Welch at GE in 2000. The coveted post went instead to fellow GE colleague Jeffrey Immelt. But it wasn't long after losing to Immelt that 3M's board offered McNerney the position of chairman and chief executive in 2001.

McNerney also has been chosen over two capable Boeing insiders -- Commercial Airplane CEO Alan Mulally and Integrated Defense Systems Chief Executive James Albaugh. David Calhoun, current CEO of GE Transportation and recently promoted to vice-chairman, was also a strong contender but dropped out of the race.

Holmes is a correspondent in BusinessWeek's Seattle bureau

Before it's here, it's on the Bloomberg Terminal.