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Chief Executive Names Boeing’s McNerney ‘2015 CEO of the Year’

As complex organizations go, there are few companies with as many moving parts as Boeing, which Jim McNerney has transformed since he became CEO in July 2005.

Jim-McNerney-1When Jim McNerney first came to Boeing 10 years ago, the company had grown through a series of acquisitions and a big merger with McDonnell Douglas. He took over on July 1, 2005, after two major military-procurement scandals had tarnished the company’s reputation. Six months later, at the company’s annual leadership retreat in Orlando, Florida, McNerney orchestrated a “scared-straight” speech by Boeing’s top lawyer, who laid out in blunt terms the potential consequences of any further breaches of integrity. It worked, appeasing those questioning the character and the moral compass of the company. Even his critics said he “righted the ship.”

McNerney set out a plan to impose discipline by pushing hard to cut costs and increase productivity across all its businesses. The $100 billion Chicago-based firm is approaching its 100th year in business in 2016 and is healthier than at any time in recent memory. CNBC’s Jim Cramer thinks the company is on a roll in part due to the economy being in the midst of an aerospace cycle. Airlines are rolling in cash, thanks to the major decline in the cost of oil. Companies like Boeing, with its highly efficient Dreamliner 787s, enjoy an almost unbeatable edge. Airlines want aircraft in the worst way because they can sell every seat that they offer. For its part, Boeing doubled its production over the last five years and intends to increase it another 40 percent over the next four years.

The company also took steps to thank shareholders by announcing a $12 billion share buyback in December 2014 and a 25 percent dividend hike. McNerney reports that Boeing’s backlog of orders has never been higher. “We are in a good place,” he says. Overall, growth and financial performance has improved, with five-year cumulative returns to shareholders significantly outpacing the broader S&P index and its Aerospace & Defense Index.

The company navigated some strong turbulence along the way. From 2007 through 2013, McNerney encountered disastrous and expensive troubles with the 787 Dreamliner program—from the initial delivery of the jet coming more than three years late to the grounding of Dreamliners worldwide for three months last year due to overheated batteries. But despite the storm over the 787 and the labor disputes, McNerney held his course. He expanded the South Carolina site into a full-fledged commercial-jet assembly center and broke Puget Sound’s traditional hold on that central Boeing role. Boeing acquired the South Carolina 787 parts plants not out of any grand design, but because its outsourcing partners had come up short. Even through the 2008 global recession, production of 777s and 737s was unfazed. Jets rolled out efficiently and cash rolled in to Boeing.

McNerney has expanded the company’s presence in international markets. Approximately 80 percent of Boeing Commercial Airplanes’ backlog and 36 percent of Boeing Defense, Space & Security’s backlog is with customers outside the U.S. For the defense, space and security business this is a dramatic jump from a decade ago, when international business represented 7 percent of the company’s defense business.

Born in Rhode Island and educated at Yale with an MBA from Harvard, McNerney has had a storied career. Early on, he worked at Procter & Gamble and McKinsey & Co. In 1982, he joined GE, where he held top executive positions, including president and CEO of GE Aircraft Engines, GE Lighting, GE Asia-Pacific, GE Electrical Distribution and Control and GE Information Services. When Jeffrey Immelt was tapped to replace Jack Welch as GE’s CEO in 2000, two rivals for the post were almost immediately lured to other companies—McNerney to 3M, which saw an immediate market value increase by more than $6.5 billion, and Robert Nardelli to Home Depot, where shareholder value jumped almost $10 billion.

Since Boeing is the nation’s largest exporter, it’s no surprise that McNerney chairs President Obama’s Export Council. The tall, affable executive is a former chairman of the Business Roundtable and currently serves on the boards of P&G and IBM. McNerney is mindful of the legacy he inherited. Along with the numerous models and photographs of Boeing’s commercial fleet that adorn the walls of the Chicago headquarters are dramatic scenes of B-17s and B-29s from the Second World War. Boeing produced 91,000 airplanes during that conflict, more than any other power on either side of the conflict. Chief Executive’s J.P. Donlon recently spoke with McNerney at his Chicago headquarters.


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