RJ Eskow: 7 Rules for the Boeing Bailout

By Richard “RJ” Eskow, senior adviser for health and economic justice at Social Security Works. Eskow is also the host of The Zero Hour, a syndicated progressive radio and television program. This article was produced by Economy for All, a project of the Independent Media Institute.

Call it the “Boeing bailout.” As the world struggles with the pandemic, Boeing should be seen as the vector for a parallel epidemic. It’s Patient Zero in an epidemic of corporate failure. As we change the way we live our lives, corporations like Boeing should change the way they are run. Corporate mismanagement made this crisis worse and, if it doesn’t change, will make the recovery more difficult.

Unfortunately, it looks like Boeing and its fellow malefactors are going to get a free ride. The corporate bailout is coming down the track, thanks to the new Senate agreement, with oversight that appears no stronger than that used in the bank bailouts after the 2008 crisis. That leaves the public exposed to ongoing corporate abuse, even as its government acts to rescue the abusers.

All signs indicate that Priority Number One is the rescue of our most badly mismanaged corporate vectors. President Trump says “we have to protect Boeing,” this country’s largest exporter and a major employer. Boeing itself has called for “a minimum of $60 billion in access to public and private liquidity, including loan guarantees, for the aerospace manufacturing industry.”

Market forces can’t save Boeing. The government itself is its largest customer. Its other customer base, the airlines, are also in trouble. That leaves the U.S. government as the rescuer of last resort.

If they want public help, they must agree to be fundamentally transformed.

Sen. Elizabeth Warren was on the right track when she laid out some conditions for rescuing troubled corporations, such as: keeping people on the payroll throughout the crisis, paying at least $15 afterward, honoring all collective bargaining agreements, a ban on dividends or executive bonuses, a permanent ban on share buybacks, and a requirement that all political spending receive shareholder and board approval.

But even this agreement’s weak provisions aren’t likely to be enforced very enthusiastically. The Obama administration did a lukewarm job, at best, enforcing TARP’s rules. What can we expect from this one?

This deal doesn’t get it right. But it’s worth considering what a well-constructed bailout program would look like—both to set the terms of the debate, and in anticipation of future bailout needs.

When it comes to their self-interest, senior executives and those who serve them are endlessly inventive. It has taken a long time to create this corporate crisis, and it will take some fundamental changes to reverse it. Every bailout should include major reforms along the following lines.

1. Public rescue must come with significant public ownership. Nobody in the business world would be expected to rescue a failing company—whether through loan guarantees, liquidity, direct subsidies, or any other actions—without significant ownership concessions in return. Why should the American people, who are being asked to take on risk that’s considered too toxic for the private sector?

For that kind of outlay, workers and the public must have seats on the board—not symbolic ones, but seats with real voting power.

In some cases, that may amount to full nationalization. As Ryan Cooper points out in The Week, Boeing’s market capitalization is plunging fast, leaving few options besides full ownership on the table. Besides, as Alexander Sammon wrote in the American Prospect last October, Boeing is already an essentially a publicly-funded company—just one that has privatized profits.

This does not mean that corporate bailouts must necessarily lead to a major socialization of the private economy. It could, and that’s a debate worth having. But companies that have been partially or fully nationalized could also be re-sold to the private sector under new operating rules like those laid out here. Better yet, the government could use this process to vastly expand the scope of worker-owned and democratically-run enterprises.

2. Bailed-out corporations must be managed in the long-term interests of customers and employees. The hyper-financialization of corporate leadership, driven by perverse incentive packages driven off short-term share price, has led to aggressive management styles that shortchange employees, customers, and the public. This system must be replaced in every bailed-out corporation with incentives and directives that demand responsible management. Otherwise, the public will only be enabling the continuation of past irresponsibility.

3. Shareholders, employees, and customers must understand that the corporation needs rescuing because the corporation’s leaders failed at their jobs. CEOs and key executives didn’t handle risk properly. A pandemic outbreak is an unusual event, but not an unpredictable one. We’ve been warned of the possibility for many years, and responsible business leaders would have planned for it. Boeing’s profits, for example, depend largely on an industry that was always at high risk during an epidemic: travel.

You and I knew that. Its multi-millionaire executives knew it, too. They just didn’t care. That means:

4. Senior executives must be replaced, and their past compensation must be reviewed for signs of malfeasance, stock manipulation, expense account padding, or any other signs of overpayment. Clawbacks of excess compensation should be considered, where appropriate.

Furthermore:

5. There must be legal and financial consequences for socially irresponsible or criminal behavior. That includes financial accountability and, where appropriate, criminal penalties for illegal behavior. Executives at bailed-out corporations should expect thorough investigations. They may dread them. But these investigations should be welcomed by customers, employees, most shareholders, and the public at large.

These senior executives didn’t just fail. They did much worse than that. The extent of criminal malfeasance in a corporation like Boeing isn’t known, because it hasn’t been investigated. It should be. Boeing’s role in the recent MAX crashes isn’t in dispute. While we don’t know how high the culpability goes—and we should—we do know that corporate leadership failed to act decisively and that people died as a result.

To those who say it will be impossible to replace fired senior executives from the current talent pool of top management, the right answer is: good. They all got it wrong. There will be publicly-minded managers—some retired, some at a second-tier management level—to step forward and lead these companies in a time of crisis.

6. All major bailouts should come with a full management audit. In Boeing’s case, that means a thorough internal review of all corporate emails, accompanied by interviews with all relevant actors in all levels of the organization. Management should change, but the corporate culture must change, too.

Airline executives have behaved with shocking financial irresponsibility. Theirs is an industry plagued by failures, bankruptcies, and setbacks, even in the best of times. And it is a statistical and managerial reality that the best of times never last. Despite that, executives and shareholders used their cash flow to enrich themselves with a series of share buybacks, leaving no reserves for a crisis. They spent it on themselves and want to be rescued now.

And corporate handouts aren’t likely to end with a few industries. Regulators broke the rules to rescue GE Capital, and GE is once again standing on the handout line. So is the oil industry, which may get its wishes granted despite its record of knowingly destroying the planet. Health insurers, too, are winning concessions.

That reflects a broken relationship between politicians and corporations. Therefore:

7. A rescued company and its executives may never again make political contributions, directly or indirectly—ever. This ban must be permanent and inflexible. While it’s a start, Sen. Warren’s proposal doesn’t do enough to end this legalized corruption, especially given shareholder self-interest and the politics of many corporate boards. Political contributions created the absurdity of a government asking aircraft manufacturers to “self-inspect,” and hundreds died. It created the absurdity of asking major banks to self-regulate, and trillions were lost.

The message is simple. If you want to be rescued, your influence-peddling days are over.

Could this kind of bailout ever take place? CNN writes that Warren’s conditions “should probably be read more as a wish list.” If by “wish list” it means they’re aspirational, that’s undoubtedly true. A look at the Senate deal confirms that they’re not becoming law anytime soon.

But we need to remember that it is corporate CEOs, not Sen. Warren, who have their hands out now. This bailout is their “wish list.” The cynical hucksters who comprise this sad parade undoubtedly agree with CNN’s less-than-neutral characterization of Warren’s ideas as “extreme interventions into how businesses are run.” Once it’s clear how these CEOs have operated, however, it becomes clear that Warren’s ideas aren’t “extreme” enough.

What is “extreme” is the decades-long culture of mismanagement and greed embodied by these imperious executive supplicants. They have failed the public, corporate employees, customers, and their own corporations. These extremist CEOs should be fired, each and every one, and their corporations restructured for the public good.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.

35 comments

  1. divadab

    The management who executed the looting of Boeing are mostly retired. The CEO who was just fired was actually a good engineer who had to deal with the mess his predecessors created. However, the current CEO was ON THE BOARD that presided over and set the policies for the looting. Their greed and irresponsibility and utter failure to act with due prudence and in the interests of the Company was CRIMINAL and they deserve to be relieved entirely of their ill-gotten gains.

    DISGORGEMENT should be an essential term of any bailout. The previous CEO should lose his pension and be utterly humiliated financially – this is the only language these criminals understand. (his options are of course now worthless so the first part of disgorgement was accomplished by these idiots themselves).

    Reply
  2. tegnost

    I will be shocked if any of these things happen. A neighbor where I’m working came over and said I don’t have to worry about covid as it’s (present tense) free care for covid, he heard it on tv. So all you have to do is get someone on tv to say it’s true and even though it’s not, it’s a concrete bene for the plebes. 2008 was a ripoff. 2020 is a brazen ripoff, what are you gonna do? it’s America.

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    1. Code Name D

      Indeed. And its time we call the leaders of the left to account for this. (Including Sanders.) What ever progress we make in 4 years always gets set back to zero in order to fall in line because “Trump” or “Bush” or “W”. I’ve watched the left fail like this for 40 years.

      Reply
  3. Carla

    I am amazed — and very disappointed that Eskow highlights this: “7. A rescued company and its executives may never again make political contributions, directly or indirectly—ever.” — while IGNORING the elephant in the room: the constitutional personhood status that corporations have stolen from citizens in the biggest series of thefts in history, and used in the courts against us, thousands and thousands of times.

    As long as corporations wield never-intended constitutional rights, “democracy” is an empty word. Please see:

    https://www.congress.gov/bill/116th-congress/house-joint-resolution/48

    Rep. Katie Porter (CA-45) is the most recent co-sponsor to have signed on, for a total to date of 73.

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      1. Susan the other

        IIRC calling corporations (sea faring merchants in England c. 1600?) “persons” in their charter was actually a typo. It worked for them, but giving corporations rights equal to/above human rights now is absurd. It’s been a profitable but tragic blind spot for neoliberalism to exploit. The hard lessons to come from Covid-19 are common sense: there is nothing more important than good societies. But this is an interesting thing to consider in detail because of the profit motive. Corporations are created to make a profit, whether mercantilist or high-tech. And to be able to protect those profits even against society. To be allowed to socialize their losses and all the stuff we’ve witnessed since the 80s. All to make a profit, to compete better in order to… compete better. If we are going to rewrite corporate law, which we will need to do to control corporations in future, we need to address the profit imperative. Otherwise the public will be sacrificed for it every time. And the corporations will be left with no choice but ruthless profit seeking to survive.

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    1. Dirk77

      You don’t need a constitutional amendment. To my knowledge,LLC’s were created by Congress; they aren’t mentioned in the Constitution. You can change corporate law to be anything you want. Like making the corporate governing body subservient to the employees, not the shareholders.

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        1. Dirk77

          That was interesting. Thank you. It is a sign of the rot in this country that we’ve come to a place where such a constitutional amendment is necessary.

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      1. Fazal Majid

        Read the troubling history of the 1886 Supreme Court case Santa Clara County v. Southern Pacific Railroad Company that established corporate personhood in law. That’s why a constitutional amendment is needed, it’s the only way to undo harmful SC jurisprudence.

        Now some form of restricted corporate personhood is needed, as is the case in most Civil (Roman) Law jurisdictions where there is a distinction between a physical and a moral person. For instance, you wouldn’t want the Sierra Club’s First Amendment rights to be curtailed, but equating political corruption with free speech is a distinctly American pathology.

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  4. Edr

    That whole thing about the public getting stock from the Corporations it bails out is a pipe dream. Who’s going to manage those stocks ? The same Congress that continually bails out malefactors? It provides no improvement over the current situation and creates an uphill battle between the left n the rest. The great depression took stocks with the purpose of selling off the pieces, unraveling the mess. Prevention is the best cure. If that can’t be passed, well….

    Did they set a permanent ban on share buybacks?

    Reply
  5. Paul Harvey 0swald

    While we are at it, how about deleting the consumer level mandatory arbitration clause? And low level non-compete agreements?
    Not an issue (that I am aware of) for Boeing but surely for someone in this corporate dole queue.

    Reply
  6. The Rev Kev

    What I would like to see is the following

    -Boeing gets nationalized.
    -The entire Board and Management team get fired.
    -A team of accountants are sent in to get an idea of what the state of the company actually is.
    -Non performing parts of the company are spun off into a separate entity.
    -A management team is put in place that has an aerial engineering background.
    -Boeing is recapitalized and sold back into the market place.
    -The non performing entity is sold off or written off piecemeal over time.

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      1. John Wright

        This might provide little incentive for better governance.

        If there is any profit, it could be swept into executive compensation.

        Aren’t a lot of hospital chains, with well-paid executives, non-profit?

        It is far better to not-rescue Boeing and get it reorganized in bankruptcy.

        There is a prominent recent case that shows this can result in a functioning company after bankruptcy.

        From Google:

        “On June 1, 2009 General Motors filed for bankruptcy in New York, with $82 billion in assets and $173 billion in liabilities. It was the largest industrial bankruptcy in history.”

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        1. Carla

          Yes, John Wright, you are right! The Cleveland Clinic, which has gobbled up most of the smaller hospitals in Cleveland (University Hospitals took the rest) is “non-profit,” yet their executive director makes millions. The Clinic has amassed its wealth and power in one of the poorest cities in the country, yet it pays no property tax to support the struggling school system.

          I am forced to depend on the Clinic for all of my health and medical care, and I consider it to be a criminal syndicate for all practical purposes. University Hospitals (also “non-profit”) seems to be marginally better, but it’s almost impossible to switch systems.

          Reply
          1. WobblyTelomeres

            What is worse is that they are largely shell companies, with most of the lucrative work being farmed out to for-profit enterprises, owners of which just happen to be on or control the non-profit board.

            Who owns the lab? Who owns the on -ite pharmacy? Who hires the nurses? Which group do the physicians work for? Who does the billing? It is wretched confidence game. But, but, you’re supposed to believe Marcus Welby is watching over you. That is courtesy of “Managing the Physician Patient Relationship 101”.

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        2. d

          One minor thing to that GM story, they had fed help, with financing, which Boeing might not be able to get now

          Reply
      2. Oh

        A non profit entity does not pay taxes but they do make profits which are called “reserves”. A clever (shyster) accouting firm can help these non profits to sail around any restrictions that may impede looting by the officers et al.

        Reply
  7. Steven

    This is missing the big picture. Boeing and a long list of other corporate malefactors need to be DISMANTLED not bailed out. The airline industry is right up there with fossil fuels and their automobile and rent-seeking electric utility customers. The US and global economies need MAJOR RESTRUCTURING. None of this is going to happen overnight. The employees whose livelihood depended on products and services spewing planet-destroying greenhouse gases into the atmosphere cannot be expected to quietly starve to death or be asphyxiated by pandemics like COVID-19.

    Down the road some limited form of a return to the status quo, i.e. the enjoyment of the goods and services we have for so long taken for granted, may be possible. But for far too long we have not paid their full cost. We have instead passed those ‘externalities’ along to the environment and those least able to pay. But for the immediate future real scientists need to be in charge – not self-serving politicians, and certainly not ‘finance capitalists’ whose only concern is how much they money they can make or how fast they can make it.

    Reply
    1. John Wright

      In my view, the Covid-19 pandemic will illustrate, via the decrease in economic activity, as the 2008 global financial crisis did, that incremental CO2 production is roughly proportional to GDP in the developed world.

      Decrease GDP and incremental CO2 added to the atmosphere drops below trend.

      But all the world’s leaders want to resume the “regularly scheduled (economic) program” rather than use the lesson that the world wide economy, and the way it is measured, needs to be drastically changed.

      True reform will always be instituted tomorrow.

      Reply
      1. d

        Probably true, but it will also shrink the population too. But not as much that it will make that big difference, and given at the earliest, it will be next year before the orange leaves, stuff won’t change much, till then. Its way to late to stop what is coming

        Reply
  8. Dirk77

    I was harsh on any bailout for Boeing. But then I remembered that the F-35 white elephant is essentially a trillion dollar bailout of Lockheed Martin. And I’m ignoring its imperiling national security.

    Reply
    1. d

      Not sure that is true, that its a bad plane. Those who fly are very happy with it, its better their previous plane,

      But its not perfect, and part of that is the need by Congress and others, to try and have a plane used by all services that fly, never mind only worked once ever. Will it ever be all things to all of them. Course are complaints that it doesn’t fly far, course some of the current planes don’t fly far either.

      Reply
      1. Dirk77

        I am no expert and rely on what the airplane aficionados say about it, which never seems to be flattering. There was also a RAND study that argued that the technology created would be better used in existing aircraft, presumably one being the F-22. I have read that one limitation of the F-35 is that the stresses on the single engine to produce the needed thrust are hard on the engine materials, something that is not present in dual engine aircraft such as the F-18 and F-22. Also dual engines can always fly on one if the other goes out.

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      2. Dirk77

        Ok, I looked for the RAND article but couldn’t find it. I did find an interesting Popular Mechanics article that appears to have been updated over time as the program has gone on. It was claiming that the F-35 was designed for air to ground combat, not air to air. It was conceived back in the day when the US had no rivals and we created our own reality, etc., etc., so air to ground was the primary concern. So it shouldn’t be surprising that aerially it is outperformed by the F-22. Which explains maybe why the aficionados don’t like it. I am not up on current strategy but it sounds like the military now wants a new air to air fighter bc apparently creating our own reality didn’t work out so well.

        Reply
  9. Oh

    This caught my eye:
    “The Obama administration did a lukewarm job, at best, enforcing TARP’s rules.”
    He must be kidding!
    It was more like a frigid job where the adminstation and Obomber looked away while thousands lost their home and the banksters fleeced the ones who were lured into TARP.

    Reply
  10. d

    One minor thing to that GM story, they had fed help, with financing, which Boeing might not be able to get now

    Reply

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