Human Capital & Careers

New Boeing CFO: Fearless in Seattle

Can an outspoken female CFO with no aerospace background put Boeing back on course?
Roy HarrisApril 1, 1999

It’s not every day that a new CFO flatly contradicts the boss in front of a reporter. Boeing Co. president and chief operating officer Harry Stonecipher had railed against the venerable program-accounting system for airliners. “You have to know the cost of the airplane as you go along the production line: what the wing costs, what every piece of the airplane costs,” Stonecipher insisted with obvious frustration. “You cannot reduce the cost of a wing if you don’t know where you’re starting.”

Asked her view, though, Deborah Hopkins disagreed. It’s one of the “myths that need to be dispelled” at Boeing, the just-installed senior vice president and finance chief contended. “There’s a natural tendency for people to say, ‘The problem here is that employees have no idea what an airplane costs,’” she allowed. But well into what she calls “a very deep dive on the issue… I’d say that [program accounting] is not the problem.”

As if that assertion weren’t brash enough, the 44-year-old newcomer to the aerospace industry–just 17 days into the job–professed in a Wall Street Journal story that she’d like to replace 57-year-old chairman and CEO Phil Condit when he retires. She thereby threw her hat in the ring with those of a dozen or more others who, like all previous chief executives at this bastion of the military-industrial complex, have risen through the ranks and have, of course, been male.

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Such chutzpah may sound like a formula for the brand-new Boeing CFO to crash and burn. On the other hand, Debby Hopkins may be just what the company needs. Certainly Condit and Stonecipher, who have run things as a team since the August 1997 acquisition of McDonnell Douglas Corp., say Boeing now requires such bold leadership in a CFO. The job, after all, is to provide the tools so that the legendarily stodgy legion of Boeing managers, for whom finance has always been a remote and mysterious science, can straighten up and fly right.

When Condit introduced Hopkins last December, he said she was chosen for her “successful track record as an agent of change”–not a term used lightly at Boeing–while at Unisys Corp. and later at General Motors Corp.

The stakes at the 83-year-old company have rarely been higher. For the first time ever, Boeing isn’t profiting strongly from the upward curve of an airliner delivery cycle. Its $1.1 billion profit last year (all from defense and space operations) represented a total margin of only 2 percent, and followed a shocking 1997 net loss of $178 million. Europe’s Airbus Industrie has turned into a formidable competitor. And takeover rumors are even starting to swirl around Boeing.

“It seems that the company has been running out of feet in which to shoot itself,” says Bill Sweetman, an expert in military aviation.

“Boeing is ready” for a CFO like Hopkins, says Stonecipher, “because Boeing has a new vision and a new thrust.” He sees himself as “a good enforcer” for Condit, as the CEO tries to wrench the company out of the old ways that prevailed when Boeing had no serious rivals.

Stonecipher, the former McDonnell CEO, has been a major critic of the finance department since he joined Boeing, believing that useful information was kept locked away from production-line executives. If finance did sometimes help with requested data, “they helped only after they’d said no four or five times.” In Stonecipher’s own case, he promised operating managers shortly after he arrived that “you’re going to have all the data you need.” But when he turned to then-CFO Boyd Givan to supply it, “the data wasn’t there,” Stonecipher says. Givan took early retirement last September, at age 62, after 32 years at Boeing, leaving Stonecipher as acting CFO until Hopkins came on board.

The 63-year-old Stonecipher, who still publicly describes the old Boeing manner as “arrogant,” jokes to his managers that Hopkins will soon become as “tough” as he is, and “you will come to see me as a protective grandfather.”

The Phone Call

She may already be as tough as he is. Take Hopkins’s final interview for the Boeing job last September in Zurich. “It was starting to feel like [Seattle] is really where I’m supposed to go,” she says. Then, “I get this call at 11 at night, the night before I’m going to meet Harry Stonecipher.” Her 18-year-old son, Patrick, staying with his grandmother in Detroit, had been hit by a car and seriously hurt, although he was out of immediate danger, Hopkins was told. With the next Detroit flight not until mid-morning, and even a corporate plane unable to get her there much quicker, she and Stonecipher agreed that keeping the breakfast appointment would “keep my mind busy” until she could fly to Patrick’s bedside.

The episode created a bond between the two blunt-talking executives, who say they took to each other immediately. Hopkins learned after the interview that Stonecipher had lost a son in a traffic accident. (Patrick has progressed well, and he is now receiving treatment in Seattle.)

A Milwaukee native, Debby Hopkins had only a bachelor’s degree from Walsh College, in Troy, Michigan, when she took her first finance positions at First National Bank of Detroit and Ford Motor Co. She credits her mother with instilling confidence in her ability to take on any job.

The defining moment of Hopkins’s career was her creation of a survival plan for Unisys during its 1991 financial crisis. The then-36-year-old assistant controller was charged with quickly devising an approach that would win over the bankers. “It was a gut-wrenching experience,” she says. “These workout bankers get paid to put you under.” The experience taught her some lessons. “You realize there’s so much potential in us, and you get to trust your instincts,” she says.

James Unruh, who was Unisys CEO and Hopkins’s mentor during much of her 13-year career there, believes that many finance executives “fall into the trap of focusing too tightly on the narrow definition of the financial role.” The best of them, he says, “understand the dynamics of the business,” and Hopkins “always embodied that.”

The Lady Quits Waiting

Her grasp of business dynamics served her well as Unisys sought to solve its corporate-culture problem, transforming itself from a mainframe maker into a services business that provides systems integration. “There is no more difficult problem in business than cultural change,” Unruh says, noting that Boeing has its own massive problems in that regard from acquisitions of McDonnell Douglas and the aerospace unit of Rockwell International Corp.

At Unisys, the entire product was replaced, challenging a workforce accustomed to hardware buyers with the headaches of marketing products to clients bent on negotiating each element of the service contract. Hopkins was, he says, “very quick to understand the difference.”

Unruh rewarded her with several operations jobs before she stepped back into finance as corporate controller. She seemed prepared for the CFO slot, and possibly for Unruh’s own CEO position. “I was clearly the lady-in-waiting” at 41, she says–when she decided to jump to GM.

The move left a bitter aftertaste for Unruh, now retired from Unisys and a founding principal of Alerion Capital Group LLC, in Scottsdale, Arizona. For one thing, “the timing was bad.” For another, Unruh had invested heavily in preparing her for greater things, and “I didn’t see GM as offering the same opportunities for growth. I’m not sure anger is the right word,” he says, “but I was extremely disappointed.”

“He yelled at me; he was just mad,” says Hopkins of Unruh’s reaction–until he reviewed her reasoning, and later apologized. She agrees that the job she accepted, as GM’s general auditor, might have seemed a strange move. “Most people do not aspire to be the general auditor,” she observes.

But GM’s board members were all global captains of industry, and “in what other role do you get to sit one-on-one with the board members?” Plus, GM had a great track record of moving finance people into operating jobs, which she had desperately wanted. And the job brought her to Detroit, where she could be close to her ailing father.

Taking a Chance on Boeing

As it turned out, the auditor job allowed her to deal intimately with a $400 million fraud case, and a host of problems at Adam Opel AG, the German unit of GM. A promotion in 1997 to CFO of European operations gave her insight into GM’s most profitable auto business. It was designed as a prelude to an operating role back in the United States, she says. But then along came the Boeing opportunity last fall.

In judging a job’s appeal, Hopkins applies what sounds almost like a personal risk-management formula. “You weigh the opportunities and risks,” she says, “and what skills you bring to mitigate those risks.” While she understood that Boeing was going through difficult times, the GM executive was impressed by Condit’s and Stonecipher’s willingness to let finance play a pivotal role in the turnaround effort.

The incentives were appealing, too. In addition to a $750,000 signing bonus, she gets a guaranteed $810,000 in salary and bonus her first year, with payments of over $2 million more possible if stock-price and other targets are reached. If she stays until age 62, Hopkins will also have 13 years of additional service tacked on to her retirement plan.

Mainly, though, she was wowed by Boeing itself. “When a company goes through tough times–and for Boeing, there have not been a ton of these–the employees usually start getting demoralized,” she says. But here, a strong pro-company feeling continually boosts morale. “There is great pride; they say, ‘We build such great products.’ And we do.”

The best approach, she says, is to build on Boeing’s areas of strength. She notes that the C-17 military transport, once a seriously troubled program, won a Malcolm Baldridge quality award last year. “We’ve got examples of this all over the company,” she says. “The challenge is that it’s not across the board.” But “I can feel the value bulging at the seams in this place, and we haven’t found a way to tap into it.”

The Plan of Attack

With characteristic fearlessness, Debby Hopkins has used her first months in Seattle to address the profit-starved aerospace giant’s problems with deep dives–a favorite expression of hers–even if that means surfacing with some proposals foreign to her bosses. “We used to be able to walk behind and report the results of the business,” says Hopkins of the way Boeing’s finance department has done business. “Now we must be out in front, identifying the risks.”

The centerpiece of her effort: an evaluation of economic profit for every Boeing program. So far, this analysis shows a stunning 25 percent of the company’s $13 billion in product-line investments to be value-destroying or break-even. Hopkins calls the estimates of the units’ future cash flows, less cost of capital, a “launch-off point” for teaching managers about the concept of shareholder value. Hardly a radical idea–except at Boeing, where “creating a common language, a common methodology, and an idea of what goodness is,” as she puts it, qualifies as revolutionary. Before, it was assumed at Boeing that “we can’t really benchmark performance,” she notes. “Baloney; the shareholders are doing it.”

Hopkins has recognized that communicating the new profit discipline is as important as implementing it. Where her predecessors almost never granted media interviews, Hopkins has become a frank and colorful spokesperson for the company, telling analysts and journalists, for example, that any Boeing program would be “fixed or eliminated” if its economic-profit numbers slipped off the screen for long. “This isn’t a flavor-of-the-month club,” she said as she and Condit conducted a recent telephone press conference. “This has to do with the way we’re going to run the business forever.”

In another novel gesture for a Boeing CFO, Hopkins is visiting the company’s airline customers around the globe. Her mission: to explain to them why Boeing must adhere to a stricter pricing policy. She believes customers need to understand that Boeing’s sound fiscal health is in their best interests also. “You can’t give them value and go out of business,” she says.

Hopkins knows that firming up prices will take work, as air carriers play hardball with Airbus and Boeing. “I promise you,” she says, “that finance will have the intestinal fortitude to say no.” In fact, last year Boeing lost a big deal with British Airways to Airbus rather than back down on pricing.

On the issue of program accounting–the subject of the disagreement with Stonecipher–Hopkins has found a middle ground. Boeing will keep program accounting, but break out and explain for managers the program-accounting numbers embedded in the airliner unit’s financials. It will also provide “discrete” segment cost data that managers can use to keep better track of their progress.

That approach, Hopkins says, emerged from a recent finance-staff brainstorming session. She kicked off the session by saying, “I know we’re better than this. People think we’re obfuscating the numbers. Give me an idea.” When she saw senior manager Kevin Murphy’s “eyes light up,” she invited his thoughts. He came up with the idea of offering managers both accounting explanations, a suggestion she embraced. Murphy, promoted to director of general accounting since the session, says that Hopkins’s leadership offers “a chance to have finance really step up and be part of the solution by helping to add value.”

Of course, such innovations are necessary but not sufficient. Hopkins must also take on more-traditional challenges, like increasing the company’s conservative 27 percent debt-to-capitalization ratio toward 40 percent. Other finance challenges she sees ahead involve slashing the time it takes to close Boeing’s books each quarter from 13 days to 3. She is also trying to make sense of the hodgepodge of information systems at the company. “Having grown up in the information systems business is an advantage for me,” she says, noting that the problems are only partly a legacy of Boeing’s recent mergers. Some say the Baan enterprise resource planning software has caused difficulties because it is ill-suited to the aerospace business. But Hopkins doubts the IT issue is as simple as the conventional wisdom that “we simply have not designed the right system,” she says.

“Drinking from a Fire Hose”

The establishment of the single economic-profit metric will allow managers “to walk into a Boeing facility…know exactly what those charts are going to look like, and read our performance levels.” Hopkins doesn’t mince words about her disdain for Stern Stewart & Co.’s economic-value-added version of economic profit. “I hate EVA,” she says, because it seems designed to let “finance people demonstrate how smart they are. Our goal is to take the magic out of it.”

The new CFO relishes the challenge of explaining the metric to the troops herself. A tutorial on return on net assets that she delivered at one managers’ meeting won her some early raves, although she was shocked to find how little basic finance the executives understood.

Securities analysts, who had once given up on getting detailed operating information from the secretive company, are likely to be pleased as well, as they were late last year when Boeing began breaking out detailed segment data, and even forecasting future operating profit for units. Says Stonecipher, who was instrumental in revising the financial reports, “There were not 25 people in this company that had seen this data before.”

The Boeing president, a long-time engineer and manager for General Electric Co.’s aircraft-engine unit, got his CFO model from GE. “The CFO is your confidant and counselor,” he says, adding that he has found Hopkins to fill that role admirably. For her part, she sees herself as a “foil,” who helps Stonecipher develop ideas for his chief operating officer role.

Some analysts are cautious about how much she can do for Boeing. “She shows no fear, which is very important, whether you’re on the other side of a negotiating table or on the factory floor,” says Howard Rubel, of Goldman, Sachs & Co. And she “has the support of all the senior executives at the company to push the collective agenda.” Still, he adds, “one has to be careful about deifying anybody, because we’re all human.”

A Boeing finance-department veteran who asks not to be named notes that Hopkins has been “drinking out of a fire hose” to get up to speed on the aerospace business. But this person is impressed with how quickly Hopkins has won over the finance staff to her mission.

Impatience Is a Virtue

It is by making finance a player in operations that she sees the greatest chance of helping Boeing. There is hardly a corner of the vast company she doesn’t want to explore, from additional revenue streams to making the company more visible in Europe through alliances and joint ventures.

“What distinguishes people like Debby is the speed with which they can grasp business problems and take hold of the levers to make things work,” says her old mentor, James Unruh. But there is a flip side that may lead to trouble. “I suspect that Debby’s biggest challenge will be finding that balance of a healthy level of impatience,” he says.

Take her willingness to comment about the CEO job. “You have to be careful what you say, even if you believe it yourself,” Unruh says. Other Boeing veterans who might think themselves in line “aren’t going to be thrilled by someone who has barely found [her] way to the ladies’ room wanting to take over. It would probably have been better not to have said it.”

Hopkins makes no apology for her ambition, and says her remark provoked only laughter in chats with Condit and Stonecipher. “I’m this younger-ish woman in a relatively visible spot,” she says, “and I’m having fun with it.”

Besides, she suggests that a certain controlled impatience can be a positive. It was another lesson learned in her rush to assemble a plan to bring Unisys back from the brink, and it applies at Boeing, too. “You can study yourself into a hole,” Hopkins says. “We need to get it pretty close to right, and we can engineer along the way.”

Roy Harris is a senior editor at CFO.

———————————————————————— Congratulations, GE-Stylea After 27 years at General Electric Co., Harry Stonecipher was prepared to apply some lessons from that finance powerhouse when he became Boeing Co.’s acting CFO last fall. Lesson No. 1: Expect some ribbing from your old compatriots.

“Now I have seen everything!” GE’s then-CFO, Dennis Dammerman, said in a note. “Let me know if I can help in the search–as long as it is not for one of our guys!” Dammerman recently became GE vice chairman, and CEO of its GE Capital Services unit.

A former McDonnell Douglas Corp. CEO who came to Boeing as president after their 1997 merger, Stonecipher never held a finance post during his GE years. A physicist by training, he helped develop engines, and headed the huge aircraft-engine business for GE from 1984 to 1987.

Wrote GE chairman Jack Welch in his note to Stonecipher: “CFO??? Question: 2 + 2 = ?” — R.H.

———————————————————————— Just PlaneTrouble
Selling a record number of jetliners is no fun when margins are paper-thin.

This year at Boeing Co., an historic four-year aircraft production cycle will peak–traditionally, a time when revenues and profits soar. The record 620 Boeing planes to be shipped are three times the number delivered in the “trough” year of 1995. They will gross the company $38 billion.But few in Seattle are cheering. This time around, the profits didn’t materialize to go with the land-office business the salespeople produced. Production problems ballooned the cost side of the equation during the ramp-up–actually closing down the 747 and 737 lines completely for a month in 1997–while sharp price competition with Airbus Industrie sapped revenues.

And the economic crisis in the enormous Asian market, the largest for the extremely profitable 747 jumbo jet, has made the slide down the other side of the peak look precipitous indeed. Boeing’s expected deliveries of the $170 million planes next year: less than one-third of the previous two years’ orders. On top of that come the layoffs, as many as 48,000 of them by the end of the year 2000–once again casting a pall over the Puget Sound area.

Airliners represent 60 percent of Boeing, even after the McDonnell Douglas Corp. acquisition made Boeing the world’s largest aerospace company, and buying businesses from Rockwell International Corp. turned it into America’s biggest NASA contractor. But 1997’s airliner losses dragged Boeing into the red, and last year’s paltry $63 million in operating earnings on the commercial business was nearly as embarrassing. Boeing, now much more open about forecasting profit, doesn’t have much to forecast. It envisions minuscule margins of between 1 percent and 3 percent this year and next.

Plans for the Wrong World
What happened to the once-prolific airliner earnings machine? And did CFO Boyd Givan, who was ushered into early retirement last year, have anything to do with it? “It’s easy to point a finger,” says Charles W. L. Hill, chair of the department of management and organization at the University of Washington’s business school, “but what really happened is that they planned for one world, and they got another.”

He interprets Boeing’s problems in the 1990s as a convergence of global challenges to the old jetliner markets it once dominated, compounded by monumental bad timing. Boeing went through a downsizing cycle in the early 1990s. At the same time, it launched an efficiency-oriented program to reduce its supplier base, and rolled out its all-new 777 jetliner. It also began initiating an ambitious series of information-technology programs throughout the corporation–including the introduction of its Baan enterprise resource planning software–which, together, led to confusion and waste in the early stages.

“Then, all of a sudden,” says Hill, “the orders began coming in much faster than anyone had expected,” creating “the mother of all ramp-ups” on the production lines. Wooing back those fired employees and lost suppliers was difficult and extremely expensive. But Boeing’s ambition seemed unbounded. And when the opportunity to buy McDonnell and the space operations of Rockwell presented itself, Boeing felt it had to jump. And digesting such major operations–especially those of McDonnell, which has never overcome the culture clash from combining the straitlaced St. Louis military-airplane business with the more-entrepreneurial California Douglas airliner business–took its toll.

Meanwhile, Airbus Industrie was coming of age, learning to control costs and steal markets away for a growing family of Airbus products aimed directly at the weak spots in Boeing’s own family. Where once Boeing’s price set the standard rivals had to match, now airline customers found Airbus offering bargains–and pushed Boeing to match them, sometimes unprofitably. Dealing with McDonnell Douglas’s struggling MD-11 program didn’t help; Boeing last year decided to phase out the wide-body model.

Hill believes that trying to protect its “God-given 60 percent of the market” led Boeing astray. “If it had held the line on pricing and given up market share,” he says, “it would probably be a Wall Street darling right now.”

As for the role of ex-CFO Givan, and a Boeing finance department that rarely got involved in strategic thinking, one finance executive says that had always been Boeing’s culture. Sharing financial data across the company simply wasn’t done, and there was no thought to using data “to give people a line of sight on what they were doing for the company.” Adds new CFO Debby Hopkins: “For a long time, Boeing kept making its numbers,” even though its line managers lacked the basic financial data by which to measure their performance. Then, when competition forced the managers to boost their units’ performance, they found the numbers weren’t available, and in any case weren’t understood.

“We created a business model,” says Hopkins, “where people said, ‘I guess that’s not my business.’” — R.H.

———————————————————————— A Tale of Two Systems
How program accounting and discrete costing compare.

Program-accounting numbers are based on an “initial quantity” that allows reasonable cost and revenue averaging assumptions and that reflects Boeing’s projections of the existing market for a plane. ( For the 777 aircraft, the quantity was 400.) R&D is expensed as incurred; tooling costs are amortized and absorbed in the cost of sales over the initial quantity.

Discrete costing expresses actual per-unit expenses that decline along a learning curve from the first plane built. Early on, deferred production costs in inventory–including labor, but excluding the upfront cost of tooling–are built up, above the estimated average unit cost. Deferred costs are removed from inventory later in the program. (For the 777, deferred production costs incurred as of last December 31 were $1.7 billion; another $2 billion of inventory costs reflected unamortized tooling. All significant deferred production and tooling will be recovered from firm orders received before December 31, Boeing estimates.)

Elements of both accounting methods will now be reported more widely to production managers, and in external financial statements, under a plan drawn up by CFO Debby Hopkins. –R.H.

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