UE 4 : Organisational Architecture

& Business Transformation

Year : 2018-2019

AIRBUS : LIVING THROUGH YESTERYEARS

CONTRADICTIONS

BORDAS Clara – CHTAINI Yassine – MSA Ibrahim – PAGOLA Romain –

SENHAJI Meryem – TAHRI JOUTEI Ines – UMANETS Irina

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A. What are the most striking factors of flaws in EADS’ and Airbus’ corporate
governance?

European Aeronautic Defense and Space Company (EADS) was created on July 10,
2000 by the merger of the German DaimlerChrysler Aerospace, the French
Aerospatiale-Matra and the Spanish Construcciones Aeronauticas. A Franco-
German co-presidency system has been set up so each country could keep their
prerogatives. But this system highlighted some flaws in EADS’ and Airbus’ corporate
governance.

▪ The co-presidency system: The group decided to call two CEO to be at the
head of Airbus. This led to operating problems with a dual-reporting system as
well as difficulties in decision-making. We can take in example the co-
presidency of Louis Gallois et Christian Strieff: Christian Strieff, to
compensate the loss due to the delay of A380, tried to set up a restructuring
plan “Power 8” whose goal was to outsource Production. Because of
disagreements with the board and Louis Gallois, Christian Strieff left the
group, leaving Gallois alone to the CEO position. The different interests of the
two countries led to a governance that ensure the best political compromise.

▪ A350 Megalomania: When Airbus launched the production of A350, the

aircraft manufacturer has seen too big. It would have been more humble on
the subject, take safety margins, start by launching a prototype and not start
with mass production. This management led to a series of delays of the
production.

▪ Opacity in business reporting & investors’ relations: the reporting

systems were twisted to minimize the impact. It was done this way in order to
empower Senior Managers and let them solve operational problems by their
own. Also, financial data as well as press releases being very opaque and
conservative so it won’t reveal existing difficulties.

▪ Internal Mobility system: The group tried to establish an internal mobility

system but didn’t realize it was a self-destructive system. Indeed, the
employees who wanted to do an internal move had their bonus squeezed. In
the same time, they had to prove their worth all over again to their new

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 department chief. Once this phenomenon has been known by the Airbus
employees, mobility has slowed down considerably.

▪ Decision-making process: Decision-making was slow and heavy, but it was

appropriate in a slow and conservative industry such as aeronautics.
However, the company operates in a sector in which high technology and new
technical features are tendencies.

▪ Performance management and time optimization: many meetings are

planned but no creativity gets out of it. Furthermore, a large number of
employees don’t have clear responsibilities and tasks : several administrators
do have overlapping duties within the company. Also, Airbus accounts more
than 400 executives for 57,000 employees. In comparison, Boeing accounts
160,000 employees for only 250 senior executives. Those figures highlight the
bad tasks repartition among the executives

B. Which critical elements led to the current situation?

Several critical elements led to the current situation. The first element would be
political tensions between Germany and France because of cultural differences
and management systems. Also, nationalism was quite substantial to some
employees who didn’t enjoy seeing a CEO from another country than them.

The complexity of the hierarchy within the group : “Design offices could have up to
11 layers of management from junior engineer to the head of the company” made
decision-making and process fluidity quite difficult. Also, the group had a fear of
failure: for example, if a top manager has the courage to report problems or
dysfunctionalities, he was going to be strongly punished by his superiors who
preferred to bury their heads in the sand. In reaction, no manager wanted to identify
the problems and issues and preferred to let things unveiled by themselves.

Another critical element was the pressure from US lobbies: From September 2006
to May 2007, EADS has been the subject of two decision briefs of the Center for
Security Policy, that aim to demonstrate that EADS is a company exercising dubious
management and colluding with US enemies. Several themes were discussed such
as espionage and bribes. Also, proximity with Russia had been discussed: after

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the country acquired 5% stake in EADS capital, this action was considered a threat
because of the influence that Vladimir Putin could have on the management of the
company. Finally, the supply of weapons by EADS to Venezuela, China and Iran
known as enemies of the United States made the US Congress to cancel the JCA
program "Joint Aircraft Cargo" by which the United States would buy C-295 to EADS.
In addition, it also requires the cancellation of Coast Guard Deepwater program
payments for which the United States had already ordered C-295.

C. How would you draw a roadmap for a sustainable operational recovery that
includes solving the root cause problems in corporate governance?

In order to solve the problems at the root of corporate governance, we thought of a

roadmap to follow. This roadmap is a plan for a sustainable operational recovery for
Airbus.

The 1st step to follow has already been put in place at Airbus: it is to maintain a
single CEO with a Top-Down management. This step is crucial and must remain
unchanged for better management and better division of labor.

The 2nd step is to maintain a mono-partite governance, that would be the solution to
stop having two countries at the head of the company. As a result, communication
problems will be reduced, and the risk of disagreements will also be eliminated. This
step coincides with the previous one, as the implementation of a single-party
governance with a single CEO who will allow a single decision.

The 3rd stage concerns the communication and organization of the company.
Indeed, it is always better to simplify the structure of the company to streamline the
communication internally. Thus, decisions will be better discussed and information
will be shared among all services.

At Airbus, there is also a problem within the hierarchy, for example, there are 400
executives for 57,000 employees against 250 executives for 160,000 employees at
its competitor Boeing. These figures prove that the hierarchy is disproportionate, and
often at Airbus, all these executives do not have a well-defined mission.

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The 4th step would be to review this hierarchy and better organize it to better
distribute the missions between the different teams and services.

The 5th step would be to promote and facilitate mobility within the company. In
addition, it would also be interesting to offer bonuses and premiums to motivate
employees and encourage them to do a better job. Every employee needs to know
that he can evolve in a company and climb the ladder quickly, so Airbus should
propose that.

In order not to weigh down the procedures and not waste too much time, the 6th step
would be to reduce the time spent in meetings. Indeed, the employees are saturated
with endless meetings which affect their productivity. They should meet only for
useful topics.

The 7th step concerns stakeholders. Airbus must imperatively streamline

communication with stakeholders, moreover, it is necessary to make business
reports more transparent, and share information with investors or unions.
Transparency is the key word of this step.

To finish the 8th and last step is to accept the errors and to take inspiration from the
Anglo-Saxon model. Indeed, at Airbus, often, employees are afraid to make
mistakes, managers hide errors, but it is by distributing and communicating that we
can avoid disasters and we can improve.

D. Describe the critical changes at all levels that need to occur to permanently
solve the current issues of corporate governance: start by the shareholder
base, the structure of the firm, of the board, the regulation mechanisms and
committees, the independence and neutrality of key actors, the incentive
models, management compensation and the reporting systems.

In order to solve the current issues of corporate governance within the group,
changes at all levels should occur.

First, the shareholder base should be simplified in order to secure a shareholding

structure that allows France, Germany and Spain to protect their legitimate strategic

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interests. That would involve the decrease of Daimler AG et Lagardère’s financial
holdings.

A restructuration of the board which could be composed of independent non-

executives’ members would maintain a better neutrality of the decisions taken.

A restructuring phase for the structure firm should also occur to simplify the
governance: our recommendation would be that Airbus integrate finance, HR,
Communication and legal services, functions that are now ruled by several heads of
department. An in-depth change would modernize the group and would enable
Airbus to be more efficient and flexible. Another lead would be to remove
intermediate levels of Management: the group executes a very vertical organization
but reducing the Organization Chart would tighten control over key functions as well
as create an innovation ambiance within the firm.
Provide a Cross-functional perspective can also be a source of performance and
efficiency, indeed by tightening up Airbus’ Executive Committee, the group will better
define the responsibilities and will be able to ensure more transparent governance.
Also, giving various responsibilities to divisional heads of departments and not only a
single mission would be an innovation compared to the old way of working.

That would also include improvements of the Management style to promote agility
and to create synergies. Indeed, setting up lean management would improve the
company performance by allowing all employees to develop their capabilities.
This management style would help to create a better work environment where the
employees would feel more listened to and acknowledged, encouraged to make
innovative projects so they have a stronger feeling of belonging. Also, the
management compensation should be fairer: an employee who is moving to
another department should receive the bonus that he should have obtained before
his transfer. Finally, the reporting systems should be more transparent and the
managers should be able to report freely the issues that they could identify.
Minimizing risks and failures as the company does is counterproductive and leads to
huge Production delays like A380.

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 REFERENCES:

https://infoguerre.fr/2007/11/focus-de-knowckers-eads-destabilise-par-un-lobby-americain/
https://www.operaepartners.fr/la-definition-du-lean-management/
https://www.marianne.net/economie/airbus-risque-de-tomber-aux-mains-des-americains