I’m catching up on my correspondence after being off work for nearly two weeks. One email I received asked this question:

“I’ve always followed your writings on American Airlines and figured you are close enough to answer this question, especially now they are in bankruptcy.

“Why does AA refuse to bring in an outsider, especially outside the industry to turn AA around. Seems like their biggest problem may be the board?

“We saw how successful Continental was with Gordon Bethune and Greg Brenneman brought in to finally change its culture.”

That’s a good question. Here’s my answer to that reader:

I’m afraid I don’t know the thinking of AMR’s board. They’re a pretty closed-mouth bunch. But I think there’s an underlying point here that applies to most corporate boards: to admit your management is bad, you have to admit that you were bad.

Consider these theories:

1. If you (the board members) believe that the problem isn’t of AMR’s making, then you don’t blame the AMR management for getting AMR into trouble. The AMR rationale has always been that the bankruptcy of other major competitors left AMR at a cost disadvantage. Their thinking is that unions weren’t willing to make concessions needed to get AMR’s costs down to be competitive. For that, they blame the unions, not management.

2. If your board hasn’t significantly changed, a change of management would mean that board members would have to admit that they were wrong and at fault. They put the management in place; therefore, they are a bad board. No board wants to come to that conclusion. It’s much easier to find fault with others than yourself.

3. In Continental’s case, the company had had a complete turnover of its board after its December 1990-April 1993 visit to bankruptcy court. When it named Bethune as chief executive officer in November 1994, the average board tenure was under two years, and nobody was tied to the previous regime. In American’s case, the average tenure on the board at the time of the bankruptcy filing was over 11 years. Three of the board members had voted in favor of not just [Tom] Horton, but [Gerard] Arpey before him and [Don] Carty before Arpey.

4. I thought the Bethune-Brenneman team was outstanding. However, I had to note this: the 1995-2000 period was the most profitable period in the airline industry’s history. That’s the economy and situation that the B&B guys found themselves in as they took over Continental. Arpey took over as the airline industry was early in the worst period in its history.

Let me repeat what I said at the beginning. I know nothing about the thinking of the AMR board. I just offer the above points as something to chew on.

Terry Maxon

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