Boeing Board Accused in Lawsuit of Lax Oversight During 737 MAX Crisis
26 September 2020 - 3:52AM
Dow Jones News
By Andrew Tangel and Andy Pasztor
Boeing Co.'s board is accused of failing to properly oversee
management's responses to two fatal 737 MAX crashes and the plane's
safety problems in a shareholders' lawsuit that cites internal
company documents.
The suit, filed earlier this month in a Delaware state court,
claims former Chief Executive Dennis Muilenburg misled what the
plaintiffs portray as a largely passive board. Directors also
allegedly were preoccupied by negative news stories, failing to
press management over specific MAX engineering problems and
skipping meetings focused on safety, according to the 142-page
lawsuit.
The lawsuit, an earlier version of which was filed June 30, is
heavily redacted but offers a rare boardroom glimpse into the MAX
crisis, which has cost Boeing billions of dollars before the
pandemic forced it to lay off thousands of employees and slash
production of its commercial jets. Delaware law gave plaintiffs
access to more than 44,000 internal company documents.
A Boeing spokesman said the company believes the suit lacks
merit and will seek to have it dismissed later this year. Before
the crashes that took 346 lives, the spokesman added, Boeing had
protocols in place requiring board-level reports on the 737 MAX and
other design, development and safety topics. He noted the lawsuit
says the board repeatedly engaged executives after the first
crash.
"As one might expect of a filing by plaintiffs in a lawsuit like
this, the complaint presents a one-sided and misleading picture of
the activities of Boeing and its board during this period of time,"
the spokesman said.
Lawyers for the shareholders -- New York and Colorado public
pension funds -- allege a history of directors overlooking safety
matters. The board "focused relentlessly on monitoring and ramping
up MAX production" over the years, according to the suit, but "did
not look inward and investigate" the dual accidents partly because
it lacked an organized way to track safety concerns raised inside
or outside the company.
According to the lawsuit, after the initial crash in October
2018, it took Boeing directors nearly a month to hold their first
meeting, a conference call deemed optional in light of the
impending Thanksgiving holiday. Following the second crash in March
2019, when the board established an interim airplane safety
committee, the suit alleges that some of the panel's four members
ended up attending fewer than a quarter of the sessions.
The Boeing spokesman said the head of the panel, retired Navy
Admiral Edmund Giambastiani, attended every session. Public
portions of the redacted suit don't break out attendance by
specific directors.
The Boeing spokesman said the board panel, known as the
Committee on Airplane Policies and Processes, met almost two dozen
times in the five months after the second crash, including several
working group sessions. Not every member of the committee "would
have attended, or have been expected to attend, all working group
sessions," he said, and every director on the committee attended
all of the panel's meetings where decisions were made.
Other members of the safety committee included Robert Bradway,
CEO of biopharmaceutical firm Amgen Inc.; Lynn Good, CEO of
electric company Duke Energy Corp.; and Edward Liddy, former CEO of
insurance giant Allstate Corp.
Mr. Muilenburg and current and former board members either
declined to comment, referred questions to Boeing or didn't respond
to requests for comment.
Details that support claims of lax board oversight and director
attendance are among new information contained in the suit, which
was filed by New York state Comptroller Tom DiNapoli's office and
the Fire and Police Pension Association of Colorado. They won a
court's approval earlier this year to be lead plaintiffs in the
case after other shareholders launched similar actions and gained
access to internal Boeing documents.
Mr. DiNapoli, who oversees state retirement funds, said the
litigation was "critical to Boeing restoring confidence in its
operations, accepting responsibility for its misconduct, and
shoring up its financial standing."
The action is among the first known legal challenges aimed
largely at Boeing's board, in contrast to other legal actions by
victims' families and congressional investigators that have focused
largely on lower-level engineering and design decisions related to
an automated flight-control system that led to both crashes.
Known as a shareholder derivative complaint, it seeks to hold
current and former Boeing executives and directors responsible for
their alleged missteps and, if successful, could result in
defendants paying monetary damages to the corporation and prompt
internal governance changes. Plaintiffs are able to gain access to
internal company documents under Delaware law, but attorneys often
redact confidential company information cited in court papers.
Write to Andrew Tangel at Andrew.Tangel@wsj.com and Andy Pasztor
at andy.pasztor@wsj.com
(END) Dow Jones Newswires
September 25, 2020 13:37 ET (17:37 GMT)
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