Boeing Co. BA 6.83% ’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.
The lawsuit alleges that Mr. Muilenburg misled directors by insisting after the first crash the MAX was safe. His “priority was the continued manufacture and sale of the 737 MAX,” according to the suit. The board, in turn, “consciously disregarded [his] failure to provide candid, factual” reports about reasons for the crash of the Lion Air jet off the coast of Indonesia, according to the plaintiffs. The suit said that in most instances, Mr. Muilenburg’s statements “were met with passivity and silence from the board.”
The suit cites communications between Mr. Muilenburg, then the board’s chairman, and other directors focusing on media coverage. Because of the redactions, it isn’t clear how concerned directors were about safety questions raised in the news reports.
On Nov. 14, 2018, roughly two weeks after the first tragedy, then-lead director Kenneth Duberstein, a former White House chief of staff, sent Mr. Muilenburg an email pointing out negative press, according to the suit.
“Very tough. Lots of negative chatter I’m picking up,” Mr. Duberstein wrote in unredacted portions of his message. “Not pleasant.”
Later that day, according to the plaintiffs, Mr. Muilenburg sent an update to the board about Lion Air with the primary purpose of contradicting a recent Wall Street Journal article. Over the following three days, according to the suit, Mr. Muilenburg continued complaining to senior aides about the accuracy of other news outlets’ reports.
The day after the second MAX crash in March 2019, on a flight operated by Ethiopian Airlines, Mr. Muilenburg “sent the board an email regarding Boeing’s damage control of bad publicity,” according to the suit. The details were redacted.
The suit also claims the board didn’t receive a briefing about the basics of airplane safety until the end of April 2019, weeks after the Ethiopian crash. It claims records of the board’s audit committee, responsible for overall corporate risk management, “never mentioned oversight of ‘safety’” from the development of the MAX to its eventual grounding.
Boeing shares climbed 7% to $156.03 on Friday after reports that regulators were expected to lift their MAX flight ban in November and that Federal Aviation Administration chief Steve Dickson, a former military and airline pilot, in the next few days is slated to follow through with pledges to fly the aircraft to boost passenger confidence.
The lawsuit accuses David Calhoun, a board member since 2009 who took over as CEO after Boeing’s board pushed out Mr. Muilenburg late last year, of misleading reporters about the board’s actions after both crashes.
Mr. Calhoun “misrepresented that the board had made a judgment” after the first crash in October 2018 when he told news outlets that Boeing’s directors, rather than management, had decided to keep the aircraft in service after considering a grounding. The Boeing spokesman declined to comment about the matter on behalf of Mr. Calhoun.
Following the initial safety panel, the board later in 2019 established a permanent committee as part of a broader revamp of the company’s engineering structure and safety reporting process. The suit notes those changes were aimed at ensuring safety matters were “reported up to executives and the board.”
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Appeared in the September 26, 2020, print edition as ‘Boeing Investor Suit Aims At Board.’