More Bad News for Boeing- Board targeted

A judge lays out case of how the company shifted away from safety

September 12, 2021

On an overcast Seattle morning a bit over a week ago, standing in front of the red barn I wondered- what would Bill Boeing think?

Preserved for more than a century this barn is where Boeing, the founder of the now industrial giant, built some of the first commercial planes in America in the early 1900s. The Boeing Barn is now surrounded by the museum of flight alongside the airport known as Boeing Field. Boeing has played a pivotal role in aviation, but the history of late for this industrial icon is not good, and it was another really bad week.

While 737 MAX production and deliveries have resumed after two deadly crashes, Boeing is now having trouble with its new 777X and its 787. The problems for the company are not just restricted to the production floor.

In corporation friendly Delaware, a judge just skewered the company in a new ruling that could make Boeing’s board members liable for the deaths associated with the MAX crashes.

AMERICAN INSTITUTION

Part of America’s reputation for ingenuity and innovation was built by Boeing as it designed products including the 747 and NASA hardware. Boeing is one of the largest US exporters helping keep our international trade somewhat in balance.

A 737 MAX on takeoff. (Credit: Boeing Co.)

However, a Delaware judge contends there is something deeply wrong with this American powerhouse.

Shareholders asked Judge Morgan Zurn for the ability to sue Boeing Board members for, “not providing proper guidance and safety oversight to the company,” in the case of the MAX crashes She said yes by refusing to dismiss the lawsuit brought by two pension funds. Zurn cited Boeing’s board directors, “complete failure to establish a reporting system for airplane safety, or on their turning a blind eye to a red flag representing airplane safety problems,” adding, “The stockholders may pursue the Company’s oversight claim against the board.”

Judge Morgan Zurn (Credit: Delaware Court of Chancery)

That is bad news for board members including the current CEO, two former CEOs, Caroline Kennedy, Admiral Edmund Giambastiani, the guy who used to run AT&T, and several others.

BROAD RULING

Zurn didn’t stop there. This ruling is an indictment with the jurist contending an American powerhouse has lost its way.

One sentence seems to capture the judge’s feelings about the Board (the Defendants) and the company as a whole. “Rather than prioritizing safety, Defendants lent their oversight authority to Boeing’s agenda of rapid production and profit maximization,” she wrote last Tuesday.

Many of us who have covered Boeing for decades have watched the company evolve. There was the merger with McDonnell Douglass, moving corporate headquarters to Chicago from Seattle, and the growth of Boeing’s various businesses.

Canvas wing construction at the Boeing Company in Seattle. Credit: (Boeing Co.)

The judge provides her history of Boeing, which started in 1916 and thrived as, “an association of engineers.” But the focus on safety and engineering at the company's beginnings, “fell away,” Zurn claims as the company grew. She points to the big merger in 1997 as a turning point.

THE MERGER

“Boeing acquired McDonnell Douglas, another airplane manufacturer with a long history of pushing profits, shirking quality control, and designing products involved in numerous safety incidents. With former McDonnell Douglas leaders at the helm, Boeing’s corporate culture shifted from “safety to profits-first” and “focusing on costs-cutting rather than designing airplanes,” she wrote.

“Wal-Mart perfected its particular version of the cost-cutting business model. Amazon adapted that model to its industry. Boeing has adapted it to high-end manufacturing,” Zurn added.

As for moving corporate headquarters to Chicago, she claims, Boeing did so after a strike by engineers, “in order “to escape the influence of the resident flight engineers,” in Seattle.

BOEING RESPONDS

In response to this ruling Boeing says it is, “disappointed in the court’s decision,” and is reviewing the opinion and considering, “next steps.”

Boeing, which for decades has been in a dogfight with rival Airbus, has watched its European competitor secure about 60 percent of orders since the MAX tragedies. Historically, the marketshare split is closer to 50-50.

Current Boeing CEO, Dave Calhoun (Credit: Boeing Co.)

On an earnings call this summer current CEO David Calhoun, one of the defendants, says he plans to get some of that marketshare back. He says his leadership team is getting a handle on the company’s problems. “So, I really do apologize to investors, and I apologize for guessing that the last issue was our last. But we're getting close. And most importantly, the underlying causes are getting understood and resolved,” he said

I wonder what Bill Boeing would think.