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
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
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
"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
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 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
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
regulations 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
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
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."
Write to Andrew Tangel at Andrew.Tangel@wsj.com and Andy Pasztor
(END) Dow Jones Newswires
September 25, 2020 16:50 ET (20:50 GMT)
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