Prosecutors Credited Boeing for Compliance, Organizational Reforms
By Dylan Tokar
Boeing Co.'s $2.5 billion settlement with prosecutors last week
underscores a continuing focus by prosecutors on ensuring that
compliance programs are effectively structured and independent of
certain business considerations, lawyers say.
The plane maker undertook a series of structural reforms in the
run-up to its settlement with prosecutors over the company's
interactions with regulators over a flight-control system on its
737 MAX airplane. It created a centralized team overseeing product
safety, and reorganized its engineering function so that technical
specialists report to a chief engineer, instead of the company's
Such governance changes are often part of companies' efforts to
fix the underlying issues that gave rise to a legal violation.
Companies from a diverse range of industries, including Goldman
Sachs Group Inc. and Volkswagen AG, have undertaken similar reforms
in recent settlements with prosecutors.
The Boeing settlement shows the "importance of ensuring you have
the appropriate structure in place," said Fiona Moran, a lawyer for
Davis Polk & Wardwell LLP. It reflects prosecutors' view that
companies "should be focused not just on stopping violations, but
also on preventing similar violations in the future," she said.
A Boeing spokesman said the company was committed to continuous
improvement of its compliance program.
"We have taken significant steps to further strengthen this
program over the past year, including through organizational
changes, enhanced compliance policies and training initiatives, and
the creation of new mechanisms for reporting safety, quality, and
compliance concerns across our company," the spokesman said in a
The Justice Department often gives companies that proactively
fix underlying issues -- a process known as remediation -- more
lenient settlements and smaller penalties.
The investigation into Boeing centered on the role of two Boeing
employees who prosecutors have alleged deceived Federal Aviation
Administration training specialists about the functioning of a new
flight-control system that led to two crashes and claimed 346
Prosecutors said they ultimately didn't find the misconduct to
be pervasive or to involve senior management. But they credited
Boeing for nevertheless undertaking broad structural reforms aimed
at preventing similar misconduct in the future, saying it was one
reason why the company wasn't required to hire an independent
monitor to oversee its compliance reforms.
In addition to changing the reporting line for engineers and
centralizing product safety, Boeing also created a permanent
aerospace committee on its board of directors and made changes to
the structure of its flight technical team.
The creation of a board-level committee is in line with language
from Justice Department guidance highlighting the importance of
having board-level oversight and involvement in compliance
processes, said Andrew Wise, a lawyer at the firm Miller &
The changes in reporting lines reinforce principles from the
same guidance related to ensuring that compliance functions remain
independent from interference, he said. The guidance, which was
released in 2017, contains the principles that prosecutors use when
evaluating corporate compliance programs.
"The value of that improvement is that folks that have the
technical knowledge and can spot issues have a centralized way they
can report them, so that they are insulated from interference by
business leaders who may be more swayed by economic or bottom-line
considerations," Mr. Wise said.
Other companies have taken similar steps when confronted with
compliance crises. Volkswagen AG, for example, created a management
board position to supervise its legal and compliance functions
after admitting to rigging its diesel vehicles to cheat emissions
Goldman Sachs more recently promised greater scrutiny of top
executives after it reached a $2.9 billion settlement last year to
close the door on a probe into its role in a bribery scheme
involving the Malaysian government fund known as 1MDB.
The investment bank created several firmwide committees to
develop an employee conduct strategy and review sensitive
transactions that might pose a reputational risk.
The question with such reforms is whether they will work. For
Boeing, which has pledged to step up internal controls in prior
settlements over the years, a breakdown in safeguards can have
especially severe consequences. To monitor the changes, the Justice
Department is requiring Boeing to meet with the prosecutors at
least once a quarter and file work plans and status reports.
Roy Goldberg, an aviation lawyer at Stinson LLP, said the DOJ
settlement was consistent with the approach taken by the FAA in
recent years, which was to have a partnership relationship with
aircraft manufacturers such as Boeing.
"The main thing going forward is to make sure that pilots and
engineers know they can speak up," Mr. Goldberg said. "You have to
separate out the business motive of Boeing and the safety. You
can't have them tied together."
Write to Dylan Tokar at firstname.lastname@example.org
(END) Dow Jones Newswires
January 15, 2021 10:29 ET (15:29 GMT)
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