737 Max: Boeing's Board of Directors has not reviewed in detail safety before accidents

In the first meeting with a Boeing board member since the crash, Calhoun, who joined the board in 2009 and became its chief executive last year, defended his group's decision to keep planes in the air. air. "I do not regret this judgment," he said. "And I do not think we were wrong at that time and place."

A board of directors, formed on behalf of the shareholders, recruits and dismisses the chief executive officer, sets the compensation of the senior management and asks them whether their decisions serve the long-term interests of the company. "They have set up safeguards for the CEO," said James Schrager, professor of management at the Booth School of Business at the University of Chicago.

Boeing Chief Executive Officer Dennis Muilenburg is supported by the Board of Directors. Muilenburg, a long-time Boeing engineer who has risen through the ranks of his defense industry, was the sure choice to succeed James McNerney when he stepped down as chief executive in 2015. With Muilenburg at the helm , the stock price has tripled in three years. When McNerney left the board, Muilenburg was given the powerful dual role of chairman – chairman of the board – and CEO.

While the company is currently facing one of the most tumultuous episodes in its history, critics ask what safeguards the board has put. Throughout the history of the 737 Max, the board seemed to mingle with the leaders of the company.

When building the 737 Max, the board should have asked tough questions about how the safety of the aircraft had been tested, said Charles Elson, director of the John L. Weinberg Corporate Governance Center. from the University of Delaware. "The directors are not there to meddle in the design of the plane," Elson said. "They are there to make sure the processes used for the design of the aircraft are efficient and safe."

Boeing could have prevented a second tragedy when he had immobilized the 737 Max after the first accident, said Tom Demetrio, a lawyer who sued Boeing on behalf of the families of Indonesian crash victims. "The Ethiopian plane should never have been allowed to take off," Demetrio said. "Boeing, not knowing why the Lion Air crash, should have said," Everyone, stop driving these damn things. "

[U.S. and Boeing have long had a special relationship]

None of the government agencies aware of the details of the Lion Air investigation called for a grounding jet aircraft before the second accident.

In the days following the crash in Ethiopia, the jury quickly reversed its position by failing the fleet. First, in the midst of a worldwide uproar, Muilenburg called on President Trump and asked him not to anchor the planes. A day later, after a phone conversation with his team, Muilenburg called on Trump to urge him to change course and recommend a grounding ordinance, with Boeing attempting to override a likely directive from the Federal Aviation Administration, according to an informed person who spoke. on the condition of anonymity, as they were not allowed to disclose private conversations.

The reputations of Boeing's board members are at stake. The Investor Advisory Panel Glass Lewis recently urged shareholders to vote to dismiss a director, the former chief executive officer of Continental Airlines, Lawrence Kellner, because the audit committee he oversees "should have played a more proactive role in identifying the risks associated with the 737 Max 8". Kellner was re-elected.

Board members of Boeing. (Getty Images, AP and the Washington Post)

During interviews, Kellner and Calhoun both stated that the board of directors had never been informed of the MCAS software before the Lion Air crash and that they did not see in their work to inspect all the technical features of an aircraft. Kellner, who became a director in 2011, said other board members were trying to figure out whether they should have asked questions earlier about the safety of the plane.

"We should review our process, what we are," said Kellner. "I think everyone should look back and say," What can we do to strengthen this process? "

A growing number of Boeing investors think Muilenburg has too much influence on the board. At the company's annual investor day on April 29, one in three shareholders supported a proposal to restructure the board with an independent chairman – a board member with more powers to challenge the CEO. Boeing argues that its lead director, Calhoun, has the power to set the agenda for board meetings and to consult the directors on the performance of the CEO.

The proposal was not accepted, but it yielded a higher vote share than a similar measure last year. Boeing's spokesman declined to make Muilenburg available for an interview.

Calhoun said the board had considered appointing an independent chairman and had recently discussed the issue with some of the company's largest institutional investors. However, following the recent shareholder vote that rejected the measure, he said he was "confident that we are in the right place" in terms of governance.

A transfer of plum

A place on the Boeing Board of Directors is a prestigious and well-paid job. Each director receives an average of $ 324,000 in cash and shares, the 29th highest salary of the board of directors in a recent survey conducted by compensation researcher Equilar. Boeing sends board members to Chicago or another city with Boeing facilities for a one-day meeting every other month; they usually arrive on Sunday afternoons and depart on Monday afternoons.

Lynn Good, CEO of Duke Energy; Robert Bradway, CEO of biotechnology giant Amgen; and the former leaders of Allstate, Medtronic, Aetna and Nortel. Caroline Kennedy, former US ambassador to Japan and daughter of John F. Kennedy, joined the group in 2017.

At the beginning of this century, Boeing's leaders helped manage scandals by overthrowing two successive executives: Phil Condit was forced to resign in 2003, after an investigation revealed that his team had broken the rules of Ethics by promising a position to a Procurement Officer; Harry Stonecipher was forced to leave his post in 2005 following the discovery of his extramarital affair with a Boeing employee.

In a statement at the time of his resignation, Condit said he feared that the controversy "kidnaps" the company. Stonecipher did not comment at this time.

Boeing's next CEO, McNerney, became the first executive to serve in the company with the three titles of President, President and Chief Executive Officer, giving him broad decision-making authority. McNerney, a former GE executive with a large network, has recruited allies such as Calhoun, his former GE colleague, to the board.

McNerney declined to comment by a representative of Boeing.

[With its ties in Washington, Boeing has taken over more and more of the FAA’s job]

In a series of meetings held in 2010 and 2011, Boeing's board of directors explained how the company would face the threat of a new line of more fuel-efficient Airbus aircraft, people said. present at these meetings. Several administrators feared that a new plane would be too expensive and time consuming to put on the market, especially since Boeing exceeded its budget and exceeded its deadline for the launch of the 787 Dreamliner. people present at the meeting. The board explained that it would be faster and cheaper to reorganize an older version of a Boeing jet.

The plan to reorganize a former 737 jet engine included larger engines mounted higher up on the wings, which changed the aircraft's balance. Boeing engineers designed the MCAS software to compensate for this imbalance. In both accidents, investigators felt that an instrument called an attack angle sensor had powered the MCAS software into erroneous data, causing it to poke the nose of planes down. The final causes of the two accidents have not been determined.

A problem for board members is the lack of technical expertise. John H. Biggs, former CEO of the TIAA-CREF insurance company, was Boeing's director during some discussions around the 737 Max and does not remember anyone in this group questioning whether a reconfiguration of the 737 with larger engines would create compromises that could affect safety.

"The council has no tools to oversee [safety]Biggs said, "The FAA does not seem to be able to determine what is safe, so how do you expect council members to do that?

Some corporate boards, such as JetBlue and Dow Chemical, require safety oversight in their bylaws, as this is part of their risk management duty. Boeing's corporate governance principles do not mention the word "security" and its board of directors does not include any aviation safety experts.

Calhoun said Boeing's board of directors is still checking whether a new or reconfigured aircraft is the best solution to consider adding a new aircraft to its fleet. Calhoun said it makes no sense for a council to be made up of aviation or security experts. Instead, he says, the group relies on each director's expertise. Kellner can meet the needs of airline customers. Calhoun knows how to manage suppliers since his experience at the GE aircraft engine builder. He also stated that the board had received regular updates on the Boeing certification process with the FAA.

"Do we ensure that the rigor around these processes is good and that they are reported to us step by step? Of course we do, "said Calhoun. "Are we going to the test site and watching the monitors to see if they are working properly? No, we do not do it. "

Boeing's board also relied on the company's strong track record in security. On all Boeing 737 aircraft models, a fatal accident occurred 0.23 times per million flights, according to data compiled by AirSafe.com.

An FAA spokesman cited recent testimony from agency interim administrator Daniel Elwell, who has championed the strong safety record of US commercial flight over the last few decades. "Since 1997, the risk of a fatal accident in commercial aviation in the United States has been reduced by 95%," Elwell told a Senate subcommittee. "And in the last 10 years, there has been only one passenger death in a commercial plane in the United States in more than 90 million flights."

Facing a crisis

Boeing's board work was further complicated in October 2018, when a 737 Max hit the sea off the coast of Indonesia. With 189 dead, it was the deadliest accident of 50 years in the history of the Boeing 737, according to the aviation safety network. Half of the directors who approved the aircraft were still board members of Boeing, but the boardroom was now headed by Muilenburg.

Shortly after the accident, Muilenburg informed the board of the process to follow, Calhoun said. Boeing would work with the investigators to try to determine the cause of the accident, while his engineers were discussing whether improvements to the safety of the 737 Max were warranted.

"Everyone holds their breath," said Calhoun. "You hold your breath and you start thinking of all the responsibilities you have now."

[How the FAA allows jetmakers to ‘self certify’ that planes meet U.S. safety requirements]

For Calhoun, one of the responsibilities was to learn for the first time about the MCAS. Boeing wanted the software to automatically adjust the aircraft so that it behaves like the previous models of the 737. But the preliminary reports on the accident in Indonesia showed that the pilots of the aircraft Lion Air had trouble turning it off in the seconds before the crash.

The Calhoun review concluded that the MCAS itself was operating as intended and met the company's safety criteria during construction. "The engineering disciplines deployed in the development and implementation of MCAS were strong and well executed," Calhoun said.

Meanwhile, Boeing was taking steps to strengthen its investor relations. The board of directors approved a plan to give investors a $ 20 billion cash back in the form of repurchase of shares – the most important stock repurchase program of the company. 39; history of the business – and to increase by 20% the dividend or the amount paid to each investor each quarter. .

The decision to melt

On March 10, another crash of a 737 Max in Ethiopia plunged the company into a crisis. Regulators around the world ordered the grounding of the jet, based on preliminary findings that the aircraft was following a similar trajectory to that of the Indonesian plane.

Boeing first tried to reassure the public about the safety of the aircraft. In a conversation with Trump on March 12, Muilenburg urged the president to keep the 737 Max in the sky, according to an administration official familiar with the discussion. The FAA has become one of the last cases of regulatory delay, stating that an examination of the aircraft revealed no reason to remove it from the air.

But the next morning, Calhoun said the council had phoned to review new evidence from a "Canadian source" that showed that MCAS had probably been activated. On this basis, they decided to recommend to regulators and airlines that the 737 Max be grounded, he said.

Muilenburg called Trump a second time to inform him of the stranding, Calhoun said. According to an administration official, Muilenburg said he wanted to work with the White House to coordinate an announcement regarding the grounding. But shortly after the call, Trump publicly announced the incident before Boeing could issue a statement. This was followed by an official order from the FAA.

A White House spokesperson did not respond to requests for comment.

The same week, Boeing's board released its annual report on the company, called proxy. A power of attorney usually tells investors how the board has evaluated the CEO's performance, how they calculated key management compensation, and whether new risks to the company have become apparent. Boeing's Power of Attorney made no mention of the 737 Max or how its anchor could affect the business. Boeing spokesman said the document was completed and printed on March 8 – two days before the Ethiopian crash – but was filed with the Securities and Exchange Commission after the March 15 crash.

The board approved a $ 23.4 million payroll package for Muilenburg, an increase of 27% over the previous year, saying "2018 was a very good year for Boeing", with recipes , profits and record aircraft deliveries. But in April of this year, with sales of all 737 Max aircraft on hold, the company made the unusual decision to withdraw its financial outlook for the year and announced that it would temporarily halt the share buyback program. .

Last month, the Ministry of Transport set up a special committee to "determine if improvements can be made to the FAA aircraft certification process," after congressional members criticized the agency for from aviation to have delegated to Boeing too many aspects of aircraft certification. Its board members have formed a new committee to "confirm the effectiveness of our policies and processes to ensure the highest level of safety on the 737 Max program", as well as other aircraft.

A trusted leader

On a Monday of rain Monday morning, late last month, Boeing's board members shared a bus ride between a Chicago hotel and the annual meeting of shareholders at the city's museum. When their bus arrived at the museum's parking lot, they met a group of five men in the rain, holding umbrellas and billboards displaying the faces of the victims of the two 737 Max accidents. The reporters chased the directors who were invited to sit in the front row of the auditorium.

Later in the day, the board held a meeting devoted exclusively to Boeing's response to accidents, Calhoun said. After discussing recent news regarding regulatory approvals for the Boeing 737 Max software update and the latest details from accident investigations, Muilenburg left the room to allow directors to discuss any concerns regarding his authority.

The "Leadership Session" – a tradition at all Boeing Board meetings – was brief.

"Dennis has our total and total confidence," said Calhoun. "We are convinced that he is doing the right things."

Josh Dawsey contributed to this report.