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Boeing Co. directors, including current CEO David Calhoun, lied about the company’s surveillance on its 737 Max 8 airliner and participated in a deceptive public relations campaign following two crashes fatalities involving the plane, say shareholders.
The board ignored red flags regarding the 737 Max, failed to develop its own tools to assess safety, and failed to properly hold former CEO Dennis Muilenburg responsible for launching a lobbying effort and public relations to fend off criticism of the aircraft. design flaws, according to recently opened court documents
“Prior to the grounding of the 737 Max, the board did not conduct its own assessment of the safety of keeping the 737 Max aloft,” investors said in an amended Delaware Chancery Court complaint that was made public on February 5. compounded his lack of oversight by publicly lying about it.
The unsealed documents, first reported by The Wall Street Journal, are part of a derivative lawsuit first filed in 2019 by Boeing shareholders after the Lion Air and Ethiopian Air 737 Max crashes hit kills 346. Unlike shareholder class actions, judgments or settlements in derivative lawsuits are generally reimbursed to the company from the liability insurance policies of its directors and officers.
‘Public interest’
The amended complaint makes public for the first time details of Boeing’s internal handling of the 737 Max debacle, which led to the planes stranding for two years. Delaware Court of Chancery Judge Morgan Zurn Agreed to Release Details of the Lawsuit After Finding “Public Interest” in Board Handling of 737 Max Fiasco “Favors Disclosure” .
“It is no surprise that a filing by plaintiffs seeking an advantage in a lawsuit presents a misleading and incomplete picture of the activities of Boeing and its board of directors,” said Bradley Akubuiro, a spokesperson from Boeing, in an emailed statement. “We believe the plaintiffs’ claims are unfounded and will renew our motion to dismiss the lawsuit later this year.”
In an unsealed company file, Boeing executives argued that they had “robust and well-established mechanisms” in place to assess the safety profile of the 737 Max before it left the ground and that “These systems worked to ensure board engagement on security issues. and the quality of Boeing products. “
Problems with the aircraft’s automated flight control system – which bears the acronym MCAS – were implicated in the crashes. Last year, the U.S. Federal Aviation Administration gave Boeing the green light for planes to resume passenger flights after major changes to MCAS systems. The 737 Max is expected to return to European skies this month after also being cleared by regulators.
But Boeing executives initially reported that possible piloting and maintenance errors played a major role in the October 2018 crash of Lion Air Flight 610 in Indonesia as they covertly began to fix MCAS flaws. .
Diversion campaign
Two weeks after the Lion Air crash, Muilenburg launched a ‘public relations, investor relations and lobbying campaign’ aimed at countering condemnations by US airline pilot unions of Boeing’s 737 Max design revelations and a wave of negative press. The campaign made no mention of Boeing engineers’ attention to MCAS, but instead sought to distract from other possible reasons for the crashes, according to the modified suit.
Two directors – Calhoun and former Reagan White House chief of staff Ken Duberstein – were briefed on the campaign, according to internal emails noted in the amended 119-page complaint. Calhoun took over from Muilenburg as CEO of Boeing in January 2020.
Instead of holding Muilenburg responsible for allowing the 737 Max to carry passengers with a faulty flight control system, the administrators led a public defense of their beleaguered CEO in May 2019, according to the lawsuit. Calhoun led the charge, according to the complaint.
“Calhoun and the board did not stop defending Muilenburg until they learned in December 2019 that his relationship with the FAA had broken down and that the FAA would not re-certify the 737 Max any time soon,” says the trial.
Benefits of bad faith
The directors continued to act in bad faith when they decided not to fire Muilenburg in a way that would deny him $ 38 million in stock benefits, according to court documents. Instead, the board chose to allow the CEO to retire through his capital grant.
“By paying Muilenburg, the board avoided a public argument with him that would inevitably raise questions about the board’s guilt by supporting him and failing to monitor security,” shareholders say.
The case is In Re Boeing Co. Derivative Litigation, 2019-0907, Delaware Chancery Court (Wilmington).
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