Boeing Co. directors, including current CEO David Calhoun, lied about the company’s oversight of its 737 Max 8 plane and participated in a misleading public relations campaign after two fatal crashes involving the plane, shareholders say.
The board ignored the red flags on the 737 Max, did not develop its own tools to assess safety and did not adequately hold former CEO Dennis Muilenburg adequately responsible for launching a lobby and public relations effort to resist criticism of the plane. design flaws, according to recently opened court documents.
“Prior to the 737 Max’s stranding, the board failed to conduct its own safety assessment of keeping the 737 Max in the air,” investors said in an amended complaint from the Delaware Chancellery Court that was made public on February 5. The board then “exacerbated its lack of oversight by lying publicly about it. “
The unsealed records, first reported by the Wall Street Journal, are part of a derivative process initiated in 2019 by Boeing shareholders after Lion Air and Ethiopian Air 737 Max claimed a total of 346 lives. In contrast to the collective actions of shareholders, judgments or agreements in derivative actions are usually returned to the company through liability insurance policies for its directors and officers.
‘Public interest’
The corrected complaint makes public for the first time details about Boeing’s internal handling of the 737 Max disaster, which led to a two-year stranding of the planes. Delaware Chancellery Court judge Morgan Zurn agreed to make the details of the case public after completing the “public interest” in how the board handled the 737 Max fiasco “favors disclosure.”
“It should come as no surprise that an action by plaintiffs seeking to take advantage of a lawsuit presents a misleading and incomplete picture of the activities of Boeing and its board of directors,” said Bradley Akubuiro, a spokesman for Boeing, in a statement by email. “We believe that the claims of the claimants are without merit and we will renew our motion to dismiss the action later this year.”
In an unsealed company case, Boeing directors argued that they had “robust and well-established mechanisms” to assess the safety profile of the 737 Max before it left the ground and “these systems operated to ensure the board’s involvement in issues related to the safety and quality of Boeing products. ”
Problems with the airplane’s automated flight control system – which goes by the acronym MCAS – were implicated in the accidents. The U.S. Federal Aviation Administration last year gave Boeing the green light to allow planes to resume passenger flights after extensive modifications to MCAS systems. The 737 Max is scheduled to return to European skies this month, after being released by local regulators as well.
But Boeing executives originally pointed out possible pilot and maintenance mistakes as playing a major role in the Lion Air Flight 610 crash in October 2018 in Indonesia, while secretly beginning to resolve MCAS failures.
Diversion campaign
Two weeks after the Lion Air accident, Muilenburg launched a “public relations, investor relations and lobbying campaign” aimed at opposing the condemnations of United States airline pilots’ unions to Boeing’s disclosures about the design of the 737 Max and a wave of negative criticism. The campaign made no mention of Boeing engineers’ focus on MCAS, but instead sought to divert attention to other possible reasons for the accidents, according to the amended process.
Two directors – Calhoun and former White House Reagan chief of staff Ken Duberstein – were briefed on the campaign, according to internal emails noted in the corrected 119-page complaint. Calhoun succeeded Muilenburg as CEO of Boeing in January 2020.
Instead of holding Muilenburg responsible for allowing the 737 Max to transport passengers with a defective flight control system, the directors made a public defense of their CEO in May 2019, the suit said. Calhoun led the attack, according to the complaint.
“Calhoun and the council only stopped defending Muilenburg when they learned, in December 2019, that their relationship with the FAA had broken down and that the FAA was not going to recertify the 737 Max any time soon,” the suit said.
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 decided to allow the CEO to retire with his grant of capital.
“In paying Muilenburg, the Council avoided a public fight with him that would inevitably raise questions about the Council’s guilt in supporting him and not exercising security oversight,” say shareholders.
The case is In Re Boeing Co. Derivative Litigation, 2019-0907, Delaware Chancery Court (Wilmington).