A Tale of Two Boeing Boards — The Disparate Conclusions of the Justice Department and the Delaware Chancery Court (Part I of IV)
“Reality is merely an illusion, albeit a very persistent one.”
― Albert Einstein
“Reality leaves a lot to the imagination.”
― John Lennon
We often hear about how perspective can influence conclusions. It is rare, however, when it comes to investigations, legal proceedings, and litigation for two separate but important fact finders to reach polar opposite conclusions.
When I reviewed again the US Department of Justice’s conclusions reached as part of the Boeing criminal investigation, and the Delaware Chancery Court’s decision denying Boeing’s motion to dismiss the shareholder derivative suits, I was struck by the polar opposite conclusions reached about Boeing’s culture and conduct.
I do not mean to exaggerate but there is no way to reconcile the two sets of factual findings. One the one hand, DOJ reached a conclusion that the 737 MAX disaster was largely the result of the actions of two bad actors –the Flight Technical Pilots, and not the result of any pervasive or systemic problem.
The Delaware Chancery’s factual findings paint a completely different picture – Boeing’s board, senior management and corporate culture suffered from a serious deficiency that reflected a singular motivation to cut costs and increase profits to the detriment of airplane safety. When the 737 MAX disasters occurred, the Court outlined in compelling fashion how the Boeing board of directors and various executives sought to cover up the issue, ignore the safety implications and somehow protect Boeing’s reputation without any regard to addressing the significant and disturbing safety issues.
Someone – DOJ or the Court — got it wrong, and I mean dead wrong. How could two expert fact-finders reach such different conclusions?
Background – The Tragic 737 MAX Crashes
In October 2018, Lion Air flight 610 crashed in the Java Sea, killing 189 people, and in March 2019, Ethiopian Airlines flight 302 crashed shortly after takeoff, killing 157 people. The United States ordered the planes grounded shortly after the Ethiopian Airlines crash.
The crashes were the direct result of a lack of pilot training on the Maneuvering Characteristics Augmentation System (“MCAS”) that was triggered when the airplane made certain specific manuevers. The Chief Technical Pilot and his colleague mislead FAA officials and failed to ensure that pilots were appropriately trained on the MCAS system and the circumstances when the system would become operational. The pilots in both the Lion Air and Ethiopian Air flights crashed because they were not trained on how and when the MCAS became operational, resulting in deadly downturns of the airplane nose and the fatal crashes. Had the pilots been properly trained and the documentation included specific explanations of how and when the MCAS system worked, the plane crashes could have been avoided.
The DOJ Settlement – Focus on Flight Technical Pilots
In January 2021, Boeing settled with the Justice Department and agreed to enter into a Deferred Prosecution Agreement in exchange for total payments of $2.5 billion. As part of the settlement, Boeing admitted that it withheld critical information about the 737 MAX’s Maneuvering Characteristics Augmentation System and the impact it had on the plane’s flight control system.
DOJ did not impose an independent compliance monitor, citing Boeing’s remediation efforts. In reaching this conclusion, DOJ determined that the “misconduct was neither pervasive across the organization nor undertaken by a large number of employees, nor facilitated by senior management. Instead, DOJ characterized the problem as the result of two Boeing Flight Technical Pilots deceiving the FAA about MCAS through mis-statements, half-truths and omissions. In this respect, DOJ cited its finding that other Boeing officials disclosed MCAS to FAA officials responsible for determining whether the FAA 737 MAX met airworthiness standards.
DOJ followed up on its resolution by subsequently charging the Chief Technical Pilot for the 737 MAX, Mark Forkner, who was indicted on two counts of fraud involving aircraft parts in interstate commerce and four counts of wire fraud. Forkner’s colleague, who was identified in various factual recitations, was not charged and is likely cooperating in the prosecution of Forkner.
On October 29, 2018, the Lion Air Flight 610 crashed after takeoff into the Java Sea killing all 189 passengers and crew. Following the crash, the FAA learned that MCAS activated during the flight and may have caused the crash. The FAA AEG learned for the first time about the change to the MCAS, including the information Forkner concealed from the FAA. Forkner and his colleague continued to mislead others at Boeing and the FAA about their prior knowledge of the change to MCAS.
Five months later, on March 10, 2019, Ethiopian Airlines Flight 302 crashed shortly after takeoff, killing all 157 passengers and crew on board. The FAA learned that MCAS was activated during the flight. Three days later, Boeing’s 737 MAX was grounded.