Boeing Settles Shareholder Litigation and Agrees to Reforms (Part IV of IV)

The crushing aftermath of the tragic 737 MAX scandal is disturbing at the least.  Innocent lives were lost because of Boeing’s culture misfires, poor leadership at the management and board level, and an arrogant disregard for the impact of safety concerns.

Boeing’s 737 MAX fleet was grounded for twenty months, until November 18, 2020.  Boeing was ordered by the FAA to cure the defects in the 737 MAX MCAS system and to revamp pilot training.  Notwithstanding these actions, the two airplane crashes resulting in the death of innocent passengers and crew, along with the grounding caused serious damage to Boeing’s profitability, creditability, reputation and business.  Boeing faced a myriad of criminal, civil, regulatory liabilities.  Litigation costs incurred exceeded $2.5 billion and non-litigation costs were approximately $20 billion.

After the Chancery Court’s denial of Boeing’s motion to dismiss under the Caremark standard, it is not surprising that Boeing quickly agreed to settle the litigation. The evidence at trial would only have caused further damage and bleeding to Boeing’s financial performance, reputation and credibility.

Boeing directors (current and former) agreed to pay $237 million to settle the shareholder lawsuit.  As part of the settlement, Boeing agreed to various reforms, including:

  • Creation of an Aerospace Safety Committee responsible for all airplane safety issue; The ASC will consist of three independent directors;
  • Modification of Senior Executive compensation incentives to include specific consideration of adherence to and promotion of safety initiatives;
  • Transition of new board members and departure of many of the board members serving at the time of the 737 MAX crashes;
  • Appointment of new board members, three of whom must have air-safety and aviation industry experience;
  • Appointment of an independent ombudsman for at least five (5) years to receive internal employee concerns, conduct independent investigation of such concerns and report on findings;
  • Amendment of Boeing’s bylaws to require separation of CEO and Board Chair positions; and
  • Require Boeing to provide an annual public report on safety-related enhancements implemented since the 737 MAX air disasters.

In August 2020, Boeing launched a “Seek, Speak & Listen” initiative led by senior management and certain managers to encourage employees to proactively raise concerns related to product safety and other subjects.

On January 13, 2021, Boeing created the position of Chief Aerospace Safety Officer, reporting to the Chief Engineer, to lead the Global Aviation Safety Program.

The settlement will be paid by the directors’ insurance companies.

The lead plaintiffs in the case are administrators of two public pensions – the New York State Comptroller who oversees the New York State and Local Retirement System, and the Fire and Police Pension Association of Colorado.

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