Boeing board under pressure as families of 737 Max crash victims push reform at the top

Two more top-level directors could be ousted from Boeing’s board of directors next week as family members of the victims of two fatal crashes of its 737 Max jets join shareholders to push for further high-level reforms at the aerospace giant.

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The $146bn Chicago-headquartered company holds its annual meeting on Tuesday as it attempts to recover its financial and reputational poise in the wake of the grounding of its 737 Max planes and the pandemic’s upending of the commercial travel market.

Boeing has made changes to the membership and structure of its board since a second 737 Max crashed in Ethiopia in 2019, including seven directors who have already left or are due to step down next week. The changes, however, have not included two key executives under attack from some family members and shareholders, the chairman, Larry Kellner, and Edmund Giambastiani, who heads the board’s safety panel.

“This is a board of private equity and celebrity politicians and failed GE cost-cutting people that are draining the company’s legacy assets for current gain for themselves and the shareholders,” said Michael Stumo, whose 24-year-old daughter Samya Rose died in the Ethiopian Airlines flight 302 crash.

Speaking to the Guardian, Stumo said Boeing had fired hundreds of engineers, cut corners on quality, and used profits to buy back stock options for executives.

“They’re trying to keep up with the Facebooks and the Googles on the stock price, rather than using their enormous resources and legacy to make fantastic quality and safe airplanes,” Stumo said.

Since the crashes, Boeing has added four new members to its board. Kellner, the former chief executive of the old US airline Continental, said earlier this year that the board would work to identify “diverse candidates with appropriate expertise who bring qualified perspectives”.

Boeing says its slate of 10 directors up for re-election includes two women and two people of color. But recent reports, including one in the Wall Street Journal, have indicated that the challenges facing Boeing have hindered the company in acquiring new directors.

Fallout from the 737 Max crashes continues to reverberate after a series of congressional hearings unearthed a “culture of concealment” at the company, and evidence that the company had ignored clear warnings from engineers that the model’s anti-stall technology was unreliable.

While an official Federal Aviation Administration (FAA) report into the crashes has yet to be issued, Boeing has fought an intense PR campaign to win public acceptance of the 737 Max – which it now refers to as the 737-8 – after it went through modifications to achieve re-certification by air safety regulators – whom many believe were sidelined during the plane’s original safety certification.

In the process, Boeing has made changes to its board’s oversight of management as part of what the chief executive, David Calhoun, a board member since 2009, has described as a “top-to-bottom” safety and engineering overhaul.

The changes include a policy calling for an independent chairman and a new committee focused on safety. But proxy advisory firms are divided on whether reforms have gone far enough.

One of those, Institutional Shareholder Services, has credited Boeing for “significant board and management changes, and reforms to the company’s safety and compliance processes” and recommends that investors re-elect the company’s board of directors.

But another proxy-advisory firm, Glass Lewis, has recommended that shareholders vote against the re-election of Kellner and Giambastiani.

“We believe they are in part responsible for the board’s failings in regard to its risk assessment and management,” Glass Lewis wrote in a 26 March report. “We question whether these directors should continue to serve on the company’s board.”

Boeing, meanwhile, points to the board’s four new directors as evidence of the board’s “deep commitment to refreshing its membership” and says its “highly qualified, diverse board” has a mix of experiences needed to oversee the company’s management.

But Stumo maintains that shareholders should force Kellner and Giambastiani out next week.

He said: “We know that instead of doing something after the first crash [Lion Air flight 610] they fired up the public relations team to blame others and made false assertions of safety while collecting their board checks and stock options. Kellner is a private equity guy and failed CEO of Continental, and Giambastiani chaired the safety committee, which did nothing and was totally asleep at the wheel.”

Negative reports about interactions between Boeing and the FAA continue to proliferate. In an interview with the Seattle Times last month, an FAA safety engineer and Boeing veteran Joe Jacobsen, who had taken part in the 737 Max’s original certification of the plane’s flight controls, said he believes additional upgrades are needed.

Jacobsen also called for the replacement of some of the people at “the highest levels of FAA management”. In its emergency directive after the Lion Air crash, he said, the agency had failed to warn pilots of potential malfunctions in the 737 Max’s throttle controls that may have contributed to the Ethiopian crash.

While the 737 Max has returned to service – and Boeing has announced new sales of the jet – problems persist. Earlier this month, US airlines removed 67 of the planes from schedules after Boeing alerted to a potential electrical problem discovered during assembly of a plane in Seattle.

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Shareholders have relatively limited options to push through changes at next week’s meeting. Directors who fail to win 60% of shareholder votes must offer their resignations. If the board does not accept, they can continue to serve for a further year. That was the process that secured the retirement of two directors, Susan Schwab and Arthur Collins, next week.

But investment companies involved in board changes so far, including Blackrock, Vanguard and State Street, have not yet indicated whether they will support or oppose Kellner and Giambastiani.

The remaining directors, including Calhoun, are what Stumo calls “representatives of Boeing’s erosion and entropy”.

“They stiff-arm whistleblowers and do just enough to meet the lowest possible compliance with FAA rules,” says Stumo. “With its enormous assets and implicit government support, Boeing could make the most fantastic 21st-century airplanes.

“But it needs someone with true leadership to clean house, correct the problems supported by a board with experience in engineering and manufacturing.”