Boeing’s failures a lesson for all

There was a time when people said, “If it’s not Boeing, I’m not going!” The phrase emerged at the start of the jet age and is still on T-shirts on the company’s website. Whether this iconic slogan has the power it did back then is debatable.

Boeing has had its fair share of safety and engineering issues with its planes from near the end of the 2010s. Most notably, the issues have been with Boeing 737 MAX aircraft crashing in Indonesia and Ethiopia (with settlements of more than $2.5 billion) and more recently Boeing paying Alaska Air Group US$160 million in “initial compensation” when a door blew off.

These developments saw lawsuits, settlements, fines and ongoing changes in the board. Most recently this has included the departure of the chair and chief executive, and follows from earlier departures in 2019 of the chair/chief executive/president.

This ongoing ‘turbulence’ for Boeing provides lessons for New Zealand boards, and not just company boards. They reinforce the core elements of good practice governance which underpin the Institute of Directors’ (IoD) governance development programmes and board evaluation services.

The IoD’s Four Pillars of Governance Best Practice says the board is responsible for the direction and control of a company by:

• Setting company strategy (in conjunction with management) and monitoring the delivery of that strategy
• Having an effective board culture that appoints appropriately qualified people to the board and a culture that flows through into the company
• Appointing the chief executive, setting expectations and monitoring performance
• Ensuring and setting the culture and expectations for legal compliance

 

Boeing shareholders went to court in 2021 claiming “Boeing’s directors and officers failed them in overseeing mission-critical airplane safety to protect enterprise and [shareholder] value.” The court found the shareholders claims should be upheld on the grounds of:

• “Directors’ complete failure to establish a reporting system for airplane safety”
• The board “turning a blind eye to a red flag representing airplane safety problems”

This shareholder lawsuit was settled in 2021 by the Boeing Company’s current and former directors for US$246 million.

Other court judgements and settlements required the board to implement an ombudsman scheme and for the board to take on more oversight of safety, including appointing people to the board with safety expertise.

Boeing has made ongoing changes to the board and chief executive since 2019 in the face of serious criticism of the company’s safety record. There have been significant changes:

One substantive change in 2019-20 was the separation of the chair and chief executive roles for the first time. While such separation is commonplace in New Zealand, this is a growing trend in the United States. Today, nearly 60 per cent of S&P 500 boards split the chair and CEO role, up from 40 per cent a decade ago.

Significant changes have also been made to the board recently, in addition to the ongoing fallout from safety failings and the changes in leadership. Six of the 11 current board members have only been on the board since 2021 and four of those were appointed in the past two years.

Those most recently appointed have backgrounds in engineering, risk management, safety and aviation. This supplements the existing board members with backgrounds in management, security and accounting/finance skills.

Succession is becoming an issue for some prominent New Zealand companies, although not necessarily as high profile or catastrophic as the events that lead to the major governance changes at Boeing. Over the past few months, a considerable number of board changes have brought future-ready succession into sharp relief:

• New Zealand Rugby: On May 30 2024, provincial rugby unions rejected a governance change proposal adopted from the findings of an expert-led independent review. Among the recommendations was a wholly independent board. Instead, the unions voted for a watered-down counter-proposal, where three of the nine directors would need to have served on provincial boards. All appointments are to be recommended by an appointments committee
• The Warehouse Group: On 17 May 2024, the Warehouse Group chair announced the chief executive officer was stepping down with immediate effect and a board member would become interim CEO
• Christchurch City Holdings Limited: On 16 May 2024, Christchurch City Holdings Limited announced four independent directors had resigned from the eight-member board
• Synlait: On May 1 2024, George Adams CFInstD was elected chair and Dr John Penno, the company’s co-founder and board-appointed director, stepped down. Adams was appointed as an independent director in March 2024 to fill a casual vacancy. Acting chair Paul McGilvary returned to his position as an independent director
• Ryman Healthcare: On 21 April 2024, Ryman Healthcare announced its chief executive officer had resigned, and the chair was going to act as CEO while a search was undertaken
• Fletcher Building: On 4 March 2024, Fletcher Building announced its chair was stepping down, an acting chair was being appointed and would oversee the search for a new CEO. On 24 March 2024, the company confirmed the appointment of an acting CEO and ongoing developments in the board renewal process. In 2018, substantial changes were made to the Fletcher Building board
• Sanford Limited: In November 2023, Sanford announced a director resignation and a retirement. This followed a CEO resignation (replaced by an acting CEO) and an earlier director resignation
• Public sector board changes: There have also been a range of board changes in public sector boards over the past few months, including Antarctica New Zealand, New Zealand Transport Agency Waka Kotahi, Kāinga Ora, Creative New Zealand and KiwiRail.

In identifying future-ready succession as one of the top five issues for directors in 2024, the IoD said “[succession] is not just about CEOs and their executive teams. It applies equally to boards. Nominations committees will need to move into ‘overdrive’ to ensure there is a widening pool of potential directors to replace an increasingly ageing director workforce”.

Boeing and New Zealand company/organisation board developments bear this out and more.

In the 2023-24 Boardroom summer edition, director Alison Barrass CFInstD pointed to four key areas for boards to consider when in the situation so many companies and organisations are facing:

• Boards need to realise succession planning will take a lot of thought and time. It is not just work that means ‘cranking the handle’
• Succession processes need to be agnostic, professional, and robust. This must go beyond “shoulder tapping”
• The focus should be on filling broader skill gaps, including those that relate to leading company/organisational strategy
• Recruitment needs to look beyond skills and talent. Values, style, and the kind of board member needed are also important considerations
  
  

APPOINTMENT TIMING	CHAIR	PREVIOUS ROLE	CHIEF EXECUTIVE/ PRESIDENT	PREVIOUS ROLE
2015	Dennis Muilenburg	President/ COO Boeing	Dennis Muilenburg	President/COO Boeing
2019-20	Lawrence Kellner	Director, Boeing	David Calhoun	Lead director Boeing/chairperson
2024	Steve Mollenkopf	Director, Boeing (from 2020)	David Calhoun (retiring December 2024)	As above