A tarnished American corporate icon: What happened with Boeing’s corporate governance?

posted by Marsha Vande Berg on January 12, 2020 - 12:00am

A recent Rock Center for Corporate Governance at Stanford University program focused on the role of corporate boards in influencing corporate culture and assessing risk. The informative program presented current metrics for health corporate culture together with trends pointing to increasing emphasis on board’s oversight role in good governance to ensure effective ethics and compliance program.

Had the Boeing board participated in the November 2019 Stanford Rock Center program, this American corporate icon might not be in the trouble it is in today. In December, the Boeing Board (NYSE:BA) fired CEO Dennis Muilenburg albeit with millions in compensation in the devastating fallout from the company’s handling of the 737 MAX grounding.

The board named its chairman, David L. Calhoun, as the new CEO and president, effective Jan. 13. But the constant drip of bad news continues. Early in January, hundreds of internal Boeing messages were published in which Boeing staff mocked regulators and admitted flaws in the ill-fated 737 MAX jet involved in two shattering, fatal accidents.

The Stanford Rock Center seminar did not address the Boeing case in any way but it illustrated that effective board governance is more than compliance. A board’s responsibility is also about ensuring directors are engaged and exercising effective oversight of corporate-wide risk management. This engagement also entails ongoing assessment of the quality of the corporate culture for which directors are accountable to shareholders.

How? By ensuring the board and board committee agendas address risk management and culture - and just as importantly, have access to the data and measurement tools they need to make prudent decisions. An effective “culture monitoring quantitative dashboard” will include all the necessary data points that either the management provides or the board commissions.

The results of an explicit culture survey alone might have tipped off the Boeing board that trouble was brewing with the tone that was being set in the C-suite and the rank and file response in messages that thumbed the collective Boeing nose at regulators and safety controls.  

Sure, hindsight is always 2020, yet the seminar’s key takeaway is highly relevant: For boards of directors, “connecting the dots is critical. Directors need to be able to evaluate if something is a discrete occurrence or indicative of a larger culture problem.” What’s more, “culture can change.” It’s unfortunate that the Boeing board does not seem to have been paying attention. Perhaps they are now.