University of Khartoum
School of Management Studies
DBA Program
What Corporate Boards Can Learn from Boeing’s
Mistakes
by Sandra J. Sucher and Shalene Gupta
Prepared by:
Mona Sayed Mohmmed Ali
Contents
Introduction
• Context of the Boeing 737 MAX Crisis
Boards responsibilities and duties
Overview of Key Lessons:
Lesson 1: Hire Board Members for Competence and Objectivity
Lesson 2: Ensure Board Structure Aligns with Industry Needs
Lesson 3: Prepare for the Worst Case
Lesson 4: Manage for Truth and Realism
Lesson 5: Practice Accountability and Punish Wrongdoing
Conclusion
• Recap of Key Lessons
• Call to Action for Corporate Boards
Context of the Boeing 737 MAX Crisis
• In October 2018, all 189 on a Lion Air flight died after the aircraft
crashed into the Java Sea 13 minutes after take-off from Jakarta,
Indonesia.
• In March 2019, an Ethiopian Airlines flight crashed six minutes after
take-off from the Ethiopian capital of Addis Ababa. All 157 on-board
were killed.
• The crashes of two 737 MAX airplanes killed 346 people.
Context of the Boeing 737 MAX Crisis
• Boeing shareholders filed a lawsuit against the company’s board of directors
“Safety was no longer a subject of Board discussion, and there was no mechanism
within Boeing by which safety concerns respecting the 737 MAX were elevated to the
Board or to any Board committee”.
• Boeing’s strategy to minimize training costs in order to keep the overall cost of the
plane low.
• The cost was several hundred lives, billions of dollars in losses, and also severely
damaged Boeing’s reputation and trust within the aviation industry.
Boards responsibilities and duties
Corporate boards have immense responsibilities. When they fail to fulfill their fiduciary
duties, the consequences can be catastrophic — not only for the company but also for its
stakeholders.
The responsibilities of boards include:
Approving a company’s strategy.
Budgets, plans and monitoring progress.
Approving the company’s capital structure.
Expenditures and M&A activity.
Appointing the CEO and approving senior executive compensation.
Ensuring risks to the company are identified and managed.
Ensuring compliance with legal and community requirements establishing ethical standards for the
company.
Operationalizing these duties is harder than it sounds, and so Boeing’s fall.
Five main lessons from Boeing’s Mistakes
1. Hire board members for competence and objectivity
• Lack of Relevant Expertise
Boeing’s such aboard lacked members with expertise in safety and
engineering. Instead, it was filled with former government officials with
no direct industry experience, s a former UN ambassador and a White
House chief of staff.
• Interlocking Board Memberships Weaken Objectivity
Many board members held positions on other corporate boards, like
Caterpillar and Marriott. These overlapping roles created conflicts of
interest, weakening their ability to provide independent and objective
oversight.
Five main lessons from Boeing’s Mistakes
1. Hire board members for competence and objectivity
• Board’s Key Responsibilities
The board’s main roles are to monitor, decide, and advise. For Boeing
and other companies, it is critical to have board members with the
necessary skills and objectivity, especially in areas like safety and risk
management.
• Solution – Addressing Expertise Gaps
Companies should evaluate the skills required to achieve their mission
before adding board members. On issues where the board lacks
expertise, bring experts in to help you.
Five main lessons from Boeing’s Mistakes
2. Ensure the Board Structure Aligns with Industry Needs
• Lack of Safety Focus
Boeing's board lacked a dedicated safety committee, a major oversight
for an aviation company. The Audit Committee only addressed financial
risks, not safety.
• No Whistleblower Reporting Mechanism
The board had no system for receiving safety-related alerts from
whistleblowers, leaving safety concerns unaddressed at the highest
levels.
• Competitor Comparison
Competitors like Southwest, JetBlue, and Delta have board committees
specifically established to address safety.
Five main lessons from Boeing’s Mistakes
2. Ensure the Board Structure Aligns with Industry Needs
• Delayed Safety Committee Formation
Boeing didn’t establish a safety committee until April 2019, after both
crashes. Safety concerns were previously managed by an internal Safety
Review Board, which did not report to the board.
• Board Unaware of Internal Safety Processes
The board was unaware of the Safety Review Board’s existence until
after the 737 MAX grounding, showing a lack of communication and
oversight in safety management.
Five main lessons from Boeing’s Mistakes
3. Prepare for the Worst Case
• Lack of Focus on Safety at Boeing:
Unlike other companies like Medtronic, Boeing didn’t prioritize
safety in its meetings. Even when safety was discussed, it was
focused on certification rather than actual risks.
• "Normalcy Bias" and Its Impact:
Research shows that in the face of impending disaster, up to 70% of
people experience "normalcy bias," where they deny or downplay
the severity of the crisis. Boeing’s board failed to effectively
mitigate this bias, delaying its response to the crisis.
Five main lessons from Boeing’s Mistakes
3. Prepare for the Worst Case
• Need for Regular Risk Assessment
Boards must regularly imagine worst-case scenarios and assess their
potential impact, including legal and financial repercussions. Boeing’s
board failed to do this, which contributed to the slow response and the
eventual $2.5 billion settlement with the Department of Justice.
• Develop Speed of Response
By anchoring board decisions in real-world projections of the worst-
case scenario, boards can develop faster and more effective responses,
avoiding disasters like Boeing’s.
Five main lessons from Boeing’s Mistakes
4. Manage for Truth and Realism
• Encourage Open and Honest Discussions
A board must foster an environment where all opinions, including unpopular ones, are
openly shared. Honest input can help identify potential problems early, preventing
crises.
• Respond to Input with Appreciation
Acknowledging and appreciating feedback, even when the news is bad. Foreseeing a
problem and raising concerns should be valued, as it helps avert larger issues.
• Examples of Effective Candid Debates
UPS’s board is highlighted for fostering candid debates on key issues, ranging from
branding to global strategy. These open discussions led to strong decision-making.
Five main lessons from Boeing’s Mistakes
4. Manage for Truth and Realism
• Promote Candor with Anonymous Polls
To facilitate tough conversations, anonymous polling can be used to raise difficult
questions or concerns that members may be hesitant to share in open discussions.
• Board-Only Meetings Without the CEO
Board-only meetings without the CEO, a practice introduced post-Enron, allow
members to express concerns more freely about leadership or strategy.
• Gather All Information After a Crisis
After a disaster, boards should gather comprehensive information, particularly
from insiders further down the organization. Ignoring warnings from within or
dismissing bad news are clear signs of management failure.
Five main lessons from Boeing’s Mistakes
5. Practice Accountability and Punish Wrongdoing
• Failure to Hold CEO Accountable
Despite multiple failures by CEO Dennis Muilenburg during the 737 MAX crisis, including
delaying grounding the planes and minimizing the issue, the Boeing board continued to support
him publicly.
• CEO Dismissal Came Too Late
Muilenburg wasn’t removed until December 2019, well after the crisis had escalated. Even then,
he left with an $80 million exit package, raising questions about the board's commitment to
accountability.
• Board’s Actions Undermined Trust
By allowing Muilenburg to leave with an exit package, the board signaled to shareholders and the
public that it condoned his actions, severely damaging trust in Boeing’s leadership.
Five main lessons from Boeing’s Mistakes
5. Practice Accountability and Punish Wrongdoing
• Importance of CEO Accountability
Research shows that trust in a company improves when boards dismiss CEOs who
have committed wrongdoing. In Boeing’s case, the failure to act quickly on
Muilenburg’s missteps contributed to the shareholder lawsuit.
• Boards’ Role in Ethical Oversight
Corporate boards are expected to monitor leadership performance, serve as the
ethical backbone, and correct course when things go wrong. When they fail,
public outrage and legal actions, like Boeing’s lawsuit, are inevitable.
Conclusion
Key Lessons from Boeing’s Failures
Hire Competent and Objective Board Members
Align Board Structure with Industry Needs
Prepare for the Worst Case
Foster Truth and Realism
Enforce Accountability
Final Thought:
Boeing’s failures offer valuable lessons for corporate boards. By adopting these practices,
companies can strengthen oversight, enhance safety, and foster a culture of responsibility
and transparency.
Thank you
Q&A Session
