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Boeing Co. has made a number of changes in the membership and structure of its board since a second 737 MAX crashed two years ago. Investors will soon decide if the company has done enough.
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Shareholders ahead of Boeing’s annual meeting on April 20 are considering whether to re – elect the board of ten board members or follow the recommendation of a proxy advisory firm to vote against the chairman, Larry Kellner and Edmund Giambastiani.
The vote comes as Boeing and its board face major challenges: restoring confidence in the 737 MAX; followed by the Covid-19 pandemic’s slowdown in air travel; and overcoming quality and engineering problems in the commercial, defense and space divisions.
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Seven directors on the board when the second MAX plane crashed, meanwhile departed or will depart shortly. The board has four new members. Kellner said earlier this year that the board would work to “identify diverse candidates with relevant expertise who bring qualified perspectives.” However, people familiar with the matter have taken longer than expected. One of these people said that Boeing’s business challenges hampered the company’s ability to attract directors.
Companies in various industries are under pressure to diversify their boards, especially after protests against racism last summer, as well as legislation in California and a Nasdaq proposal requiring board diversity, recruiters and board members said. According to Boeing, there are two women and two coloreds on the list of ten directors who could be re-elected.
The aviation giant has made changes to the board’s oversight of management since the two fatal accidents claimed 346 lives and resulted in a global base of MAX jets expected to cost $ 20 billion. CEO David Calhoun oversaw what he described as a ‘top-to-bottom overhaul’ of the way the company handles safety and engineering following the MAX debate
Boeing Co. has made a number of changes in the membership and structure of its board since a second 737 MAX crashed two years ago. Investors will soon decide if the company has done enough.
Calhoun, a board member since 2009, was chief executive officer and chairman before taking over as chief executive in January 2020. The board also introduced a policy last year calling for an independent chairman, a shareholder response firm, to be considered. It also has a new committee focusing on safety.
Boeing has made progress in overcoming some of its problems. It has reached an agreement to add another 100,737 MAX aircraft to Southwest Airlines Co. selling, which repelled European competitor Airbus SE’s attempt to strip an exclusive customer. Boeing also resumed delivery of the broad-body Dreamliner in March after a five-month standstill. The company’s shares rose about 24% this year, lifted by optimism that growing vaccinations will spur more air travel.
Challenges remain. US airlines have taken dozens of newly built 737 MAX aircraft out of service after Boeing identified a possible electrical problem on Friday, just months after the airline started flying with them again. Boeing said it was working with the Federal Aviation Administration to resolve the issue.
Prior to the company’s annual meeting, Institutional Shareholder Services Inc. gave credit to Boeing for ‘significant changes in the management and governance and reforms of the company’s safety and compliance processes’, as well as the 737 MAX’s return to commercial service last year. ISS recommends that investors re-elect the directors of the company.
But Glass Lewis, another advisory firm, recommended that shareholders vote against the re-election of Kellner, the chairman, and Giambastiani, who heads the council’s security panel. Both have previously served on the board’s audit committee, which oversees the major risks facing Boeing.
“We believe they are partly responsible for the board’s shortcomings in risk assessment and management,” Glass Lewis wrote in a March 26 report. “We question whether these directors should continue to serve on the company’s board.”
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The Boeing spokesman pointed out in response to a new investor offer citing the company’s four new directors as proof of the “deep commitment of the board to refresh its membership.” The presentation says that its ‘highly qualified, diverse management’ has a mix of experiences needed to effectively oversee management. It also takes note of the appointment of a new Chief Safety Officer for Aviation who reports regularly to the Board of Directors and links the company’s safety and quality to executive management remuneration.
Kellner and Giambastiani declined to comment by Boeing spokesman.
The people familiar with the matter are expected to consider extending Calhoun’s term of office to a mandatory retirement age of 65 in the coming months. These people said that Calhoun dominates the possibility of being able to stay longer. Last year, he told reporters: “The council can have me as long as they want me.” Calhoun declined to comment by Boeing spokesman.
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According to people familiar with Akhil Johri, a former CFO of United Technologies Corp. who joined the board last year is among the directors who posed difficult questions to Calhoun and other executives. Johri intends to chair the audit committee of the board. Johri declined to comment by Boeing spokesman.
There are no competitive management lists on which shareholders can vote, but significant opposition to directors can result. In terms of board policy, directors who do not obtain a majority of the votes of shareholders must resign, but may serve until the next annual general meeting if the board does not wish to resign. Boeing directors earned as much as $ 400,000 last year, and the board held ten meetings, according to regulations.
Last year, five longtime directors drew significant opposition from some institutional shareholders, including investment giants BlackRock Inc., Vanguard Group and State Street Corp., according to shareholders’ data provider Insightia. Two of the directors who supported less than 60% of the shareholders’ votes last year will resign from the board at the annual meeting.
Representatives of BlackRock, Vanguard and State Street declined to comment on how the businesses will vote this year.
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Boeing’s board oversight is the subject of a lawsuit filed by shareholders in Delaware alleging that directors did not oversee management’s handling of the development of the 737 MAX and the subsequent crashes. Boeing, in a recent lawsuit dismissing the case, said the board “has long had effective reporting and oversight systems in place, and that it actively and appropriately oversees the company’s response to safety issues” , including the 737 MAX accidents.