In October 2018, Lion Air Flight 610 crashed into the Java Sea, killing all 189 people onboard. Then, in March 2019, a few minutes after takeoff from Addis Ababa, Ethiopian Airlines Flight 302 also crashed, taking all 157 lives onboard. Both aircrafts were the Boeing 737 MAX, a model containing a faulty sensor that activated a system that caused the nose of the plane to be forced downward.
This month, Boeing released a statement admitting that the company was aware of the faulty sensor a year before the first crash in October. The FAA on the other hand, was not aware of this until Boeing informed them… after the first crash has already taken place. But get this; the FAA wasn’t the only one unaware of the faulty sensor. In the same statement, Boeing also admitted that the company’s senior leadership was also unaware until after the Lion Air accident, according to Fortune. This revelation regarding the two catastrophes is what is prompting Boeing’s shareholders to question the company’s Chairman and CEO role.
According to Fortune, 34% of shareholders voted to divide the role of Chairman and CEO at Boeing’s late April shareholder meeting. Currently, Dennis Muilenburg holds both roles. This wasn’t the first time Boeing shareholders proposed splitting the roles amongst two people. In fact, the percentage of shareholders in favor of the split went up 10 points from last year, according to Fortune, making it clear how worried the company’s shareholders are about Boeing’s leadership.
Even though the majority still hasn’t voted to split the role, it doesn’t guarantee Muilenburg will get to keep both positions.
“If the company or the board deems that it is in the shareholder’s best interests to separate out the roles, then they will certainly do so,” says Courtney Yu, Director of Research at compensation research firm Equilar in a quote published by Fortune.
This isn’t the first time a corporation has reevaluated its corporate governance structure either. These types of proposals happen more often than you think. Take for example, Papa John’s. After Papa John’s chairman and founder, John Schnatter used racial slurs during a conference call (among other things), the company went through months of shareholder litigation before they were able to force Schnatter to step down from the board, replacing him with a less-controversial figure, Shaquille O’Neal.[ SEE: Papa John’s Saucy Corporate Takeover Issues]
As Boeing tries to navigate itself away from this scandal, they will be facing more and more doubt regarding the safety of the Boeing MAX as passengers have lost trust in the company after the news of the crashes. Oftentimes, when large companies seek to restore their reputation after a scandal, they take drastic measures to prove their commitment to improvement. One of which, is replacing leadership roles. This type of change can also help simmer down angry shareholders who are outraged by senior management’s negligence. In Boeing’s case, this option could pose as the perfect solution.
On the other hand, replacing leadership roles can also lead to more legal issues, and potentially litigation or bad PR.
“Shareholders who are discontent with senior management will not sit quietly for long. But an owner’s rights are often narrated in corporate governance documents, which often are ill-equipped, because they are not re-evaluated frequently. But even when they are, shareholder’s often do not understand their legal rights. Is derivative litigation the first step? An offer-for-sale, perhaps? Allegations of personal liability against an officer? This is why I believe owners should make time to revisit their corporate legal strategy frequently, to ensure their interests are protected.”