Boeing Corporate Governance and Ethics

Monzer Koulkou

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Managing Through Finance (33069)

30- Jan-2022

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Table of Contents
- Introduction.......................................................................................................................................3
- Boeing Financial Statement 2018- 2020...........................................................................................4
- Corporate Governance at Boeing.....................................................................................................4
Role of the Board.....................................................................................................................................5
Director Independence.............................................................................................................................5
Committee independence and its roles and responsibilities.....................................................................6
- Ethics and Compliance......................................................................................................................7
- Boeing Corporate Governance and Ethical issues..........................................................................7
- Conclusion........................................................................................................................................10
- Reference..........................................................................................................................................13

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 - Introduction

Boeing Corporation is a publicly-traded company on the New York Stock Exchange (NYSE).

Boeing was founded in 1916 in Puget Sound, Washington, and became the main company of

commercial and military aircraft around the world. They are a leading manufacturer of Space,

military rotorcraft, commercial Derivatives, commercial Jetliners, security systems, and defense

equipment like Missiles. Boeing is supporting airlines in more than 150 countries. According to

Jim Brunke, the company today is "positioned as a broad-based, balanced, global company that

is shaping the future of aerospace”. According to the Macro trends website, the total number of

employees reached 141000 employees in 2020.

The largest customers in 2020 are the US Government and Ryanair with 75 aircraft for Ryanair,

“In December 2020, the airline updated its order book, after the Boeing MAX aircraft has been

certified to return to service and placed an order for 75 (737 MAX), increasing its total order

from 135 to 210 aircraft.” Eric Salas

The top shareholders of Boeing are Timothy J. Keating, Leanne G. Caret, Theodore Colbert,

Vanguard Group Inc., BlackRock Inc. (BLK), and Newport Trust Co.

Main Boeing’s competitors are Airbus, Lockheed Martin, Technologies and BAE system.

"In 2020, Boeing generated only $58.16 billion in revenue. This compares to more than $101

billion in 2018. Boeing is now the second-largest aerospace company in the world behind

Airbus."  (Erick Salas). This decrease is due to the Boeing 737 MAX crash in 2018 and 2019.

In this assignment, the discussion will focus on the relationship between ethics, transparency and

finance at Boeing Corporate and how corporate governance and its structure relate to ethics and

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its issues. During the discussion, we will identify which corporate governance rules address

ethical issues that arose after the Boeing 737 MAX airplane crash in 2018 and 2019.

- Boeing Financial Statement 2018- 2020

Figure 1- Boeing Financial statement 2018- 2020

We noticed from Figure 1 that the total revenue has significantly decreased in 2020 compared to

2018, this was attributed to both crashes in 2018 and 2019 and to the COVID-19 pandemic.

- Corporate Governance at Boeing

"Corporate governance is an important governance concept" (Horton, 2002). "Research indicated

that management has a strong influence in setting the overall tone for governance" (Cohen et al.,

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2002). Claybrook (2004) found that "upper management influences operations as well as the

stakeholders.” The Leadership team should act as role models in the company and to adhere to

ethical principles and values. (corporate governance practices, policies, and procedures, and its

management team has strived to uphold the highest standards of corporate governance, ethics

and transparency).

“The Boeing Company Derivative Litigation demonstrates the increasing focus on directors'

responsibility for effective corporate governance. This focus is driven by investors, other

stakeholders, regulators, and, as the Boeing case makes clear, the growing risk of litigation.”

Suzanne & all

Role of the Board

“The company is governed and managed by the board of independent and executive directors

(BOD). The BOD is accountable for directing, overseeing the business, strategic direction of the

company and its subsidiaries.” (Rezaee, 2009)

The business of the Company consists of Boeing’s managers, employees, and officers under the

direction of the Chief Executive Officer (CEO) and under the supervision of the Board. The

Board selects and works with the CEO in the selection/appointment of other officers charged

with managing the Company's business. The Board is responsible for supervising, to directing

Chief Executive Officer (CEO) by ensuring sustainability and the future of the company.

Director Independence

Under Boeing's and according to Corporate Governance Principles, 75% of the Board of

Directors must meet the New York Stock Exchange (NYSE) Principles of Independence. To be

independent, the Board must determine whether the director is affiliated in any way with
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shareholders, employees, partners, or any other entity. At the outset, the director must declare

any relationship with Boeing stakeholders and sign a conflict of interest policy.

These standards were developed to meet NYSE and the ethical standards that Boeing developed

to prevent any risk that could arise in future work. When a Board member declares a relationship

or conflict of interest, the Company establishes preventive measures in accordance with its

policies and standards.

Committee independence and its roles and responsibilities

According to Corporate Governance standards, all audit and committee members must be

independent as listed of Director independence, this includes meeting the commitments to

independence requirement including but not limited to Boeing Ethical standards, regulations, and

principles.

Goh (2009) "found that audit committee effectiveness is related to companies' timeliness in

addressing material weaknesses in internal control, which could help improve the quality of

financial reporting and ultimately improve corporate governance." Kaplan et al. (2009) "found

that the audit committee of publicly traded companies with effective operating procedures could

help minimize the likelihood of fraud occurring to some degree." In addition, Persons (2009)

"found that companies with a large and independent audit committee may also help prevent

fraudulent financial reporting incidents in companies."

Boeing's Audit Committee is expected to:

 Review significant accounting and reporting issues.

 Review the findings of the external auditors and the matters set forth therein.

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  The committee is responsible for the appointment, compensation, and to monitor the

work of the auditors.

 Identify any kind of fraud or corruption and advise on the needed action to address such

issues.

- Ethics and Compliance

“Each year, Boeing teammates recommit in writing to live up to our company’s ethics and

compliance principles” THE BOEING COMPANY 2020 ANNUAL REPORT

Ethics are at the center of Boeing's work. Ensuring Boeing does the right thing by its

stakeholders has helped Boeing gain trust and create a win-win relationship that will help the

company ensure sustainability and reach more customers.

Boeing management conducts an annual orientation session with employees around the world to

emphasize the importance of conscious and ethical decision-making for all of their processes.

Employees are asked to sign the Code of Conduct and to adhere to Boeing and NYSE Ethics

principles.

Boeing Global Compliance's role is to enable compliant business performance in all geographic

locations while building on a legacy of integrity, transparency, and an unwavering commitment

to fair and ethical business practices.

- Boeing Corporate Governance and Ethical issues

“Ethics of governance is about the incorporation of moral conditions and requirements in the

management, governance, and control structures. This is the contextual precondition for the

long-lasting and beneficial effects of the virtues of individuals within the organizations. (Josef

2015).

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During November 2018 and March 2019, a Boeing 737 MAX crashed, killing more than 300

passengers. Preliminary reports indicated that "a device called MCAS (Maneuvering

Characteristics Augmentation System) caused the aircraft to dive uncontrollably, ultimately

leading to the crashes." (National Transportation Safety Board [NTSB], 2019). While some

articles and theories indicate that it is a systems engineering failure, Boeing does not address

whether the system was designed to ethical standards.

The Boeing 737 was developed and entered into service on April 9, 1967. The design has been

revised and updated several times and remains the most popular aeroplane in the world. “In the

last version, Boeing wanted to improve the aircraft's fuel efficiency to compete with Airbus,

which required the use of larger engines.” (Travis, 2019).

In December 2019, nine months after the second crash, “Boeing Co has fired Chief Executive

Dennis Muilenburg after repeatedly failing to contain the fallout from a pair of fatal crashes that

halted output of its best-selling jetliner and tarnished its reputation with airlines and regulators.”

(Ankit and Tim 2019). “Muilenburg was criticized for failing to recognize safety risks and for

allowing the company to cut corners to get the planes to market.” Leslie Joseph. Some experts

wondered why the decision took that much time, while others discuss on who should be blamed

instead of Boeing’s CEO?

Even as the corporation faced the most difficult phase in its 105-year history, the board's

hesitancy to terminate Muilenberg illustrates concerns about the board's control of the company.

It also raises concerns about the board's role in the disasters and its capacity to rebuild trust in the

corporation among regulators, Wall Street, and the general public.

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"Nine months is a long time - in economics, that's an eternity for a problem like this," said

Charles Elson, finance professor and director of the University of Delaware's John L. Weinberg

Centre for Corporate Governance.

Following the two crises, Curtis Ewbank, a senior Boeing engineer, left an internal ethics

complaint in 2019 citing management's censorship of a system that may have disclosed faults in

the AOA sensors. "I was willing to stand up for safety and quality... Boeing management was

more concerned about money and schedule than safety or quality," Ewbank has later claimed

publicly (Gellis et al. 2019). Boeing executives were said to have pressured engineers to speed

up the production process and get the new jets into service as soon as possible.

According to the first "fundamental canon" of the National Society of Professional Engineers

(NSPE) Code of Ethics, engineers "shall give first consideration to the safety, health, and welfare

of the public." According to initial findings from the ongoing investigation leaked to The New

York Times, Boeing failed to follow these standards and reached to point that lost its reputation,

transparency, and customer trust.

To address the ethical issues, Boeing has put a plan in place to address the recorded issues and

prevent mistakes similar to the following:

 Replacing CEO Dennis Muilenburg: Muilenburg acknowledged mistakes for not giving

pilots more information about a stall prevention system before the crashes and for taking

months to disclose that he had made optional an alert that alerted pilots to a deviation in-

flight data.

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  $2.5 billion will be paid as a settlement to the Department of Justice (DoG) to resolve

DoG charges.

 Lawsuits by families of crash victims: a representative of the families' attorney said the

pandemic has left the lawsuits and is about resettlement.

 To increase spending on R&D and safety for future work to ensure safety for its

passengers and customer.

 Update Boeing's ethical standard and train all employees on the new update.

- Conclusion

In summary, Boeing Corporation is a publicly-traded company on the New York Stock

Exchange (NYSE). It is a leading manufacturer of space products, military rotorcraft,

commercial derivatives, commercial aircraft, security systems, and defense equipment such as

missiles. Boeing supports airlines in more than 150 countries around the world. Its main

competitor is Airbus. Boeing’s total revenue in 2020 was $58 billion, down from $ 101 billion in

2018 with a more than 40% reduction compared to 2018. Covid-19 and the crash on two aircraft

in 2018 and 2019 were the main reason for this significant drop in revenue.

Boeing is governed by its Board of Directors and Chief Executive Directors. The Board

members' primary responsibilities are to direct and oversee Boeing's operations and provide

support as needed.

Boeing faced severe criticism after the crash of its two planes in 2018 and 2019, which claimed

more than 300 lives. Some advisors and consultants attribute the crash to an ethical problem

within the company itself, while other advisors attribute the reason for the crash to technical

problems.

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The moral of the two Boeing 737 accidents MAX, which leads to the infinite grounding of the

program, can be analyzed and evaluated according to the company’s response and what they did

to overcome these challenges

To respond to this massive problem and maintain the confidence of customers, investors, and the

company, Boeing's shareholders and board of directors have decided on a number of measures:

o Replacing the CEO, who acknowledges the mistake and takes responsibility for this

problem.

o Updating ethical and moral standards.

o Training employees on the new and updated moral and ethical standards.

o Paying $2.5 billion in settlement to the Department of Justice (DoG) to resolve the DoG

allegations.

o  To increase spending on R&D and safety for future work to ensure safety for its

passengers and customer.

o Being more accountable and transparent in its work and sharing all needed information

on its processes and systems.

o Coordinating and working with victims' families to resolve allegations against the

company.

Ultimately, we hope that Boeing has learned from its mistake and will learn the lessons to avoid

such mistakes in the future and improve its ethics and safety system. In addition, Boeing and

other aircraft manufacturers should agree on ethical standards that will help improve the work

and increase the safety of their products.

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 - Reference

o Brunke, J. April 2006. The Boeing Company. Presentation to the University of Missouri-

St Louis.

o https://www.macrotrends.net/stocks/charts/BA/boeing/number-of-employees.

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 o Salas, E. Aug, 21. Boeing - worldwide revenue 2007-2020. Retreived from:

https://www.statista.com/statistics/264374/boeings-worldwide-revenue/#:~:text=In

%202020%2C%20Boeing%20generated%20only,billion%20U.S.%20dollars%20in

%202018.

o Horton, T. (2002). Tone at the top. Directors and Boards, 26(4), 8-13

o Cohen. J., Krishnamoorthi, G., & Wright, A. (2002). Corporate governance and the

audit process. Contemporary Accounting Research, 19(4), 573-594.

o Claybrook, C. (2004). Viewing organizational trust and internal auditing. Florida, USA:

The IIA research foundation.

o Suzanne and all, Dec 2019. Boeing and the Ongoing Evolution of Director

Responsibilities. Retrieved from: https://businesslawtoday.org/2021/12/boeing-and-

director-responsibilities-ongoing-evolution-board-governance/

o Rezaee, Z. (2009). Corporate governance and ethics. New Jersey, USA: John Wiley &

Sons.

o Goh, B (2009). Audit committees, boards of directors, and remediation of material

weaknesses in internal control. Contemporary Accounting Research, 26(2), 549-579.

o Kaplan, S., Pany, K., Samuels, J., & Zhang, J. (2009). An examination of the effects of

procedural safeguards on intentions to anonymously report fraud. Auditing: A Journal of

Practice and Theory, 28(2), 273-288.

o Persons, O. (2009). Audit committee characteristics and earlier voluntary ethics

disclosure among fraud and no fraud firms. International Journal of Disclosure and

Governance, 6(4), 284-297.

o N.A, THE BOEING COMPANY 2020 ANNUAL REPORT, P.10. Retrieved from:

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 https://s2.q4cdn.com/661678649/files/doc_financials/2020/ar/

2020_The_Boeing_Company_Annual_Report.pdf

o Wieland, J. Jan, 2015. The Ethics of Governance. Retrieved from:

https://www.cambridge.org/core/journals/business-ethics-quarterly/article/abs/ethics-of-

governance/6ED2446D9208116321ECFD76915F3F76

o National Transportation Safety Board. (2019). Assumptions used in the safety assessment

process and the effects of multiple alerts and indications on pilot performance. (Report

No. 59582) Retrieved from

https://www.ntsb.gov/investigations/AccidentReports/Reports/ASR1901.pdf

o Ajmera, A and Hepher, T. Dec, 2019. Boeing fires CEO Muilenburg to restore

confidence amid 737 crisis. Retrieved from https://www.reuters.com/article/us-boeing-

737-max-ceo-idUSKBN1YR1FL

o Joseph, L. n.d, Boeing's fired CEO Muilenburg walks away with more than $60 million.

Retrieved from https://www.cnbc.com/2020/01/10/ex-boeing-ceo-dennis-muilenburg-

will-not-get-severance-payment-in-departure.html#:~:text=Boeing%20fired%20Dennis

%20Muilenburg%20last,over%20as%20CEO%20on%20Monday.

o Travis, G. (2019). How the Boeing 737 MAX disaster looks to a software

developer. IEEE Spectrum, April 18, https://spectrum.ieee.org/aerospace/aviation/how-

the-boeing-737-max-disaster-looks-to-a-software-developer.

o Gelles, D., & Kitroef, N. (2019b). Boeing board to call for safety changes after 737 MAX

Crashes. The New York Times, September 15, (updated October 2),

https://www.nytimes.com/2019/09/15/busin ess/boeing-safety-737-max.html
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