Boeing 737 again in the news
 

Another set back for Boeing as shareholders take Boeing to court for loss of value of shares

https://www.bbc.co.uk/news/business-58483150


Boeing's board of directors must face a lawsuit from shareholders over two fatal crashes involving its 737 Max plane, a US judge has ruled.

Morgan Zurn said the first crash was a "red flag" about a key safety system on the aircraft "that the board should have heeded but instead ignored".

He said the real victims were those who died and their families but investors had also "lost billions of dollars".

Boeing said it would "consider next steps".

In his ruling the Delaware judge said: "While it may seem callous in the face of [the families'] losses, corporate law recognizes another set of victims: Boeing as an enterprise, and its stockholders.

"Stockholders have come to this court claiming Boeing's directors and officers failed them in overseeing mission-critical airplane safety to protect enterprise and stockholder value."

"Warning: The value of your investments and the income from them can go down as well as up and is not guaranteed at any time."

This will be thrown out, if anything, to further save a national treasure from further disgrace.

I think you may underestimate the combination of iconoclasm and masochism that drives much of the American judicial system. See also Enron, Arthur Andersen and Worldcom.

Wait, shouldn't the victims' families get to sue the shareholders? After all, shareholders are the ones that pressure the boards to increase profits by taking safety shortcuts.

Don't be daft. You can't sue for 'pressure'. The shareholders don't make operational decisions, the directors do and they should be held accountable both to the users of their products and to the shareholders.

Yes, this is the real culprit, but I think it is not possible to sue for that in court.
But, this is where our entire society is pushing - we all expect our shares/bonds/investments to go up and up (see Bitcoin and similar gambling etc.) and we often want to get the lowest possible price per flight ticket, and that results in cattle-wagon like way of air transport, zero hours pilot contracts and questionable safety practices, in short, race to the bottom. The one who adds a little piece to all this might be staring at you (me) in the mirror every morning.

For 340driver and hoistop: thanks, I needed that.
I don't think that the title of this thread is correct: it's Boeing in the news, and their suits.

The first step in this fiasco was when McDonnell-Douglas bought Boeing with Boeing's money and Stonecipher slithered in. It's been downhill since then.......

Hang on a minute. Boeing is owned by its shareholders, and if the plaintiffs (shareholders) succeed in extracting millions from Boeing their own investment in the firm will suffer. In effect they are suing themselves. Crazy stuff.

Presumably they are suing the Board members personally - not the Boeing Company - since as noted any payoff from Boeing to the shareholders would be silly.
Problem with that is, Board members are basically protected so long as they were acting legally and in good faith - the company has to defend them and would be responsible for any damages (I have some familiarity with this, the board having been sued when I was on the Board of my racing sanctioning body). Now, if the Board members broke laws or engaged in some sort of fraud, all bets are off - but that would be extremely hard to prove. Plus, while I'm sure the Board members have deep pockets, I don't think they are anywhere near that deep. We're talking several tens of billions of dollars of stock value - total net worth of the Board would be a small fraction of that.
Perhaps WillowRun will step in with a more legalistic take on this, but my take is this is some shareholders having a hissy fit that will simply make lawyers richer at the expense of Boeing and it's shareholders.

Boeing is (since 1934) incorporated in the State of Delaware.

This opinion was based on a precedent in Delaware law: In re Caremark International Inc. Derivative Litigation. The key point of which is that a Board's failure to effectively monitor Management with regard to product safety is prima facie evidence of bad faith. In other words, Boards can commit sins of omission as well as commission - and if those omissions lead to a specific loss (including shareholder value), the Board can be held responsible.

It is difficult to prove an omission, but in this era of email-trails, not as hard as it once was. The Board overall's lack of interest in safety vis-à-vis sales and production and stock value and "face" - at least until after the Ethiopian crash - is pretty well documented.

Caremark is a food service company. That case found the following deficiencies in how the Caremark Board operated. Substitute "aircaft" for "food," or "aircraft safety" for "food safety," and see where Boeing's Board comes out.

• no board committee that addressed food safety existed;
• no regular process or protocols that required management to keep the board apprised of food safety compliance practices, risks, or reports existed;
• no schedule for the board to consider on a regular basis, such as quarterly or biannually, [whether] any key food safety risks existed;
• during a key period leading up to the deaths of three customers, management received reports that contained what could be considered red, or at least yellow, flags, and the board minutes of the relevant period revealed no evidence that these were disclosed to the board;
• the board was given certain favorable information about food safety by management, but was not given important reports that presented a much different picture; and
• the board meetings are devoid of any suggestion that there was any regular discussion of food safety issues.

Boeing's Board had an Audit Committee that was supposed to evaluate and inform itself - and the rest of the Board - as to any and all risks to the company's well-being. That committee failed to supervise risks to the company's well-being due to faults in aircraft (product) safety.

Some of Boeing's Directors made documented false statements to the press and others as to what role the Board played in supervising product safety. Which may not be illegal, but can definitely be considered evidence of bad faith.

Board members have responsibilities, including: Fiduciary Duty of Care (as a representative of the shareholders, you have to pay attention and be vigilant, as well as honest) and Fiduciary Duty of Loyalty (as a representative of the shareholders, the company's value as an institution comes ahead of all other factors, including short-term finances).

I'm on a Board myself (non-profit organization) - and just last spring we had to dismiss the Board Chair/COO for failure to responsibly execute those duties of care and loyalty (engaging in personal bias). And I spent the next 2 months - improving - the organization's By-Laws to prevent a recurrence.

I read the In re Boeing opinion and checked myself against it - "yep, took care of that," "yep, took care of that," etc.

In keeping with contemporary custom, "good morning, good afternoon and good evening....."

The ruling allowing some of the Plaintiffs' derivative claims to proceed is 103 pages and now it has become a must-read for yours truly. In the interim though, a couple of quick notes that might be legalistic (and thank you, tdracer).

A derivative action is a claim belonging to the Company against directors and/or officers of the corporate entity -- it's called "derivative" because it is brought by the shareholders on the Company's behalf. This can be seen in the content of the court's ruling which refers to the Director Defendants as well as Officer Defendants. (Those accessing the court's ruling could have noted that the judge is a "Chancellor" and the court division is "Chancery" - greatly oversimplifying, many state courts still are divided into the law courts and courts of equity, depending on the type of relief sought by the plaintiffs, and shareholder derivative suits are considered to seek equitable relief. In such litigation the process and other factors can be quite different than in, for example, liability suits for damages brought by survivors of people who were killed in the accidents.)

Second, the court dismissed two of the three claims brought in the derivative litigation. ("the stockholders have failed to allege the board is incapable of maintaining a claim against Boeing’s officers. The stockholders’ other claim against the board, regarding their handling of the chief executive officer’s retirement and compensation, is also dismissed." Opinion, at 2.) The wheels of court process may turn slowly, yet this sort of early skirmish over the scope of claims the court will allow to move forward under the relevant legal standards often receives intensive serious attention by the court.

One interesting and possibly impactful aspect of this litigation is that under Delaware corporate law, shareholders have a statutory right to obtain volumes of company records and documents even in advance of filing in court. Discovery conducted in liability lawsuits and other similar litigation usually would take some time and it would not typically be preceded by disclosure like that noted by the court: "Plaintiffs received over 44,100 documents totaling over 630,000 pages. It is reasonable to infer that exculpatory information not reflected in the document production does not exist." (Opinion at 1, fn.1.)

Not least, even just the first few pages of the opinion suggest to this SLF/attorney, strongly, that this opinion collects and recites persuasively a wide swath of the facts and contexts which, collectively, paint the picture of devastating malfeasance and nonfeasance that led to the overall 737 MAX debacle or, plural, debacles.

WillowRun

Thanks for that clear and enlightening summary of the matter (as it now stands)!

I have serious doubts about American corporate governance (and elsewhere). The roles of Chairman & Chief Executive should not be combined. Whilst shareholding activism is fine in principle (many Boards need shaking up) you only have to look at what Carl Icahn did to TWA & T Boone Picken's advances at Boeing to see what can happen. The whole governance issue needs considering & I would like to see a move towards the 'stakeholder' economy but you have to decide who the stakeholders are As previous posters have said, in the US shareholders are by far the pre-eminent stakeholder group so shareholders are effectively suing themseves! That said the business of how directors get elected is a very real one.

You cannot expect a Board to be experts on safety but they must make certain that there is an effective process in place. Where does negligence start?

It is said that American companies tend to be run by lawyers, British ones by accountants & German ones by engineers. Fine, but look at what happened at Volkswagen.

Boeing is a Delaware corporation as are many large corporations. Is it the equivilent of operating under a flag of convenience? Fun fact. The last time I checked Delta flew in 49 of the 50 states. The missing one Delaware. Guess which one it is registered in.

Risk is a very tricky area for Boards to manage. Of the 3 I've been on, none were anywhere near perfect. The lawyers will have a great fee earning bunfight.........

At least when I retired (5 years ago), Boeing Commercial did have a robust safety process. I was a long time member of the Propulsion SRB (Safety Review Board), and often participated in the Aircraft level and Cross Model SRBs. I never had any significant issues with how the SRBs handled their tasks, and with minimal 'interference' from higher ups, and this extended to the new program board I dealt with during the 747-8 development. More than once, I found that we needed to make an expensive change to meet safety and cert requirements and had to go to program to get the change approved. It may have been grudgingly, but the changes were approved. I have no reason to believe that changed significantly after I left (including feedback from coworkers that stayed on after I left). Interestingly, the one time I did get into it with a Chief engineer about an expensive (one million dollars) change I insisted was required to meet the regs was well before Boeing became a Delegated Organization - in fact my experience was factored into the 'undo pressure' rules to protect the designated "Authorized Representatives" (AR - the delegated equivalent of a DER).
So, unless the Board somehow interfered with the existing processes in place, it would not be unreasonable for them to have done a cursory review of the processes - found them adequate - and left them alone.
If, OTOH, the Board did somehow interfere with the existing safety processes which contributed to the MAX disasters, I'd think criminal charges would be in order.

Ignorance.

Any sensible company or organization carries Directors/Officers Liability Insurance, precisely to protect the "company," as well as the individuals, against malfeasance or nonfeasance.

https://www.investopedia.com/terms/d...-insurance.asp

Boeing's insurer will pick up the tab (if any). Boeing may face increased insurance premiums - and then again they may not, if the Board (now under "new management") can persuade the insurer that they have cleaned up their act.

It does amaze me (perhaps it shouldn't) that pilots here, who are grossly offended by the ill-informed opinions of SLF or flight simmers regarding aviation, are perfectly happy to babble on about business and law, where they often share an equally substandard level of knowledge.

Pattern is full.

If this was PLRuNe (Professional Lawyers Rumour Network) I would agree.

pattern_is_full

I wouldn't swear to this, but what I remember is that Boeing is basically self insured.