Latest / Boardroom Conversations with Fexingo: CEOs, Strategy, and Corporate Leadership Explained / How the Boeing Board Handled the 737 MAX Crisis
Transcript
- Lucas: So let's talk about a board that faced what is probably the most extreme test of governance in modern corporate history — the Boeing board and the 737 MAX crisis. Luna: Two crashes, 346 lives lost, a global grounding that lasted nearly two years, and then last year a door plug blows out mid-flight on an Alaska Airlines plane. That board has been through the wringer. Lucas: Right. And the question I keep coming back to is: how did a company once run by engineers — a company that essentially invented modern aerospace — end up in a position where its board signed off on a plane that had an inherent design flaw? Luna: To me, the root cause is culture. Specifically, the shift from an engineering-first culture to a finance-first culture. And the board was a key part of that shift. Lucas: Exactly. If you look at Boeing's board composition in the 1990s versus the 2010s, the change is stark. In 1990, the board had a majority of members with engineering or aerospace backgrounds. By 2018, that number was down to maybe one or two. The rest were former finance executives, retired military brass, and CEOs from unrelated industries. Luna: And that's not necessarily bad on its own — diversity of perspective is valuable — but when the board lacks the technical literacy to question decisions like, 'Is it safe to put a larger engine on an older airframe and rely on software to correct the aerodynamics?' you have a problem. Lucas: That's exactly the 737 MAX story. The airframe was originally designed in the 1960s. To fit the larger, more fuel-efficient engines onto it, Boeing mounted them further forward and higher up, which changed the plane's aerodynamic behavior. So they added a software system called MCAS — the Maneuvering Characteristics Augmentation System — to push the nose down automatically if it sensed a stall. Lucas: The board, as far as we know, never had a detailed presentation on MCAS. They were told the MAX was just an iteration of the 737, not a new plane. And they approved the development budget based on that assumption. Luna: Which saved billions in certification costs, because the FAA allowed Boeing to self-certify key systems as an 'update' rather than a new type design. Lucas: Yes. And that's where the governance failure really starts to cascade. The board's compensation committee tied executive pay to return on invested capital and share buybacks. In 2013, Boeing announced a massive share repurchase program. By 2018, it had spent over $60 billion on buybacks — more than its entire net income for that period. Luna: So the board incentivized short-term stock price gains over long-term safety investment. And when the MAX was being developed, the pressure to keep costs low and time to market fast was immense, because competitors like Airbus were already selling the A320neo. Lucas: Right. And in 2014, the board actually approved moving the MAX's development to a 'risk-sharing' model where suppliers like Spirit AeroSystems did more of the design work. That led to the door plug issue that caused the Alaska Airlines blowout a decade later. Luna: It's almost like every structural decision the board made — from composition to compensation to supplier strategy — created a chain of failure. So what did they do after the crashes? How did they reform? Lucas: Well, the immediate response was to set up a special committee of independent directors to review safety culture. They also hired a former regulator to lead a safety oversight panel. And in 2020, Congress passed the Aldridge Act, which mandated that Boeing's board create a permanent safety committee. Lucas: The board added new members with aviation and engineering backgrounds. By 2021, about half the board had some relevant technical experience. They also decoupled CEO pay from share buyback metrics — tied it more to safety and quality targets instead. Luna: And yet, in January 2024, the door plug blew out. Which suggests those reforms didn't go deep enough. The safety committee existed, but did it really oversee the production process at Spirit AeroSystems? Clearly not. Lucas: That's the hard question. The Alaska incident was caused by missing bolts on a door plug that Spirit installed. Boeing's own inspectors missed it too. So the board's safety committee — which meets quarterly — was basically reviewing reports after the fact, not auditing real-time quality control on the factory floor. Luna: Which gets back to the board's job: they're supposed to set the tone at the top. If the board says 'safety is our number one priority,' but then the CEO is still evaluated primarily on on-time delivery and cash flow, the message gets muddled. Lucas: That's a great point. After the Alaska incident, the board actually replaced the CEO — again. They brought in a former Rockwell Collins executive, Pat Shanahan, who came from a supply chain background. But the real test is whether the board itself is willing to slow down production to fix quality. Lucas: And there's evidence they are. Boeing cut 737 production from 38 per month to under 20. That's a massive revenue hit. But it also signals that the board is finally taking the long view. Luna: Honestly, if today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. Just a small way to keep these deep dives ad-free and fully independent. Lucas: Yeah, listener support is what makes this possible. We don't run ads, so it's really the people who find value here that keep us going. And we're grateful for that. Luna: Alright, back to Boeing. So the board cuts production, replaces the CEO, but what about the former executives? Should any of them face personal liability? Lucas: That's a live question. The DOJ is seeking to prosecute Boeing for fraud related to the MAX certification. But individual directors are rarely held personally liable for oversight failures unless there's evidence of bad faith. The standard is the business judgment rule — if a board made a decision in good faith, with reasonable information, they're protected. Lucas: But some shareholders have pushed for clawbacks. In 2022, Boeing's board actually fined the former CEO, Dennis Muilenburg, $2.5 million — and took back about $7 million in stock awards. That's a symbolic move, but it's rare for a board to penalize a former CEO that way. Luna: It's rare but it sends a signal. The question is whether the board has truly changed its DNA. It's still a board that, until recently, had a lot of members from finance and consulting backgrounds. Are they really capable of overseeing a complex aerospace manufacturer? Lucas: That's the million-dollar question. I think the board has made genuine progress — adding technical expertise, creating a safety committee, tying pay to quality. But culture change takes years. And the board's composition is still weighted toward non-engineers. Lucas: One concrete thing to watch: Boeing announced it would acquire Spirit AeroSystems, bringing that key supplier back in-house. That's a board-level decision that shows they understand vertical integration improves quality control. But it also adds billions in debt. Luna: So the board is essentially betting that operational control will pay off in the long run. That's a bet on engineering — which is encouraging. But it's also a bet that the board itself has the patience to see it through when quarterly earnings dip. Lucas: Exactly. And that's the ultimate test of governance. Can a board resist the short-term pressure and stay the course on safety and quality? If they can, Boeing might reclaim its legacy. If not, well, we've seen the consequences. Luna: So what's the lesson for other boards? What should a board member in any industry take away from the Boeing case? Lucas: I'd say two things. First, make sure your board has the technical literacy to understand the core risks of your business. If you're an aerospace company, you need directors who understand aerodynamics. If you're a bank, you need directors who understand credit risk. Not just former regulators or academics — actual operators. Lucas: Second, align compensation with your stated values. If you say safety is paramount, then the CEO's bonus should be tied to safety metrics, not just return on equity. Boeing's board finally did that, but it took two fatal crashes and a near-miss to get there. Luna: It's a tough lesson. But if other boards can learn from it without having to go through a crisis themselves, then maybe some good comes out of it. Lucas: I think that's the hope. Boeing's story is a cautionary tale about how the boardroom can drift from mission to margin — and how hard it is to steer back.