“Full Transparency” & “Effective and Proactive Communication”: Risk Management Lessons from Boeing and GE

This morning The Boeing Company announced that Dennis Muilenburg had resigned as its Chief Executive Officer.

This follows the loss of 346 lives in two separate crashes in 2018 and 2019, and allegations that Boeing had withheld from FAA regulators, and from airline customers and their pilots — vital information about hazards inherent in the Boeing 737 Max 8’s autopilot system.

This morning’s announcement from Boeing:

Under the Company’s new leadership, Boeing will operate with a renewed commitment to full transparency, including effective and proactive communication with the FAA, other global regulators and its customers.”

Some financial and legal context:

Boeing announced in late October that it had recorded $2 billion in losses related to the 737 Max — just for the 3d Quarter. And the company declined to discuss potential legal costs.

In its SEC Form 10-Q report for the 2d Quarter, Boeing had announced an earnings charge of $5.6 billion for:

” … Estimated potential concessions and other considerations to customers for disruptions related to the 737 MAX grounding and associated delivery delays.”  

That same 2d Quarter 10-Q reported:

“Multiple legal actions have been filed against us as a result of the October 29, 2018 accident of Lion Air Flight 610 and the March 10, 2019 accident of Ethiopian Airlines Flight 302. … We cannot reasonably estimate a range of loss, if any, that may result given the ongoing status of these lawsuits, investigations, and inquiries.”

And Boeing is bracing for much more, having appointed its former general counsel, J. Michael Luttig, as executive vice president and counsel to Boeing’s CEO — to focus on 737 Max crash-related matters — as it brought in a separate individual (Brett Gerry), to serve as general counsel handling regular company legal business.

Protecting your business against risk involves more than what your lawyers by themselves can do. It’s about more than what your board of directors can do. Or senior management.

It calls for more than attorneys giving briefings or memoranda to senior management. It calls for more than having front line employees initiate discussions with Legal to seek permission before taking basic actions in their jobs. And it calls for more than having your board establish a special committee to oversee a risk that’s distinctive to your business under the Delaware Supreme Court’s Caremark / Ritter / Marchand precedents.

Protecting your business against risk requires preparation — in advance — of everyone whose acts might trigger liability for the company. And it has to extend to any aspect of operations that can get your enterprise into trouble.

As Boeing’s announcement this morning referred to “renewed commitment” to “full transparency” and “effective and proactive communication”, I was reminded of a rule that Jack Welch and his General Counsel, Ben Heineman, required everyone to live by when I was an executive at GE.

It was my first day at GE Rail Services as Vice President for Business Development. My boss ended our initial chat this way:

“If you ever have a concern that we’re not doing things in the right way, my door is always open to you.”

I’d heard that one before. But what he said next — what GE as a company had designed into its compliance system — I had never heard before:

“If you feel like you can’t trust me for some reason, you’re free to talk to our CEO. Or if you don’t trust him, you might talk with our general counsel.”

My new boss offered names of two or three others within that GE business unit to whom I might bring concerns about wrongdoing.

He ended with this:

“And if you don’t trust anyone in this building, here are two names of people at our corporate parent in Connecticut (GE headquarters) whom you can call.”

… 

This, I believe, showed GE’s commitment to “full transparency” and “effective and proactive communication”. As I wrote to former GE General Counsel Ben Heineman, years later, when I thanked him for whatever he’d done to bring this rule about:

“GE had structured its management rules of engagement to authorize — in advance — ‘skip level’ and otherwise unorthodox paths of communications in the interest of corporate honesty. Management, by its rules, had painted itself into a corner as far as ethical transparency was concerned — a good corner. Unsurprisingly, I never had to avail myself, as I never encountered a need to raise such concerns.”