Where was Boeing’s Board of Directors?

I’ve just returned from a few weeks’ leave and one of the first stories to catch my eye related to the departure of Boeing’s CEO, Dennis Muilenberg, following the company’s inept handling of the aftermath of two fatal 737-Max crashes that killed a total of 346 people.

What surprised me was not that Mr Muilenberg has finally been dismissed, but that, in doing so, he takes with him a payout worth $US 62 million. 

There has been a lot of debate in recent years about the astronomical salaries of large company CEOs, and whether anyone actually merits such amounts, or indeed whether someone will really be motivated to work harder for $50 million than they would for, say, $5 million – even that relatively miserly sum being more than most employees are likely to earn over an entire lifetime.

But this payout is on another level again. Usually, when we discuss executive remuneration, we’re thinking of a CEO leading their company successfully and there’s an argument that, as the leader, the CEO should share in some of that success. However, since the second 737-Max crash in March 2019, Boeing’s order book has fallen to a 16-year low and its share price has fallen by about 20%, stripping $US 50 billion off the company’s market value. 

Where is the accountability for this destruction of value? More significantly, where was the Board of directors that set Mr Muilenberg’s remuneration? 

In most CEO employment agreements, there’s a clause saying that, if the CEO acts in a way that brings the company into disrepute, the Board may use this as grounds for dismissal, usually without compensation. Was nobody willing to stand up to Mr Muilenberg when he led the company into and through arguably the worst reputational crisis in the company’s history? 

Perhaps part of the answer is that, until October 2019, Mr Muilenberg was both Chairman and Chief Executive of Boeing, so we may assume that he had considerable influence over his Board. 

Part of the role of a Board is to ask ‘What if …’ In other words, when they were setting his remuneration, they should have asked themselves about some of the possible – if at the time unlikely – circumstances under which they might need to dismiss their chief executive. And, if they did so, what reputational issues might they need to consider?

If nobody did this, how can the directors argue that they were fulfilling their duty of care and loyalty to the company?

When we see more and more that even unsuccessful CEOs depart with what I can only describe as obscene pay packages, it’s no wonder that people become not only disillusioned with big companies, but sceptical about the value boards provide in general as a check and balance on executive behaviour and pay.

To make the specifics of this case even worse, on the very day that Mr Muilenberg departed with his nest egg, one of Boeing’s major suppliers announced that the recent shutdown in the 737-Max production line had forced it to lay off 2,800 of its employees – 2,800 people who will no longer receive a salary or wages, whose careers may be destroyed, and some of whom may no longer be able to meet the mortgage payments on their house.

Looking at it differently again, if Mr Muilenberg were to have a rush of conscience and pay $150,000 from his own pocket to every family of the 346 people killed in the two crashes, he would still be left with more than $10 million to cover his retirement – more than adequate reward for a CEO who has brought one of the world’s leading companies to its reputational knees.

How formal should our board meetings be?

The best answer I had once from a more experienced friend was, ‘As informal as possible – but no more so.’ In other words, let’s keep the formalities to a minimum that allow us to do what what we’re here for, to make the decisions that only the board can make – usually the most important and tricky decisions the organisation faces. You want to give yourself the best chance of getting them right.

In practice, I think this leads to two guiding rules:

  1. The chair needs the ability to control the discussion, to the extent of who is speaking and who is not, rather than in what they’re saying.

I’m not a fan of the rather archaic form of addressing another board member, ‘Through you, chair …’ which I suspect is a hangover from parliament, where the members address the Speaker of the House and refer to the person they’re really talking to in the third person (‘May I ask the honourable member …’). However, this always needs to be the unspoken assumption: as chair, you need the authority to allow (or encourage) a quieter person to speak, or to restrain someone who is dominating or repeating themselves.

  1. The chair also needs to ensure that you have only one discussion at a time around the board table.

This should be relatively obvious, but quite often a side conversation will break out and occupy one group of board members, while others are still speaking on the main topic. One danger – besides the bad manners of speaking over someone else – is that you can easily miss a point, or that others will miss what might be a perfectly valid point in your side-discussion. This habit is also a nightmare for your minutes secretary, who can’t follow two parallel discussions. As chair you need to control it and call people back to order if necessary.

Another aspect of boardroom formality is the proposing and seconding of resolutions: ‘Would someone move that we accept this report … and someone else second the motion?’. What value does this add, and why do we do it? Whenever I ask this, the answer is along the lines of ‘Because we’ve always done it this way,’ rather than for any other good reason.

I suspect this is a habit carried over from the rules for conducting shareholder meetings, usually set out in the organisation’s constitution. These usually say that a motion at an AGM will only be considered by the meeting when it has been properly proposed and seconded. This can be helpful for controlling a larger meeting like an AGM, but how a board runs its own meetings is an entirely different question.

In practice, chairs are likely to use the practice of proposing and seconding as much for ensuring a board member is awake – ‘Jo, are you happy to second that?’ – as for signalling who is actually bringing the resolution to the board. After all, most of the board’s material comes from the chief executive. If he or she isn’t a board member, then they won’t be proposing or seconding anything, even though it’s their paper. Also, if something went badly wrong and a court was trying to work out why the board made a certain decision, I think it would be misleading to have proposer and seconder recorded – especially when they actually have no greater interest in the matter than any other board member. Finally, the practice undermines the important principle of collective board responsibility for our decisions.

Sometimes though, even with the best intentions, a meeting won’t always run the way you’d like. I chaired the regional branch of a not-for-profit organisation some years ago. Our relatively large board used to meet at a long narrow table in a small room. During one meeting, part way through a fairly passionate discussion, I noticed a second even more lively exchange at the other end of the table. Raising my voice slightly, I said, ‘Only one discussion, please’. One of the board members most involved at the other end of the table looked around at me and said, ‘That’s OK Richard – we’re only having one discussion.’

Yes, it keeps you humble – and thinking how you might manage better next time.

The Five Roles of the Chair

Let’s talk about the Five Main Roles of the board chair.

Until you step into the chair’s role, you probably won’t appreciate the full range of what you’ll be called on to do. And, if you’re like most people who’ve learned mainly by watching your own board chair, you’ll have seen them chair board meetings, you may have seen some of the other work they do, but you’re unlikely to have seen all that they do. I’ve put together this outline, built from my own experience rather than any textbook, so you can go into the role with your eyes open, if you’re about to take it on for the first time.

  1. You’re still a director

First, you’re still a director. Lots of new chairs can forget this aspect because they’re so intent on making sure they chair – or rather facilitate – their board meetings efficiently. They can forget to play their own part. Remember you’re a participant as well as being the leader of the board. Part of the trick is being able to put your own views without dominating or shutting down the discussion – ‘because the chair has spoken.’

This may be a bit of an exaggeration, but I’ve seen chairs who use their position to get their own way: they set out their own position and then almost dare any other board member to offer a different position. This may work in the short term, but it does nothing to build an effective board that welcomes diverse views and genuinely wants to find the best answer. Over time, often quite short, it will certainly undermine your own position as chair, because other directors will resent your not being open to other views, or allowing them to make a contribution.

2. You need to run good board meetings

Secondly – the part that’s most visible to your colleagues – you’ll chair and run your board meetings, to make them as productive and efficient as possible.

Several board chairs have confessed to me that they feel exhausted at the end of a full board meeting, as if it’s a sign of weakness: it’s more likely they’ve been doing the job properly, since as chair you’re running three parallel processes for the full length of the meeting. First, as I’ve mentioned, you need to participate as a director, weighing information and differing opinions, asking good questions, thinking through the consequences and finally being a part of the board’s decision.

Then of course you have to manage the meeting itself, dealing with the most important items, getting through your agenda in the time you’ve allowed, and making sure you’re clear about the decisions you’ve taken. Finally, you need your antennae on alert so you can sense constantly who needs to speak who hasn’t, who needs not to speak any more because they’ve already spoken too much; whether the board is ready to make a decision and whether you’re getting off topic or going around in circles. With all this going on in your mind, it’s no surprise when the board chair feels drained at the end of the meeting, while the other directors usually have only one of those roles to perform – turning up as directors and playing their part.

3. You must build and develop your board

Third, the chair is responsible for building and developing an effective board, with the right range of skills, experience, external linkages and personal styles. Chairs don’t always have the luxury of choosing who’s on the board with them, but you’re still responsible for making the most of those you have: this may involve some coaching, board training or looking for another director to fill a gap. When you do get the chance to find one or more new members, it can become very time consuming, as typically the board chair will be leading the selection and appointment process, whether as chair of a formal nominations committee or more informally. Either way, it’s worth the trouble and time to get the best candidate(s) you can.

I was lucky enough recently to be asked to find two new members for a board I chair. Working with the search firm, we discussed something like 35 candidates, the firm itself spoke to about 20 of these and I interviewed nine. That’s quite time consuming, not to mention the subsequent process of due diligence, reference checking getting the appointments approved by shareholders, and finally welcoming and inducting our new directors. But it was worth the effort and both new members have made their mark from the day they joined us.

4. You’ll develop and nurture your stakeholder relationships

Fourthly, as chair you’re the external face of your board, with shareholders and other key stakeholders. I don’t agree with the board chair being the day-to-day spokesperson for the organisation – that’s your chief executive’s job – but at times you have to be the face,  particularly when you’re reporting to shareholders, or if the company’s facing a crisis, or something like the unexpected departure of your chief executive. You need to keep yourself well enough informed to know what the big issues are at any time, and what your message might need to be, whether in a formal AGM, or one to one over coffee with a sole shareholder or key influencer.

5. You run the board’s relationship with your chief executive

This fifth component of your role can at times be the most stimulating and enjoyable, and at others the most frustrating and draining of all the chair’s responsibilities. As chair, you’re the main link between the board and your chief executive, especially between your board meetings. Depending on your relationship and individual backgrounds and experience, you’re likely to alternate between being a sounding board, a mentor, a leader, an interpreter (of the board’s intentions) and a firm guiding hand.

I believe the relationship between the chair and chief executive is the most vital single relationship in an organisation: it’s built on two-way trust and respect, and the most effective relationships are not built on hierarchy or seniority but become a powerful partnership, where each understands the other’s strengths and how he or she can complement those.

Of course, as chair you need to remember you’re there on behalf of the board, and not as the chief executive’s individual ‘boss’. If your relationship breaks down, you’ll also have to manage the process to deal with that. So one of the golden rules of being the chair is that you can’t afford to become personal friends with your chief executive. This can actually be one of the hardest parts of the entire role of chair, for the simple reason that when you work closely with someone who shares a vision and similar values, and if you respect each other and get to know how each other thinks and operates, you’re likely to find you really like the other person. Sadly, this can be the biggest trap for a board chair: once your relationship becomes a friendship, you’ve lost your objectivity … you find yourself in board meetings acting as ‘counsel for the defence’, instead of keeping your professional independence, from where you can challenge and guide, and be true to your first duty, as I’ve outlined above, as a director.

In future posts, I’ll talk in more detail about each of these five roles, but this will do for now.

I should add, finally, that you’re unlikely to be doing all of these at the same time, so you can focus as you need to. But, overall, I hope I’ve given you some idea of what the position needs, and how becoming the chair can sometimes fill your day, or week, if you’re going to do it properly. Good luck!

How it all began

‘Hello Mr Westlake,’ said the voice on the phone. ‘I know you don’t have the time to be a director … but we were wondering whether you’d consider being the chairman.’

Some weeks earlier, I’d received a call asking whether I’d be interested in being appointed to the Establishment Board of the Meteorological Service state owned enterprise, being set up as a part of the government’s structural reforms. I had never been on a board, but I had always had an interest in the weather and, as a former pilot, I understood how heavily you relied on accurate weather reports and forecasts, and this opportunity excited me.

I replied that I’d have a strong interest in becoming a director, but needed to check first with my employer, the New Zealand CEO of an overseas owned bank. He wasn’t known for supporting his people’s career development and scoffed at this idea, telling me I couldn’t possibly have the time to take on this new role. It was late 1991 and merchant banking in New Zealand was almost moribund, so I didn’t agree with him, but regretfully I declined the approach.

So it was quite a surprise to receive that second call some weeks later. International banks have many faults, but one area in which they were sometimes quite skilled was in reading the mood of the times. When I relayed this further approach to my boss, he must have thought twice about whether to decline the evident wish of the government, and he told me I should accept.

So began my board career: Establishment Chair of the MetService SOE Establishment Board, chairing a board tasked with setting up the first national weather service in the world to be turned into a commercial company. I’d barely been inside a boardroom and had no training for the role, but I was keen to learn and take on the challenge … and I’ve been learning ever since.

Establishment boards of SOEs had no legal status, and we had no legal standing as a board, but, as I was advised by some government officials: ‘They’ll never work on paper, but they’re fine in practice.’ I might say the same about my early governance career.

28 years on, and I’ve been privileged to chair many boards since then and to work with some excellent – and a few not so excellent – chairs on other boards.

In my advisory business, I work with many newer chairs and chairs facing complex challenges and conflicts. They often ask where they can find reference material to guide them. Much of what I’ve found seems more relevant to experienced chairs of publicly listed companies, something that many (most?) chairs aren’t.

Apart from some initial training courses and generic best practice papers, I haven’t found much for the rest of us, chairing private companies, family businesses, co-operatives, government bodies, sports organisations, charities, other not-for-profits, or any of the thousands of other organisations that need someone to chair their board.

That’s why I’ve called this blog, ‘Chairing – for the rest of us’, or ‘CHAFTROU’ for short. Over coming weeks I’ll talk about the role of the chair as I’ve learned it, with some highlights, lessons, tips, and some of my biggest mistakes. I may add a few incidental comments too.

I hope this will help to fill some of the gaps, and that it’ll be useful – and entertaining – and, most of all, that you’ll enjoy this journey with me. Welcome a-board!