The Story of Boeing’s Failed Corporate Culture

In Brief

The Boeing case is a cautionary tale of what can go wrong when a company fails to develop and implement sound internal quality controls that protect operational processes and encourage a culture of safety. At Boeing, whistleblowers reported problems with operating processes that were ignored by management and weren’t always reported to the board of directors. The company did not use internal audits to identify and correct operational problems, relying instead on FAA inspections to point out safety issues in its 737 MAX aircraft. Whistleblower warnings were ignored. Ultimately, Boeing became the target of lawsuits by shareholders and the government, both of whom charged the company with failing to take required action when production flaws were identified. On July 8, 2024, Boeing agreed to plead guilty to fraud and pay up to $487 million to settle charges that it had defrauded the United States for its role in the two fatal crashes. On December 5, 2024, a federal judge rejected the plea because of the way the independent monitor that would oversee safety and quality improvement at Boeing would be selected.

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Boeing came under increasing scrutiny in the popular press in the wake of a series of reported incidents and accidents involving aircraft it manufactured. The message that the authors draw from this case is that Boeing placed profits ahead of safety. The result has been a series of crashes and mechanical problems that led to investigations by the National Transportation Safety Board (NTSB), inspections by the Federal Aviation Administration (FAA), and litigation by the Securities and Exchange Commission (SEC). This article will cover the following:

• ▪ the culture that created shortcuts in the production process,
• ▪ the failure of quality controls to identify and report the problems,
• ▪ the breakdown in corporate governance systems,
• ▪ the failure to heed whistleblower warnings,
• ▪ inspections by the FAA focused on failed quality controls and deficiencies in corporate governance systems,
• ▪ regulatory actions taken by Congress and the SEC, and
• ▪ lawsuits against Boeing by the U.S. government.

An article in Business Week addressed the problems with the corporate culture at Boeing that created an environment where profit maximization was placed ahead of the safety of the company’s 737 MAX aircraft (Peter Robison, “Fixing Boeing’s Broken Culture Starts With a New Plane,” April 4, 2024, Bloomberg, https://tinyurl.com/ssjupxyp). The article placed blame on David Calhoun, Boeing’s former chief executive officer. After 10 years on Boeing’s board of directors, Calhoun took over as CEO in January 2020 replacing Dennis Muilenburg after the latter played down design defects in two aircraft.

On October 29, 2018, Lion Air Flight 610 crashed into the Java Sea shortly after taking off from Jakarta, Indonesia, killing all 189 passengers and crew aboard. The plane was a new Boeing 737 MAX. Shortly thereafter, on March 10, 2019, a Boeing 737 MAX 8 aircraft, Ethiopian Airlines Flight 302, crashed after takeoff from Addis Ababa International Airport, killing all 157 aboard. FAA investigators identified faults in the sensors and new flight control software that had not been explained to pilots (“Investigators ‘Believe Ethiopian 737 MAX’s Anti-Stall System Activated,’” The Guardian, March 29, 2019, https://tinyurl.com/4533xk9a).

Calhoun often addressed how he had made safety a top priority in the wake of the crashes. His actions, however, did not meet those words.

On July 8, 2024, Boeing pled guilty to a criminal fraud charge stemming from the two crashes of 737 MAX planes that killed the 346 people, according to the U.S. Department of Justice (DOJ), which determined that the company violated an agreement (discussed later) that had protected it from prosecution for more than three years (David Koenig and Alanna Durkin Richer, “Here’s What to Know About Being Agreeing to Plead Guilty to Fraud in 737 Max Crashes,” AP News, July 9, 2004, https://tinyurl.com/3m46jpxz). The plea deal called for Boeing to pay an additional $243.6 million fine (David Koenig, “What to Know About the Plea Deal Offered Boeing in Connection with 2 Plane Crashes,” AP News, July 1, 2024, https://tinyurl.com/hxpnzp2x). That was the same amount it paid under the 2021 settlement that the DOJ said the company breached (David Koenig and Alanna Durkin Richer, “Justice Department Says Boeing Violated Deal that Avoided Prosecution After 737 MAX Crashes,” AP News, May 14, 2024, https://tinyurl.com/4cj952r7). An independent monitor would be named to oversee Boeing’s safety and quality procedures for three years. The deal also required Boeing to invest at least $455 million in its compliance and safety programs. On December 5, 2024, a U.S. judge rejected Boeing’s agreement to plead guilty to fraud because of a DOJ policy that might “marginalize” the judges’ ability to select an independent monitor to audit Boeing’s compliance practices (Mike Spector, Allison Lampert, and David Shepardson, “US Judge Rejects Boeing Plea Deal in Fatal 737 MAX Crashes,” Reuters, December 5, 2024, https://tinyurl.com/3dh5vzas). The DOJ and Boeing told a court on January 3, 2025, they have not reached agreement on a revised plea deal.

In the authors’ opinion, Boeing talked the talk but did not walk the walk when it came time to establish a culture that promoted safety ahead of the pursuit of profit. The company pushed products out as quickly as possible to meet demand even when warnings were given by whistleblowers that problems existed in the quality control systems. The blame lies with management in the first instance, but also attaches to the internal auditors who did not seem to conduct sufficient operational audits, relying instead on FAA inspections.

Accelerating Production at the Cost of Safety

Perhaps the most glaring production deficiency occurred in October 2022, when Boeing provided a MAX plane for Alaska Airlines. Workers at Boeing had apparently forgotten to reinstall four bolts that keep a piece known as a door plug in place on the 737 MAX. It was removed to allow three contractors from a temporary staffing company hired by Spirit AeroSystems, the company’s production partner and supplier, to rework defective rivets.

Later, it would be determined by investigators from the NTSB that these bolts were missing at the time of the January 5, 2024, blowout of a door on the 737 MAX on an Alaska Airlines flight, triggering a 19-day emergency grounding of all MAX 9s, and re-igniting scrutiny of Boeing following the fatal 2018 and 2019 MAX 8 crashes of the Indonesia and Ethiopian planes (mentioned above).

Boeing acknowledged its responsibility for the blowout in a statement issued after the NTSB report and said it is working to make sure incidents like this do not reoccur. Boeing CEO David Calhoun said in a statement “Whatever final conclusions are reached, Boeing is accountable for what happened. An event like this must not happen on an airplane that leaves our factory. We simply must do better for our customers and their passengers.” (John Ostrower, Elan Head, and Will Guisbond, “NTSB Chair: Alaska 1282 Investigation Is Like ‘Peeling an Onion,’” Aviation Safety, March 8, 2024, https://tinyurl.com/ykew632r). Boeing said it was taking new actions to improve the way it makes the 737 MAX 9 planes including more inspections, giving the 737 teams more time “to focus on and implement quality improvements,” and bringing in outside safety experts to assess its operations (“Updates On the 737-9 and Safety & Quality Action,” Boeing, https://www.boeing.com/737-9-updates).

The problems at Boeing were due to pushing through production without adequate testing of parts and other lax quality controls. Moreover, Boeing failed to replace aging 737s with new planes. Business Week reported that the company “increasingly emphasized financial wizardry over manufacturing, spending $41.5 billion on stock buybacks from 2013 to 2018 that enriched investors and management.” Muilenburg alone “made at least $106 million from 2011 to 2018, mainly from stock grants. Boeing’s capital expenditures plummeted to less than 2% of sales by 2018, half what European rival Airbus SE typically spends, after running as high as 7.2% in 1992. As a board member and CEO, Calhoun participated in these decisions and “made more than $64 million from 2020 to 2022.” (Robison, 2024).

Calhoun had the opportunity to reset Boeing’s culture in the aftermath of the disasters in Indonesia and Ethiopia. Instead, he essentially doubled down on the same strategy, laying out a plan in 2022 to generate $10 billion of annual free cash flow by 2026 and start returning some of that to shareholders.

Following the blowout, FAA inspectors found “multiple” instances where quality control procedures were not followed. An assessment by an FAA expert panel mandated by Congress described a “disconnect” between Boeing’s senior management and its assembly workers, some of whom feared retaliation for reporting safety issues. According to FAA Administrator Michael Whitaker, Boeing must shift the company’s “safety culture to holistically address its systemic quality assurance and production issues (Michael Whitaker, “Statement of Michael Whitaker, Administrator, Federal Aviation Administration Hearing Before the United States House Committee on Transportation and Infrastructure Subcommittee on Aviation,” September 24, 2024, https://tinyurl.com/2239mjhy).

Ignoring Quality Controls

Boeing’s internal controls should have led to the full disclosure of the production flaws. Instead, reports of quality control issues were ignored. The following is a summary of some of the shortcomings:

• ▪ Failure to implement priority safety oversight. None of the Boeing board of director committees were specifically assigned responsibility for overseeing airplane safety.
• ▪ Failure to properly train pilots on the airplane control system, the Maneuvering Characteristics Augmentation System (MCAS).
• ▪ Failure to formally monitor or discuss safety on a regular basis.
• ▪ Management’s periodic reports to the board did not include safety information related to overall product safety issues.
• ▪ The board did not have a mechanism for receiving internal complaints about airplane safety and it never learned about any employee or whistleblower safety complaints.
• ▪ Absent controls on airplane safety, the board pushed for meeting production deadlines and remaining competitive with its chief rival, Airbus.
• ▪ Boeing adopted an aggressive schedule to develop the 737 MAX in response to Airbus’s competition, thereby glossing over significant re-engineering issues.

In 2018, a senior manager on the production line, Ed Pierson, emailed the head of the 737 program to warn that the rush to produce new aircraft was causing serious problems. “I know how dangerous even the smallest of defects can be to the safety of an airplane. Frankly right now all my internal warning bells are going off. And for the first time in my life, I’m sorry to say that I’m hesitant about putting my family on a Boeing airplane,” he said (Theo Leggett and Tom Burridge, “Boeing Played Russian Roulette with People’s Lives,” BBC News, https://tinyurl.com/tb9hvsmm). The email was sent on June 9, 2018—nearly five months before Lion Air Flight 610 plunged into the Java Sea.

Boeing’s Safety Culture

The FAA’s Organization Designation Authorization (ODA) Expert Review Panel reviewed Boeing’s safety management processes and found numerous deficiencies in its safety culture. The report, released on February 26, 2024, criticized Boeing’s safety culture in a number of areas. It found “a lack of awareness of safety-related metrics at all levels of the organization.” The report also points out that the company failed to ensure all employees understood their role in maintaining safety. It also cited an “inadequate and confusing implementation of the components of a positive safety culture.” The panel cited “gaps in Boeing’s safety journey” and referenced serious quality issues that have become public since 2023 [Section 103 Organization Designation Authorizations (ODA) for Transport Airplanes Expert Panel Review Report Aircraft Certification, Safety, and Accountability Act of 2020 (Pub. L. 116-260, Div. V) Section 103, February 26, 2024, https://tinyurl.com/nmpta82t].

The FAA report also identified the following shortcomings in the safety culture:

• ▪ There is a lack of awareness of safety-related metrics at all levels of the organization.
• ▪ Inadequate human factors consideration commensurate with its importance to aviation safety.
• ▪ Lack of pilot input in aircraft design and operation.
• ▪ Engineering function lacks consistent oversight.
• ▪ Inadequate time to mentor and train less experienced engineers, resulting in lower quality on certification plans, reports, and compliance.
• ▪ Employees do not feel comfortable speaking up, despite Boeing’s own “Seek, Speak & Listen” policy.
• ▪ System of reporting product concerns allows for retaliation to occur (Marisa Garcia, “FAA Expert Panel Details Faults in Boeing Safety Management System,” Forbes, February 27, 2024, https://tinyurl.com/ybptvc4z).

Why didn’t Boeing’s board of directors act to disclose the problems with the production design and manufacturing process? Is it possible they had no idea what was going on? Possibly, but the internal auditors should have been aware of the problems and informed the board.

While Boeing’s audit committee was charged with oversight of risk as a general matter, the audit committee never examined or even considered airplane safety. For example, when the board discussed audit plans in 2014 and 2017, it did not mention nor address airplane safety. Instead, the audit committee maintained a singular focus on financial risks and profits. Even after the Lion Air 737 MAX crash, Boeing’s chief compliance officer failed to update the audit committee and failed to mention “product safety” as a “compliance risk.”

Where were the auditors? This has often been the mantra after the failure of an external audit to identify fraudulent financial reporting. It should also be applied, however, in internal audits, and the Boeing case is one such example.

It is interesting to look as far back as January 6, 2020, when the online publication, Internal Audit 360° reported that an internal audit conducted by Boeing in December 2019, at the urging of regulators, identified new safety issues with Boeing’s troubled 737 MAX planes (“Internal Audit Identifies New Issues with Boeing’s 737 Max,” IA360 Staff, Jan. 6, 2020, https://tinyurl.com/bdhd574a). A report by the New York Times said that the audit looked at every facet of the plane. Boeing halted production of the aircraft as it continued to work to fix flaws with the model. “As part of the work to return the MAX to service, the company and regulators have scrutinized every aspect of the jet, uncovering new potential design flaws.” Among the problems identified by the audit were potential wiring problems where bundles of wires might be too close together and could cause a dangerous short-out during flights (Mark Walker, “F.A.A. Audit of Boeing’s 737 Max Production Found Dozens of Issues,” New York Times, March 11, 2024, https://tinyurl.com/emamhek5).

There were many failings of the board of directors cited in the FAA Expert Review Panel report that were discussed in the quality control section above. Post-crash governance failures existed as well. The board was not notified of the Lion Air crash for 10 days. Even though the FAA and internal Boeing engineers quickly identified the MCAS as responsible for the crash, the CEO reported to the board that the 737 was safe. The CEO even told the board that reports of the failure of the system and safety concerns were wrong and the 737 MAX was safe. A formal board meeting was not held until almost two months after the Lion Air crash. There were no minutes of the meeting and management talking points provided misleading explanations and false denials of responsibility. The Ethics and Compliance presentation to the audit committee listed the Lion crash as a “hot topic” but did not include any specific mention of airline safety issues (FAA, https://tinyurl.com/nmpta82t).

In January 2019, the DOJ opened a criminal investigation of the Boeing 737 MAX planes. At the February 2019 board meeting, the board specifically decided to delay a possible internal investigation, deferring to conclusions of the regulatory investigations or until such time as the board determined such investigation would be appropriate. Several board members were aware of incriminating text messages between Boeing technical flight pilots concerning the MCAS deficiencies and withholding critical information from the FAA. Those messages were not given to the FAA until October 2019 (FAA, https://tinyurl.com/nmpta82t).

On March 10, 2019, less than one month after the Boeing board declined to launch an internal investigation, Ethiopian Airlines Flight 302 crashed. Several days later, the 737 MAX was grounded by the FAA. Between November 2018 and March 2019, when the FAA ordered the grounding of the plane, Boeing’s board never considered or even discussed grounding the plane because of safety concerns (John Power, “Boeing Hit with 32 Whistleblower Claims, as Dead Worker’s Case Reviewed,” Al Jazeera, April 19, 2024, https://tinyurl.com/4m49xr3k).

As might be expected, Boeing shareholders pursued litigation against the company for its corporate governance failures. The Chancery Court in Delaware resolves alleged corporate governance deficiencies raised in shareholder lawsuits. The Caremark doctrine of 1996 establishes the parameters of a board’s duty of oversight. Personal liability for directors with respect to their oversight function may “arise from an unconsidered failure of the board to act in circumstances in which due attention would, arguably, have prevented the loss.” Accordingly, to fulfill their duty of loyalty “directors must make a good faith effort to implement an oversight system and then monitor it” (Gail Weinstein, Warren S. de Wied, and Philip Richter, “Caremark Liability for Regulatory Compliance Oversight,” Harvard Law School Forum on Corporate Governance, July 8, 2019, https://tinyurl.com/yf23ctcd).

The Chancery Court permitted the Caremark duty-of-oversight claim to proceed against the directors of Boeing. Stockholder plaintiffs sued Boeing’s board, seeking to recover costs and economic losses associated with the crash of two 737 MAX jetliners. The plaintiffs’ complaint alleged that the directors failed to monitor aircraft safety before the crashes and then failed to respond to known safety risks after the first crash. The lawsuit sought to hold the directors liable for the resulting loss of “billions of dollars in value.”

The basic argument of the case was as follows:

Operational Audits

It appears that Boeing relied mostly on FAA audits to evaluate the company’s operating activities. In the authors’ view, the company should have developed the necessary internal audit systems to evaluate the processes and procedures that make up their operations including any product defects, supply chain problems, and maintenance and repairs. The goal should be to increase overall operational effectiveness. Had this occurred at Boeing, it is possible that manufacturing and product defects could have been identified and dealt with before they did real damage.

The internal control environment in business is the combination of a business’s structure, policies, standards, and processes working together to ensure that people are doing the right things, in the right way, to achieve its goals or fulfill its mission. When thinking about the Boeing case in the context of internal controls and operational audits, it is apparent that the company did not assess the internal control environment in a way that would have made a difference in creating a safe production process, or adequately evaluate whether the control systems were operating effectively, or creating a culture of safety, and instituting ethical leadership.

FAA Inspections

In March 2024, the FAA conducted a six-week audit of Boeing’s manufacturing processes for the 737 MAX, following the blow out of the door panel. FAA auditors found that of 89 product audits that were conducted, Boeing passed 56 tests and failed 33 of them, mostly dealing with faulty manufacturing controls. The FAA also conducted 13 product audits focused on Boeing’s fuselage supplier Spirit AeroSystems and found failures in seven of the audits. The agency said in its report that it found multiple instances where both companies failed to comply with manufacturing quality control requirements (Mark Walker, “F.A.A. Audit of Boeing’s 737 Max Production Found Dozens of Issues,” New York Times, March 11, 2024, https://tinyurl.com/y4axut77).

Boeing agreed to increase quality inspections and review the work of suppliers as part of a review of the production processes for its 737 MAX aircraft in response to the loss of the door plug on an Alaska Airlines 737 MAX 9. Despite the company’s repeated claims of its commitment to safety procedures, the report said it did not find “objective evidence of a foundational commitment to safety that matched Boeing’s descriptions of that objective” (Chris Isidore and Gregory Wallace, “Aviation Safety Panel Finds Boeing Culture Included Safety ‘Gaps,’ Fear of Retaliation,” CNN, February 26, 2024, https://tinyurl.com/9knpbnvp).

Whistleblower Claims

Boeing has been hit with 32 whistleblower complaints since 2020, according to a report of the Occupational Safety and Health Administration (OSHA). The figures shed light on the extent of alleged retaliation by Boeing against whistleblowers. OSHA handles complaints of retaliation against workers who blow the whistle on the employer, under the Sarbanes-Oxley Act (SOX). The complaints were filed under different statutes, the majority under aviation safety. Two were filed under the category of fraud (Power, 2024).

The documents show that OSHA launched a review of the case of John Barnett, a former quality control engineer turned whistleblower, after he was found dead in March 2024, from a suspected self-inflicted gunshot wound. Barnett’s death was ruled a suicide. Barnett was supposed to answer questions as part of a deposition resulting from a legal dispute with Boeing, his former employer. Barnett was to offer evidence for legal proceedings linked to a defamation lawsuit against Boeing, which he claimed deliberately hurt his career and reputation because of allegations he had made of grave safety breaches on the aircraft company’s production line. (Koh Ewe, “Boeing Whistleblower John Barnett Found Dead Amidst Deposition Against Plane Company,” Time, March 12, 2024, https://tinyurl.com/f66pwey5).

Barnett told the New York Times in 2019 that he was once reprimanded for documenting “process violations” via email instead of face to face, which he took to mean the company didn’t want him putting problems in writing. In a 2014 performance review seen by the Times, Barnett’s manager told him that he had to improve at “working in the gray areas and help find a way while maintaining compliance” (Sydney Ember, “Boeing Whistleblower Who Raised Quality Concerns Is Found Dead,” New York Times, March 12, 2024, https://tinyurl.com/5ayfxwhn).

In a U.S. Senate Hearing on April 17, 2024, Boeing engineer Sam Salehpour testified that he had been threatened for raising concerns about gaps between key sections of the 787 Dreamliner. “They are putting out defective airplanes,” he said. “I have serious concerns about the safety of the 787 and 777 aircraft, and I am willing to take on professional risk to talk about them.” Salehpour claimed that Boeing hid problems during production of its Boeing 787 Dreamliner aircraft when it started pushing pieces together with “excessive force” to unsuccessfully try to close the gaps. As a result, Salephour said that debris ended up in the gaps 80% of the time. “Effectively, they are putting out defective airplanes,” he said during the hearing. Salehpour also revealed that after he raised concerns over the issues he witnessed with manufacturing, he was moved out of the Boeing 787 Dreamliner program. “I have raised these issues over 3 years, I was ignored, I was told not to create delays, I was told frankly to ‘shut up,’” said Salehpour (Power, 2024).

When he was moved to the program that assembled 777 aircraft, Salehpour said he witnessed “severe misalignment” when the airplanes were being put together. “Boeing manufacturing used (an) unmeasured and unlimited amount of force to correct the misalignment, and this also weakens the airplane in the long run,” he said. “I literally saw people jumping on the pieces of the airplane to get them to align. I call it the Tarzan effect, among other improper methods.” Salehpour said that he once again raised concerns internally. “I was silenced, I was told to shut up, I received physical threats,” he said (Power, 2024).

Joshua Dean, a former quality auditor at Boeing supplier Spirit AeroSystems, had accused the supplier of ignoring defects in the production of the 737 MAX planes. Dean gave statements as part of a shareholder lawsuit. He was fired in April 2023 and told NPR that it was in response to him flagging improperly drilled holes in fuselages. He died of a sudden illness in 2024. “I think they were sending out a message to anybody else,” Dean claimed. “If you are too loud, we will silence you” (Giulia Carbonaro, “Second Boeing Whistleblower Dies Suddenly,” Newsweek, May 2, 2024, https://tinyurl.com/2ywktkw3).

In the authors’ view, Boeing’s tone at the top contributed to the lack of full disclosure regarding product defects and the failure of operational controls. The culture at Boeing did not foster honesty, integrity, and transparency in reporting manufacturing problems. Instead, it promoted a “profit at any cost” environment that led to ignoring serious product flaws and deficiencies in the manufacturing process.

SEC Rulings

On September 22, 2022, the SEC settled charges with Boeing and its former CEO, Dennis A. Muilenburg, for failing to exercise reasonable care when communicating with the public after two fatal 737 MAX accidents. Their statements in November 2018 and April 2019 were found to be materially misleading to investors. According to the SEC, after the first crash, Boeing and Muilenburg knew that MCAS posed an ongoing airplane safety issue, but nevertheless assured the public that the 737 MAX airplane was “as safe as any airplane that has ever flown the skies.” Later, following the second crash, Boeing and Muilenburg assured the public that there were no slips or gaps in the certification process with respect to MCAS, despite being aware of contrary information (In the Matter of Boeing Company, SEC Release No. 11105, September 22, 2022, https://www.sec.gov/files/litigation/admin/2022/33-11105.pdf). In the separate settlement with Muilenburg, the SEC further charged that Muilenburg ignored an internal compliance review in his April 2019 statement (In the Matter of Dennis A. Muilenburg, SEC Release No. 11106, September 22, 2022, https://www.sec.gov/files/litigation/admin/2022/33-11106.pdf).

The SEC’s orders against Boeing and Muilenburg found that they negligently violated the antifraud provisions of federal securities laws. Without admitting or denying the SEC’s findings, Boeing and Muilenburg consented to cease-and-desist orders that included penalties of $200 million and $1 million, respectively. A Fair Fund was to be established for the benefit of harmed investors pursuant to section 308(a) of the Sarbanes-Oxley Act of 2002.

“There are no words to describe the tragic loss of life brought about by these two airplane crashes,” said SEC Chair Gary Gensler. “In times of crisis and tragedy, it is especially important that public companies and executives provide full, fair, and truthful disclosures to the markets. The Boeing Company and its CEO, Muilenburg, failed in this most basic obligation. They misled investors by providing assurances about the safety of the 737 MAX, despite knowing about serious safety concerns” (SEC, “Boeing to Pay $200 Million to Settle SEC Charges that it Misled Investors about the 737 MAX,” Press Release 2022-170, Sept. 22, 2022, https://www.sec.gov/newsroom/press-releases/2022-170).

Gurbir S. Grewal, Director of the SEC’s Enforcement Division, said that “Boeing and Muilenburg put profits over people by misleading investors about the safety of the 737 MAX all in an effort to rehabilitate Boeing’s image following two tragic accidents that resulted in the loss of 346 lives and incalculable grief to so many families” (SEC, 2022-170). He noted the importance of public companies and their executives providing accurate and complete information when they make disclosures to investors, no matter the circumstances.

Congressional Investigations

In March 2024, the U.S. Senate Permanent Subcommittee on Investigations (PSI) held a hearing wherein it received whistleblower disclosures concerning the safety and quality of Boeing’s aircraft manufacturing. Following these disclosures, PSI opened a bipartisan inquiry and requested information from Boeing and the FAA. On June 18, 2024, the PSI held a hearing with Boeing CEO David Calhoun. The PSI released new evidence provided by whistleblowers regarding safety risks resulting from Boeing’s manufacturing processes, including two whistleblowers who had gone public for the first time. Richard Blumenthal (D-CT), issued a statement:

On June 18, 2024, Sam Mohawk, a quality assurance investigator at Boeing, detailed how the 737 program was losing track of “hundreds” of nonconforming, or damaged, parts despite mandates requiring aircraft manufacturers to keep tight records. Those parts cannot be used on an aircraft without special permission. Mohawk filed a complaint with OSHA alleging the company retaliated against him, which was released publicly as part of the subcommittee report. In it, he said that “many of the missing parts were unlawfully installed on aircraft.” He also alleged that he was directed by his superiors to “cancel” records that designate a part as nonconforming (Valerie Yurk, “Senate Report Piles on New Allegations of Boeing Safety Failures,” Roll Call, June 18, 2024, https://tinyurl.com/utsswx7e).

Boeing agreed to plead guilty on July 8, 2024, to one charge of conspiracy to defraud the United States for its role in the two fatal crashes. It would have paid up to $487 million, if the agreement was accepted, a fraction of the $24.8 billion that families of crash victims asked for. The agreement stipulated that Boeing would have to operate under the oversight of an independent monitor for a period of three years. The fines did not satisfy the families, but the DOJ argued that the penalties imposed on Boeing were the strongest available. It also argued that other improvements exist as well, including the oversight of a monitor and the demand that Boeing spend more on safety and compliance when building aircraft (Chris Isidore, “Boeing Agrees to Plead Guilty to Defrauding the FAA but Escapes Punishment Sought by Victims’ Families,” CNN, July 8, 2024, https://tinyurl.com/4awf44vn).

The DOJ contended that the criminal conviction demonstrates the department’s commitment to holding Boeing accountable for its misconduct. It also raised the possibility of more legal problems ahead for the company and its executives.

Deferred Prosecution

In January 2021, Boeing entered into a Deferred Prosecution Agreement (DPA) with the Fraud Section and the U.S. Attorney’s Office for the Northern District of Texas to resolve a criminal charge filed simultaneously against Boeing; specifically, conspiracy to defraud the FAA’s Aircraft Evaluation Group (FAA AEG) in connection with the FAA AEG’s evaluation of Boeing’s 737 MAX airplane. As Boeing admitted in court documents, through two of its 737 MAX Flight Technical Pilots, Boeing deceived the FAA AEG—which evaluated and mandated pilot-training requirements for U.S.-based airlines flying the 737 MAX—about the speed range in which a part of the 737 MAX’s flight controls (MCAS) could operate (“Boeing Charged with 737 Max Fraud Conspiracy and Agrees to Pay over $2.5 Billion,” Office of Public Affairs U.S. Department of Justice, Jan. 7, 2021, https://tinyurl.com/bdfesp6s).

As part of the DPA, Boeing agreed to pay a total of over $2.5 billion, composed of a criminal monetary penalty of $243.6 million, compensation payments to Boeing’s 737 MAX airline customers of $1.77 billion, and a $500 million fund to compensate the heirs, relatives, and legal beneficiaries of 346 individuals who died in the two Boeing 737 MAX crashes. The DPA requiresd Boeing to set up a claims-handling system to distribute the fund and to bear all the costs associated with that process.

On May 14, 2024, the DOJ notified the court that it determined Boeing breached its obligations under the DPA by failing to design, implement, and enforce a compliance and ethics program to prevent and detect violations of the U.S. fraud laws throughout its operations. For failing to fulfill completely the terms of and obligations under the DPA, Boeing is now subject to prosecution by the DOJ for any federal criminal violation of which it has knowledge (“Boeing May Be Prosecuted after Breaking Safety Agreement that Prevented Criminal Charges for 737 Crashes, US DOJ Says,” Evan Perez, CNN, https://tinyurl.com/2kbr56fn).

The DOJ filed a status report on July 7, 2024, informing the court that it and Boeing had reached an agreement in principle on the terms of a proposed plea deal. Then, on July 24, 2024, the DOJ submitted the proposed plea agreement to the U.S. District Court for the Northern District of Texas, requesting the court’s approval under Federal Rule of Criminal Procedure 11(c)(1)(C).

The families of the 346 crash victims filed a 48-page motion in the Northern District of Texas on July 31, 2024, asking the judge to reject the DOJ’s plea agreement with Boeing on nine grounds, including that it is too lenient given the criminal sentencing guidelines and that “it surreptitiously exonerates Boeing’s then-senior leadership” (U.S. v. The Boeing Company, Motion and Memorandum of Recognized Crime Victims’ Families Naoise Connolly Ryan, et al. Requesting that the Court Not Accept the Rule 11(C)(1)(C) Binding Plea Agreement Proposed by the Government and Boeing, Case No. 4:21-cr-0005-O, July 31, 2014, https://tinyurl.com/468dt3hh).

A federal judge rejected the plea agreement on December 5, 2024, saying there were problems with the selection process for an independent monitor required in the plea deal to oversee safety and quality improvement at Boeing. U.S. District Judge Reed O’Connor said he had problems with the idea that the Justice Department, not the court, would have approval over the selection of the monitor and how Boeing had performed under the earlier settlement with the DOJ in January 2021 over the same charges. “It is fair to say the government’s attempt to ensure compliance has failed,” O’Connor wrote in his opinion. “At this point, the public interest requires the court to step in. Marginalizing the court in the selection and monitoring of the independent monitor as the plea agreement does undermine public confidence in Boeing’s probation.” O’Connor objected to a provision of the plea agreement stating that the monitor would be selected “in keeping with the (Justice) Department’s commitment to diversity and inclusion” (Christina van Waasbergen, “Judge Throws out Boeing Plea Deal over DEI provision,” Courthouse News, December 5, 2024, https://tinyurl.com/2u36maw7). The decision sends the matter back to the DOJ.

The Importance of Ethical Operational Systems

Boeing is a case study in what can happen when the very controls that have been put in place to prevent disasters are ignored. It is an example of how the safety culture that should exist in the aircraft industry can be set aside to push the product out too quickly. It demonstrates the dangers of ignoring whistleblowers and makes a strong case for operational audits that examine and report on internal processes—something seemingly ignored by Boeing, relying instead on FAA inspections to identify operational problems.

Whistleblowers have an essential role to play in ensuring operational systems function properly. Corporate governance systems need to be developed to support whistleblowers. In the case of Boeing, whatever internal audits were conducted, did not have the intended effect of supporting ethical operational systems. The Boeing case is a cautionary tale of what can happen when profits are placed ahead of developing effective quality control systems and establishing a culture of safety.

As the authors reflect on the disaster at Boeing, we believe there are at least five questions for CPAs to consider.

• ▪ How can CPAs assess and identify the warning signs that a company is ignoring production problems and prioritizing cost-cutting over safety and compliance?
• ▪ What role do CPAs play in evaluating and ensuring the effectiveness of internal controls (including whistleblowing) related to risk management and regulatory compliance?
• ▪ How should CPAs approach ethical dilemmas when they suspect corporate governance has broken down and financial decisions are being made at the expense of public safety or legal compliance?
• ▪ What lessons can CPAs take from Boeing’s failures to ensure that the defects noted by regulators were corrected and those responsible were held accountable in their own organizations?
• ▪ In light of everything that is now known about what happened at Boeing, how can CPAs advocate for stronger financial transparency and accountability to prevent short-term profit incentives from compromising long-term public trust?