Boeing Co. is the latest company beefing up its board’s role in overseeing compliance as it faces increased scrutiny from regulators.
The planemaker’s board of directors stripped chief executive officer Dennis Muilenburg of his dual role as chairman to allow for more board oversight in the wake of two fatal crashes involving Boeing’s 737 Max jetliner. The board also formed a new panel of directors charged with overseeing safety and added safety-related experience as a factor for recruitment.
The moves follow a pattern for directors at companies under regulatory scrutiny—such as insurance giant AIG and casino operator Las Vegas Sands Corp.—to step up their approach to compliance with key laws and regulations in areas from anti-corruption and money laundering to health and safety.
“We’re seeing more and more boards actively take a role with compliance,” said Gerry Zack, CEO of the nonprofit Society of Corporate Compliance and Ethics.
Board-level committees focused on compliance are gradually growing in number, with 5% of public companies adopting them by 2017, according to research co-authored by Brandon Garrett, a professor at Duke University’s law school. But companies often add them after lapses, raising questions about whether boards are overlooking compliance.
“It seems like it takes a crisis to change board structure in this way,” Garrett said.
While the vast majority of boards with compliance committees establish them voluntarily, they’re more likely at companies that have faced prosecution, the research found. It cited as an example insurance giant American International Group Inc., which adopted a compliance committee during an investigation in the mid-2000s for manipulating its financial statement.
Boeing’s board revamp comes as an Oct. 11 review by global aviation experts knocked the company and the Federal Aviation Administration for Max-related missteps. The company also faces an investigation by the Justice Department, attention from Congress, and lawsuits from the families of crash victims and stockholders.
Directors sitting on Boeing’s new board committee on safety are tasked with reviewing aircraft design, manufacturing, and maintenance. It’s part of a broader revamp that also includes a new central hub for safety within Boeing’s management. Beth Pasztor, vice president of safety and regulatory compliance, will head the hub and report to Boeing’s chief engineer and the board’s safety committee.
“Boeing needs to do something internally to preempt regulators from doing something instead,” said Michelle Lowry, a professor at Drexel University’s business school who had advocated for splitting Boeing’s CEO and chairman roles. “The challenge is whether it’s enough to alter the company’s culture.”
A handful of the companies Duke’s Garrett studied formed a compliance committee as part of an agreement with prosecutors. Some settlements also mandated new compliance officers who report directly to the board. Las Vegas Sands adopted a compliance committee following a money laundering investigation by the Justice Department. MoneyGram International Inc. and Stryker Corp. also made similar moves.
Corporate compliance officers have traditionally reported to a company’s top lawyer. It’s now considered best practice to report directly to the board, as about half of compliance officers do, according to a 2018 survey by the Society of Corporate Compliance and Ethics.
“They might not have assigned it to a committee, but it’s definitely getting on the agenda of boards,” the society’s Zack said.
The committees are meant to give directors a dedicated forum to focus on compliance and seek input from outside experts or evaluations. “The value of these committees is they can do a deeper dive,” said Deborah DeHaas from consultant Deloitte’s Center for Board Effectiveness.
Other mechanisms for boards to stay up-to-date on corporate compliance have been found lacking. Just 30% of public company directors surveyed by Deloitte in 2018 indicated that the chief compliance officer regularly attends board meetings, though that’s up from 18% in 2016.
Establishing compliance committees gives boards an incentive to appoint new members with relevant experience, like the Boeing board’s plans to consider safety in director recruitment. “If you’re going to have a committee, you need people with subject matter knowledge,” Garrett said.