Big Compliance Reorg at Boeing

Boeing has announced a sweeping reorganization of its risk assurance functions, where compliance will report into legal and internal audit will report into a new operations, finance, and strategy division. Diana Sands, Boeing’s head of internal governance and the de facto chief of both functions until now, is retiring.

Boeing announced the news via press release on Tuesday, in what looks like a cost-cutting move — “streamlining senior leadership roles and responsibilities, and preparing now for the post-pandemic industry footprint,” as Boeing phrased it. Sands’ departure and the new structure go into effect on May 1.

Let’s start with the ethics and compliance program. All the company’s legal and compliance programs — including trade controls, ethics, and business conduct — will be consolidated into one group that ultimately reports to Brett Gerry, Boeing’s chief legal officer and executive VP of global compliance. As the company said:

This approach will enhance Boeing’s already strong compliance and internal governance program through focused accountability for, and a more integrated approach to, Boeing compliance responsibilities. It also will help the company proactively address new legal and compliance obligations arising from an increasingly complex global regulatory environment.

Decode that corporate new-speak as you will, but one assumes all this more focused accountability and integrated approach stems from the governance disaster otherwise known as the MAX 737. That’s the one where senior executives mishandled product development risks that ultimately killed 346 people; and then made matters worse with a ham-fisted internal investigation that ultimately led to former CEO Dennis Muilenberg getting fired in December. 

Boeing now faces a criminal probe from the Justice Department, plus a separate civil probe from the Securities and Exchange Commission. We don’t know when those investigations will be settled, but we can safely assume the penalties and compliance obligations from both will be quite onerous.

Perhaps to no surprise, then, Boeing also said it will name a new chief compliance officer, who will report to chief legal officer Gerry. Here’s the relevant statement: 

To accelerate this important work and to build on the existing strength of its compliance and ethics program, Boeing soon will name a chief compliance officer who will be responsible for leading the company’s compliance, ethics and trade control activities. This person will report to Gerry, with a direct reporting line to Calhoun and the board’s Audit Committee on compliance and ethics issues.

I can’t tell from that language whether Boeing will be searching for a new CCO, or already has a specific candidate in mind. I did ask Boeing’s media relations department but haven’t heard back yet. If anyone out there has the low-down, feel free to let me know at [email protected]. 

Internal Audit Re-Org’ed Too

Boeing also said it is establishing a new Enterprise Operations, Finance & Strategy Group, which will oversee everything from manufacturing to supply chain to finance to strategy and general administration. Internal audit will nominally roll into that group, which will be led by CFO Greg Smith — although with the standard caveat that internal audit will still report directly to the board’s audit committee.

Sands technically served as head of Boeing’s audit function, in the sense that her Office of Internal Governance included corporate audit as part of its purview. On a daily basis, however, Bavan Holloway has been the company’s vice president of corporate audit for 10 years. 

Boeing’s statement didn’t say what other changes might happen with the audit group — just that the team will “continue to report directly to the Boeing board of directors audit committee as it does today, providing independent, objective assurance and advisory services to improve company operations.”

As for Sands, she is retiring and leaving Boeing after 20 years in various roles there. She had been head of the Office of Internal Governance since 2013, and prior to that had been the company’s controller and vice president of finance. I’ve had the privilege of meeting with and interviewing Sands a few times over the years, and can also confirm she is a thoughtful, well-spoken voice on governance challenges. 

The bottom line for Boeing as a company, however, is plain to see. The business is under enormous financial stress, which was true even before Covid-19 grounded air traffic around the world; and mired in a heap of strategic and governance challenges too. So CEO David Calhoun decided to unravel the independent governance function it had for years, and then weave those threads back into existing legal and finance functions. 

Purists might frown on that (I often have), since it’s almost always better to have ethics and compliance separate from the legal function. Then again, that’s the structure Boeing had, and its corporate culture still had lots of problems. So let’s see what happens next.