Enterprise Risk Management at Boeing
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Details
Themes: -
Period : 2003
Organization : -
Pub Date : 2003
Countries : USA
Industry : -
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Case Code : ERMT-002
Case Length : 11 Pages
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Legal Risks
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On October 31,1997, a federal securities lawsuit was filed against Boeing in a US district court in Washington, Seattle. The lawsuit named as defendants the company and three of its then executive officers. Additional lawsuits of a similar nature were filed in the same court. These lawsuits were consolidated on February 24, 1998. The lawsuits generally alleged that the defendants desired to keep Boeing's share price as high as possible in order to ensure that the McDonnell Douglas shareholders would approve the merger. Individual defendants, benefited directly from the sale of Boeing stock during the period from April 7,1997 through October 22,1997. The Court certified two sub-classes of plaintiffs in the action: all persons or entities who purchased Boeing stock or call options or who sold put options during the period July 21, 1997 - October 22, 1997, and all persons or entities who purchased McDonnell Douglas stock on or after April 7, 1997, and who held such stock until it was converted to Boeing stock pursuant to the merger. The plaintiffs sought compensatory damages. On September 17, 2001, Boeing reached an agreement with class counsel to settle the lawsuit for $92.5 million. The settlement would have no impact on Boeing's earnings, cash flow or financial position, as it was within insurance limits. |
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On February 25,2000, a purported class action lawsuit alleging gender discrimination and harassment was filed against Boeing, Boeing North American, Inc., and McDonnell Douglas Corporation. The complaint, filed with the United States District Court in Seattle, alleged that Boeing had engaged in a pattern and practice of unlawful discrimination, harassment and retaliation against women over the course of many years. The complaint, Beck v. Boeing, named 28 women who had worked for Boeing in the Puget Sound area; Wichita, Kansas; St. Louis, Missouri; and Tulsa, Oklahoma. On March 15, 2000, an amended complaint was filed naming 10 more plaintiffs. The lawsuit attempted to represent all women who worked for Boeing, or who had worked for Boeing in the past several years.
Boeing denied the allegation that it was engaged in any unlawful "pattern and practice." Plaintiffs' motion for class certification was filed in May 2001. The class included salaried employees in Puget Sound, Wichita, St. Louis, and Long Beach, and hourly employees in Puget Sound, Wichita, and St. Louis.
On October 19, 2001, the court granted class certification to a segment of the population sought by the plaintiffs. The court ruled that the action could proceed on the basis of two limited subclasses: all non-executive salaried women (including engineers) in the Puget Sound area, and all hourly wages women covered by the Machinists' Bargaining Agreement in the Puget Sound area. The claims to be litigated included alleged gender discrimination in compensation and promotion. The court also held that the plaintiffs could not seek back pay. In case of liability, the potential remedies would include some form of injunctive relief as well as punitive damages. The US Ninth Circuit Court of Appeals had accepted Boeing's appeal against the class certification decision, particularly the ruling that left open the possibility of punitive damages. Boeing intended to defend these cases aggressively. But it was not possible to predict the outcome.
In August 2002, the US Navy notified Boeing that it wanted $2.4 billion of advance progress payments and overdue interest to be paid or it would refer the matter to the government for collection through offset under current contracts. Boeing's share of any settlement would be 50% or $1.2 billion. This would add to the company's debt burden. Boeing, however, felt its current $350 million loss provision was adequate.
Boeing was subject to US government investigations from which civil, criminal or administrative proceedings could result. Such proceedings could involve claims by the government for fines, penalties, compensatory and treble damages, restitution and/or forfeitures. Under government regulations, a company, or one or more of its operating divisions or subdivisions, could also be suspended or debarred from government contracts, or lose its export privileges, based on the results of investigations. Boeing, however, believed that the outcome of any such government disputes and investigations would not have any serious impact on its financial position or continuing operations.