SEC orders vote to split Boeing CEO, chairman roles
Boeing must let investors vote on splitting the roles of chief executive officer and chairman to strengthen oversight, the Securities and Exchange Commission said. Boeing sought to block a vote, messages to the SEC show.
NEW YORK — Boeing, struggling to fix the grounded 787 Dreamliner, must let investors vote on splitting the roles of chief executive officer and chairman to strengthen oversight, the Securities and Exchange Commission (SEC) said.
The change would let Jim McNerney, who holds the titles now, concentrate on challenges such as production delays that stalled the 787’s debut, according to the proposal. Boeing sought to block a vote, messages to the SEC show.
“This proposal is important to focus our CEO on Boeing,” Ray
Chevedden, the shareholder who submitted the plan, wrote in an Oct. 18 letter to the Chicago-based company. “When our CEO serves as our board chairman, this arrangement can hinder our board’s ability to monitor our CEO’s performance.”
Boeing’s SEC correspondence on the measure provides an early look at the plane maker’s annual-meeting agenda before proxy materials are sent to investors. The 787’s troubles have only deepened since
Chevedden’s letter, with all 50 of the delivered jets grounded by regulators in January after two battery faults. Regulators are considering Boeing’s proposed fixes.
The SEC said on Jan. 29 that Boeing couldn’t exclude Chevedden’s proposal from its proxy.
Chevedden didn’t return a phone message seeking comment. He and his son John were behind a similar proposal last year at Sempra Energy, which shareholders approved. John
Chevedden advanced a plan to allow shareholder action outside of annual meetings that Boeing stock owners rejected in 2011.
The plane maker historically files its proxy with the SEC in mid-to-late March, the agency’s website shows.
Chevedden’s plan would require that an independent director lead Boeing’s board instead of the CEO, according to SEC documents. The proposal gives the company the option to put off separating the roles until McNerney, 63, leaves.
Shareholders rejected a similar initiative in 2011, with 35 percent of votes cast for the proposal versus 64.2 percent against and less than 1 percent abstaining, according to an SEC filing.
John Dern, a Boeing spokesman, pointed to the company’s argument against the failed proposal in its 2011 proxy. Boeing’s board “believes it is in the best interest of shareholders for the board to have flexibility to determine the appropriate leadership structure,” the company said then.
Florence Harmon, an SEC spokeswoman, declined to comment on the agency’s correspondence with Boeing and Chevedden.
While Boeing’s proxy didn’t include such a measure last year, 56 other companies held votes on independent chairmen, according to Patrick McGurn, special counsel at Institutional Shareholders Services. In addition to Sempra, shareholders at KeyCorp, Kindred Healthcare and McKesson approved the initiatives while the rest failed, he said.
Boeing shares have climbed 2.5 percent this year, trailing the Standard & Poor’s 500 index’s 6.5 percent gain as the Dreamliner’s woes mounted. Through Thursday, the stock advanced 16.5 percent since McNerney took over as CEO in July 2005, compared with 27.1 percent for the S&P 500.
The Dreamliner entered service in 2011 after a three-year delay caused by supply-chain disruptions, assembly problems and a strike by Machinists. Airlines including Qantas Airways and Air India sought compensation after delivery of their planes was pushed back.
“When you’re concerned about the power and performance of the CEO, you should get oversight,” said Charles Elson, director of the University of Delaware’s John L. Weinberg Center for Corporate Governance. “The person being monitored shouldn’t be the chair of the group doing the monitoring.”
The proposal cites McNerney’s service as Procter & Gamble’s lead director and as a member of IBM’s board as potential distractions from his work at Boeing. His participation on board committees at both companies have left him “further overextended,” Chevedden wrote.
Chevedden reiterated his concerns in a letter to the SEC on Jan. 16, when the Dreamliner was grounded, saying that “with the crisis news on Boeing today” the company should withdraw its opposition.
The plane maker had sought SEC approval to omit the proposal because the references to McNerney’s P&G and IBM roles rendered it “materially misleading,” according to a Dec. 19 letter from Michael Lohr, Boeing’s assistant general counsel, to the SEC.
Shareholders voting on the proposal would likely be confused whether they were being asked to separate the chairman and CEO duties or prohibit the company’s chief executive from serving on outside boards, Lohr wrote.
Tonya Aldave, an attorney for the SEC, rejected Boeing’s argument in a Jan. 29 letter. The correspondence between the company and regulators is posted on the agency’s website.
“We do not believe that Boeing may omit the proposal or portions of the supporting statement from its proxy materials,” Aldave wrote.