United CEO won't take chairman's seat as planned

Earlier this month, video footage from inside the cabin of an United Airlines' (UAL) plane went viral, with a reported 210 million views, much to the chagrin of the company's management and directors.

On Sunday, April 9th, four United crew members needed seats on Flight 3411 because they had to get to Louisville for another flight.  United gate personnel offered passengers up to $800 in compensation if they agreed to take a different plane to Louisville.  When no one voluntarily came forward, United selected four passengers at random. Three deplaned but the fourth, a man who said he was a doctor and needed to get home to treat patients the following day, refused.  Absent volunteers, the airline was forced into an "involuntary de-boarding situation", according to a spokesman.

Alerted by airline employees, three city aviation department security officers got on the plane. Two officers tried to reason with the man before a third came aboard and pointed at the man “basically saying, ‘Sir, you have to get off the plane,'” said Tyler Bridges, a passenger whose wife, Audra D. Bridges, posted a video on Facebook.  One of the security officers could be seen grabbing the screaming man from his window seat, across the armrest and dragging him down the aisle by his arms toward the front of the plane, amid shouts and pleas from fellow passengers.

The passenger, David Dao, 69, suffered a concussion, broken nose and damaged sinuses and lost two front teeth in the altercation.  After Dr. Dao was released from the hospital, his attorney said he was staying in a "secure" location.  What he might have needed protection from remains unclear.

Whatever happened to the friendly skies?

UAL CEO Oscar Munoz sent a letter to employees calling the flier "disruptive and belligerent" and commended the actions resulting in the passenger being forcibly removed.  Widely criticized for his initial responses, Mr. Munoz apparently reconsidered and subsequently apologized repeatedly for United's handling of the situation.  He said in a statement that this was “an upsetting event to all of us here at United.” “I apologize for having to re-accommodate these customers,” he continued. “Our team is moving with a sense of urgency to work with the authorities and conduct our own detailed review of what happened. We are also reaching out to this passenger to talk directly to him and further address and resolve this situation.”

The incident is under investigation by Congress and the Transportation Department and, in Asian countries, there have been calls online to boycott United.  The passenger also hired prominent personal injury attorney Thomas Demetrio, who negotiated an undisclosed settlement of the passenger-dragging incident.

On the heels of the United incident, Delta Airlines (DAL) beat its competitor to the punch by announcing a change in policy allowing its employees to offer customers up to $10,000 in compensation to give up seats on overbooked flights, aiming to avoid similar situations.  United followed suit not long thereafter.

Of course, no high-profile corporate blunder would be complete without the media putting a fine point on it, and with a flourish.  A Miami Herald headline blared, ‘On United, removing reluctant passengers will no longer be a drag’.  A Los Angeles Times columnist helpfully offered a style note:

Dragging a passenger from a plane isn’t “re-accommodating” him. It’s assault. Maybe not in a legal sense. But we all know what it means if it quacks like a duck.

From the other side of the country, the Miami Herald's Jim Morin, in his inimitable fashion, illustrated the point.

The ability of a CEO of a multinational corporation to exert control over and to take responsibility for rank-and-file employees, not to mention tangential personnel, dispersed across the globe is a debatable proposition.  In United's case, the company directly employs 82,000 people, the vast majority of whom work at 337 far-flung airports or on 4,500 daily flights.  But clearly, crisis management and deftly handling the fallout of the occasional international PR nightmare is a prominent part of the job description.  There seems to be discontentment on board on this score.

Under the corporate governance policies disclosed in UAL's proxy filed on April 21st, the offices of the Chairman of the Board and Chief Executive Officer may be combined or separated, in the Board's discretion.  Currently led by an independent Chairman, the Board believes "that separating the roles of Chief Executive Officer and Chairman of the Board is the most appropriate structure at this time.  Having an independent Chairman of the Board is a means to ensure that Mr. Munoz is able to more exclusively focus on his role as Chief Executive Officer and that an independent Chairman of the Board can effectively manage the relationship between the Board and the Chief Executive Officer."

Nevertheless, according to the terms of his employment agreement with UAL, signed late in 2015, Mr. Munoz was due to also assume the role of chairman in May of 2018.  Although some media outlets reported that United reverses plans to make Mr. Munoz chairman after passenger dragging scandal, according to the 8-K filed April 21st, the CEO "desires to remove the provisions in the Employment Agreement related to the future appointment of Executive as Chairman of the Board, and to leave future determinations related to the Chairman position to the discretion of the Board, and the Board is willing to agree to such change."

Despite having long sworn off airline industry investments, Warren Buffett, through his Berkshire Hathaway (BRK.A) purchased a stake in United Continental Holdings, among other carriers, late last year.  To the best of our knowledge, Mr. Buffett has not publicly weighed in on the incident, but it's likely viewed dimly for the carrier operating in a business in which competitors have lacked a durable competitive advantage “since the days of the Wright Brothers.”  On the other hand, Mr. Munoz's quick action, or about-face, would seem to heed Mr. Buffett's admonition that a CEO "should face up to a problem fast."

The market didn't appear overly concerned with the embarrassing incident and the ensuing firestorm, bidding UAL common up almost 1% over the previous NYSE close on the day after the event; the shares are down about the same to date.  Nonetheless, the carrier's hometown paper, the Chicago Tribune, opined that Mr. Munoz's public promise is worth quoting because United's success, and his job security, depend on whether flyers find it to be true: Every customer deserves to be treated with the highest levels of service and the deepest sense of dignity and respect.

Robert Stead