Who’s Responsible For Business Disruptions From CrowdStrike’s Glitch?

This is the published version of Forbes’ CFO newsletter, which offers the latest news for chief finance officers and other leaders focused on the budget. Sign up here to get it delivered to your inbox every Tuesday.

Who’s at fault when a vital system goes down and disrupts other businesses? While this question is best left to the courts, two airlines claiming their business was stung last month during the massive Windows outage caused by a glitchy CrowdStrike update want the cybersecurity company to pay their damages now.

Delta Air Lines, which relies deeply on Microsoft and CrowdStrike, canceled about 5,500 flights over several days before the glitch was resolved. CEO Ed Bastian estimated the price tag to the airline for the cancellations and other issues was about $550 million, writes Forbes senior contributor Ed Reed. The airline has written to Microsoft and CrowdStrike, asking them to foot the bill. Both are refusing, saying they offered Delta assistance while its systems were down and received no responses. CrowdStrike and Microsoft have also pointed out in letters that they are not responsible for Delta’s IT decisions.

Frontier Airlines also blamed the CrowdStrike snafu for some of $20 million in lost revenue in July. The day before the CrowdStrike issue, problems with Microsoft impacted sales and resulted in flight cancellations, Frontier CEO Barry Biffle said on the company’s earnings call last week. Frontier said it’s still working out how to assess these damages—though CrowdStrike responded that Frontier is not a customer. Biffle told Reed that other systems that use CrowdStrike—including a reservations provider, airport employee entrance keypads and cargo delivery—were impacted. “I don’t think they have an appreciation for what their customers do,” Biffle told Reed.

Neither company has filed a lawsuit, but the argument is worth considering. How much could a company be at fault for having computer systems overly reliant on a single provider? If that service provider is at fault, are they only responsible for their customers or the entire line of dominoes that fall? One thing is for certain: The $10 Uber Eats gift cards that CrowdStrike sent to its teammates and partners who helped customers get through the outage are probably not enough in this case.

We’re taking next week off, and Forbes CFO will not send on August 20. We’ll be back in your inboxes on August 27.

ECONOMIC INDICATORS

Last week on Wall Street charted a less frenzied path that generally trended upwards, following sharp declines and lost valuations from the week prior. The three major indexes aren’t back at their midsummer peaks just yet, but last Thursday was the best day for the S&P 500 since November 2022, with a gain of 2.3%. Thursday’s rally extended to the Nasdaq Composite—up 2.9%—and the Dow Jones Industrial Average—up 1.8%. And when markets closed on Friday, they had completely recovered from the wild week, only a fraction of a percent below where they had closed a week before that. This week opened with a whimper, as each index saw a fraction of a percent of change on Monday.

Investor panic, sparked by the recent worse-than-expected jobless report, seemed to calm down. Last week’s first-time unemployment numbers also reflected a settling economy. There were 233,000 initial jobless claims filed the week ending August 3, far lower than the previous week’s 250,000 claims, and below consensus estimates of 240,000 new claims. With several vital pieces of economic data due out this week, it’s unclear if the relative tranquility will hold. July’s consumer price index will be released tomorrow morning, then Thursday will see jobless claims and retail sales reports. And on Friday, preliminary consumer sentiment for August will be released.

The calming of the stock market panic indicates one thing: The Federal Reserve is highly unlikely to make an unscheduled interest rate cut. The panic of two weeks ago began right after the Fed announced they were leaving interest rates unchanged, giving inflation a little more time to come down to the more moderate 2% benchmark from policymakers. However, economists’ rate cut speculations on the CME Group’s FedWatch Tool now favor a more generous rate cut at the Fed’s September meeting, writes Forbes’ Derek Saul. Nearly half—49.5%—are predicting a 50-basis-point cut next month.

POLICY + REGULATIONS

The Biden Administration announced a new crackdown to streamline the way ordinary consumers interact with businesses, intended to make it easier for consumers to cancel unwanted subscriptions and memberships, creating easier pathways for people to connect with live customer service agents on the phone, getting rid of “ineffective and time-wasting chatbots” used by banks and other financial entities, and stopping fake reviews that boost a product or service’s appearance. This initiative, which is much like the administration’s aim at getting rid of “junk fees” that consumers don’t know about, is aimed at the “endless hours on hold or piles of incomprehensible paperwork” that people often give up on and just agree to take the financial hit. The administration is working through several departments to dismantle these business practices, including the Federal Trade Commission, the Consumer Financial Protection Bureau, the Federal Communications Commission and the Department of Transportation.

LEGAL ISSUES

The federal government says the recent scrutiny on pandemic-era Employee Retention Credit claims has been paying off. The IRS said nearly $5 billion in improper payments under the credit have been stopped in recent weeks, reports Forbes’ Kelly Phillips Erb. But the intense scrutiny of the claims means getting the credit to businesses that actually deserve it has been slow. IRS Commissioner Danny Werfel said the ERC is “one of the most complex tax provisions ever administered by the IRS,” and the agency is trying to balance enforcement with payment. About 50,000 valid ERC claims are moving into the payment processing pipeline, the IRS said, with payments expected to start in September. The IRS intends to go through less suspicious payment requests in the near future, getting those processed and paid in the fall.

DEEP DIVE

Boeing’s Bad Year Is About To Get Worse

Boeing’s new CEO, Kelly Ortberg, started last week, taking the helm of a company that has seen intense scrutiny from regulators, customers and the public; high-profile mechanical issues with its aircraft and spacecraft; a more than 34% drop in its stock price in 2024; and a pricey plea deal for what investigators say was misleading regulators about faulty systems that resulted in two fatal crashes in 2018 and 2019. But a larger issue is hovering above the company and may rear its head as soon as next month: A potential strike of its assembly workers’ union. Forbes senior editor Jeremy Bogaisky writes that 99.9% of Boeing’s largest union, made up of about 32,000 employees in Washington represented by the International Association of Machinists, voted last month to authorize a strike when their current contract expires on Sept. 12.

The two sides are negotiating the union’s first new contract since 2008, and machinists have several demands. Following a decade of bad blood between Boeing and the union—in which the aerospace company used threats of moving jobs out of Washington to hold wages stagnant, eliminate pensions and shift healthcare costs to employees—the union is looking for several big-ticket items. Members want a 40% pay raise over three years, the restoration of the pension plan, a seat on Boeing’s board, and the elimination of mandatory overtime, which members say would decrease the worker turnover that has contributed to a steep loss of experience.

Analysts say that Boeing looks prepared to meet the union’s demands on the monetary issues. They’re not as sure about some of the others, including staffing guarantees and a binding promise to build the manufacturer’s next plane in the Seattle area since it ties the company’s hands for the future. But this union has outsized leverage, representing a huge part of Boeing’s labor force in a field that has a large number of job openings elsewhere.

However, Boeing has had notoriously difficult negotiations with smaller unions earlier this year. Its 125 on-site unionized firefighters and emergency workers were locked out for three weeks, with Boeing using replacements. It also brought on replacement workers for 23 pilots who work with airlines on safety and training programs.

FACTS + COMMENTS

Low-cost gym chain Blink Fitness filed for Chapter 11 bankruptcy this week and will explore a sale. It’s currently owned by high-end fitness provider Equinox.

$100 million to $500 million: Value of both Blink Fitness’ assets and debts, according to bankruptcy filings

101: Number of Blink Fitness locations in the U.S., serving more than 300,000 members

‘The best path forward for Blink’: What President and CEO Guy Harkless said of the bankruptcy

STRATEGIES + ADVICE

There are many different styles of leadership. Here are seven that are worth knowing and emulating for any business leader.

AI is powerful, but here are three reasons why it will take some time before businesses see its biggest gains.

VIDEO

QUIZ

An SEC investigation into potential securities violations by meme stock company GameStop was confirmed last week by disclosure of a subpoena. When did regulators start looking into the company?

A. 2021

B. 2020

C. 2017

D. 2024

See if you got the answer right here.