Tuesday, January 31, 2023

In September 2021, the Boeing 737 Max debacle turned into a pivotal moment in corporate law. A Delaware court allowed a derivative lawsuit brought by Boeing shareholders to proceed based on the theory that Boeing’s directors breached their oversight duties by not doing enough to monitor, prevent, and react to fatal airplane safety issues. This Article explains what the Boeing decision means for director oversight duties going forward and uses it as a springboard to discuss broader trends in corporate law. Specifically, the Article makes the following five contributions.

First, the Article delineates the contours of a new era of heightened oversight duties. Corporate law courts are increasingly willing to designate certain compliance risks as “mission critical,” thereby activating a heightened scrutiny mode. Boeing suggests that practically all directors of manufacturing companies are operating in or around the mission-critical zone these days, and illustrates just how enhanced the scrutiny is once in this zone. Second, the Article fleshes out a shift in focus: from scrutinizing compliance with regulations meant to protect investors (such as financial reporting), to scrutinizing compliance with regulations meant to protect broader societal interests (such as product safety). Boeing, for example, faults directors for focusing on restoring corporate profitability and image instead of putting consumer safety front and center. Third, the Article uses Boeing to show how corporate law guides behavior not just directly, through legal sanctions, but also (and indeed more so) indirectly, through shaping norms and reputations in the business community. Boeing did not end in a verdict in favor of the plaintiffs: it was instead settled quickly after the motion to dismiss. Still, the case created significant changes in the advice that lawyers give their director clients and in the volume and tone of media coverage, which in turn created reputational fallouts. Fourth, the Article evaluates the desirability of the Boeing development. On the one hand, the development holds the promise of mitigating incentives to remain ignorant, thereby improving accountability. On the other hand, Boeing may have gone too far in removing corporate law’s guards against hindsight bias. Finally, the Article spotlights two big questions Boeing left unanswered: officer oversight liability and director liability for oversight of nonlegal requirements.

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