University of Arizona
January 15, 2014
Arizona Legal Studies Discussion Paper No. 13-34
This Article identifies and examines a counterintuitive decisionmaking failure: The failure to evaluate predictable disasters, where there is certainty regarding the occurrence of the disaster but uncertainty regarding other details, such as its scope and timing (a “red-flag failure”). The failure is relatively common. Decisionmakers often know (or should know) that a high-impact negative event is about to happen or already happening, yet they fail to consider the implications of the coming or unraveling disaster. Examples include climate change, hurricanes, floods, financial bubbles, and organizational crises.
By and large, the phenomenon of red-flag failures is not recognized as a policy problem and sometimes expressly rejected. Quite importantly, Delaware corporate law, which sets the legal standards for the evaluation of U.S. corporate executives’ decisionmaking, effectively relieves officers and directors from the duty to consider predictable disasters. The Article argues that (1) the legal system should expressly recognize that the occurrence of certain future disasters can be known with certainty, despite the uncertainty regarding other details of those disasters, and (2) absent express immunity, decisionmakers should be liable for unreasonable failures to consider the implications of predictable disasters.
Number of Pages in PDF File: 28
Keywords: decisionmaking failure, red flags
Date posted: July 6, 2013 ; Last revised: August 16, 2014