Max Oversight Duties: How Boeing Signifies a Shift in Corporate Law

48 Journal of Corporation Law (Forthcoming, 2022)

25 Pages Posted: 9 Mar 2022 Last revised: 15 Mar 2022

See all articles by Roy Shapira

Roy Shapira

Stigler Center, University of Chicago Booth School of Business; Interdiscplinary Center (IDC)

Date Written: March 7, 2022

Abstract

In September 2021, the Boeing 737 Max debacle turned into an important 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 Essay 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 Essay makes the following five contributions.

First, the Essay 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 an enhanced 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 Essay 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 Essay 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 Essay evaluates the desirability of the Boeing development. On one hand, the development holds the promise of mitigating incentives to remain ignorant, and improving accountability. On the other hand, Boeing may have gone too far in removing corporate law’s guards against hindsight bias. Finally, the Essay spotlights two big questions that Boeing left unanswered: officer oversight liability, and director liability for oversight of nonlegal requirements.

Keywords: Corporate Law, Oversight Duties, Corporate Governance, Subsequent Remedial Measures, Hindsight Bias, Caremark, Fiduciary Duties, Litigation, Inspection Rights, Section 220, Reputation, Product Safety

JEL Classification: K20, K22, K41, G34

Suggested Citation

Shapira, Roy, Max Oversight Duties: How Boeing Signifies a Shift in Corporate Law (March 7, 2022). 48 Journal of Corporation Law (Forthcoming, 2022), Available at SSRN: https://ssrn.com/abstract=4035952 or http://dx.doi.org/10.2139/ssrn.4035952

Roy Shapira (Contact Author)

Stigler Center, University of Chicago Booth School of Business ( email )

Walker Hall
Chicago, IL 60637
United States

Interdiscplinary Center (IDC) ( email )

P.O. Box 167
Herzliya, 46150
Israel
972-9-9602410 (Phone)
972-9-9527996 (Fax)

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