As regular readers know, I regard Kevin LaCroix's D&O Diary blog as essential corporate governance reading. So I was interested to see his take on the new Boeing decision and its implications for the future of Caremark claims. In a post a couple of days agp, I took a rather alarmist view of the opinion. Mr. LaCroix's view is less alarmist, but he does agree that we'll be seeing more oversight claims in the future.
He argues that:
... while there have been several significant recent cases in which breach of the duty of oversight claims have been sustained, even the rulings allowing these kinds of claims to go forward have emphasized pleading requirements that may not be satisfied in many circumstances. The holdings in these cases emphasize that to state a claim, the plaintiff must be able to allege that the company operation is “mission critical” for the oversight duty to be triggered. In order to establish that the board failed in its oversight, the plaintiff must allege the absence of any board committee function or board processes to supervise the critical operation. And while Vice Chancellor Zurn concluded here that the Boeing board acted with scienter, establishing that a board acted with awareness of its oversight shortcomings is going to be a significant pleading hurdle for plaintiffs in many instances.
He then identifies some facts that admittedly make Boeing an unusually strong case for plaintiffs:
I think there are important and distinct circumstances involved here that have a lot to do with the outcome. The exceptional occurrence of two tragic air disasters not only dramatically highlight the critical importance of safety issues for Boeing (just as the deaths from the listeria outbreak did the same in Marchand), but put the actions and inactions of the board in a particularly harsh light. The way Zurn’s opinion is written suggests that she was troubled by the plaintiffs’ allegations, a perspective that undoubtedly has something to do with the two fatal air crashes only five months apart. I emphasize this because it is going to be a relatively rare set of circumstances where board actions are subjected to this kind of harsh light.
I take his point. But I still think Boeing at the very least is chumming the litigation waters. As Mr. LaCroix observes "the recent spate of breach of the duty of oversight cases will encourage plaintiffs to pursue these kinds of claims and to include claims of breach of the duty of oversight in cases in which companies have experienced significant adverse circumstances in important operations." I concur.
He concludes with some good advice for what boards should be doing on a going forward basis. Go read the whole thing.
