Boeing and the Ongoing Evolution of Director Responsibilities

The Boeing Company Derivative Litigation evidences the increased focus on director responsibilities for effective governance. That focus is being driven by investors, other stakeholders, regulators, and—as the Boeing case makes clear—growing litigation risk. In November, Boeing’s board agreed to a $237.5 million settlement in a shareholder lawsuit that alleged board failures in overseeing the company and the safety of its 737 MAX ahead of fatal crashes in 2018 and 2019.  The case emphasizes the need to ensure the existence of substantive checks and balances in board governance and to explore opportunities to create governance structures with a harder edge. Such structures can aid in ensuring proper communication and operational interaction between the board, management and others.

In assessing the Boeing Company Derivative Litigation through this lens, we begin with an examination of Delaware Court of Chancery Vice Chancellor Morgan T. Zurn’s September 7, 2021, memorandum opinion in the litigation and her findings regarding Director failures. We then turn to identifying and addressing these fundamental governance breakdowns.


Vice Chancellor Zurn sets out in her opinion:

“The narrow question before this Court today is whether Boeing’s stockholders have alleged that a majority of the Company’s directors face a substantial likelihood of liability for Boeing’s losses. This may be based on the directors’ complete failure to establish a reporting system for airplane safety, or on their turning a blind eye to a red flag representing airplane safety problems. I conclude the stockholders have pled both sources of board liability. The stockholders may pursue the Company’s oversight claim against the board.”

In her opinion, the Vice Chancellor stated, “The Board publicly lied about if and how it monitored the 737 MAX’s safety.” The opinion cites 2019 interviews of the Board’s Lead Director, David Calhoun, who became the CEO of Boeing in January 2020, and certain representations he made regarding the 2018 Lion Air crash and the 2019 Ethiopian Airlines crash. The Vice Chancellor’s opinion states, “Each of Calhoun’s representations was false.”

Shortly after the opinion was issued, Boeing’s CEO and other current and former directors asked the Vice Chancellor to clarify her legal opinion that she found the Board “publicly lied.” Those defendants have now settled the case, pending court approval. The finding that they “publicly lied” will be a continuing cloud to be addressed on multiple fronts within and outside of litigation.


The Vice Chancellor’s finding of “the directors’ complete failure to establish a reporting system for airplane safety” and her finding of “their turning a blind eye to a red flag representing airplane safety problems” are indicative of a board operating in a “tone at the top” framework where the board may be dictated to/largely directed by the CEO. As we have previously set out,[1] what is required instead of a “tone at the top” approach is a governance structure that incorporates transparency and substantive “checks and balances.” This is not a new concept; members of the board of advisors of Grace & Co. and other experienced business decision-makers addressed it years ago.[2] Yet, a board’s perception of its role as only that of oversight, and at times limited oversight, persists at many boards, often with the support or dictates of the CEO.

To the contrary, boards can make use of internal resources to ensure the boards have access to that information necessary to address their responsibilities. We have discussed the value of these internal resources to boards[3] and recognize that boards can also call on external resources.

Under the proposed $237.5 million agreement to settle the litigation, Boeing’s board has agreed to add a director with safety experience and has adopted other internal measures, such as creating an ombudsperson program to field certain internal complaints. Boeing has agreed to ensure that at least three directors have safety expertise. It may be that the relationship between those board members, and perhaps other board members, and management will be an ongoing interactive relationship where the company can draw on the talents and experience of those board members.

An example of board members participating in addressing management responsibilities arose when Michael Eisner, the CEO of Walt Disney, utilized the chairman of Disney’s compensation committee and another experienced director to handle the employment negotiations with Michael Ovitz and his advisers.[4] Such an interactive relationship between certain directors and members of management helps ensure the quality of the flow of information to the Board and is demonstrative of the nature of the working relationships/checks and balances between the board and management.


The economics of organization governance point to the responsibilities of ownership and its agents for the governance, oversight, and management of the organization. The board of directors, as owners or agents for ownership, bear the responsibility for the governance, oversight, and management of the organization. The Boeing litigation evidences the increased focus on these fundamental director responsibilities.

[1] H. Stephen Grace, Jr., S. Lawrence Prendergast, and Susan Koski-Grafer, “Board Oversight and Governance: From Tone at the Top to Substantive Checks and Balances,” Business Law Today, February 2019.

[2] James N. Clark, R. Hartwell Gardner, H. Stephen Grace, Jr., John E. Haupert, and Robert S. Roath, “From ‘Tone at the Top’ to ‘Checks and Balances,’The CPA Journal, March 2002, p. 63. Paul Volcker and Arthur Levitt, Jr., “In Defense of Sarbanes-Oxley,” Wall Street Journal, June 14, 2004.

[3] H. Stephen Grace, Jr., S. Lawrence Prendergast, and Susan Koski-Grafer, “Corporate Governance and Information Gaps: Importance of Internal Reporting for Board Oversight,” Business Law Today, January 2018.

[4] H. Stephen Grace, Jr., “An Insider Revisits the ‘Disney Case,’Directors Monthly, August 2008, pp. 1, 3-6. H. Stephen Grace, Jr., “Plaintiff Expert Reports: An Insider Revisits Disney,” New York State Bar Association Journal, July/August 2009, pp. 24-29. H. Stephen Grace, Jr. and John E. Haupert, “Governance Lessons from the Disney Litigation,” Business Law Today, September 2011. H. Stephen Grace, Jr., and John E. Haupert, “Corporate Governance: Lessons From Life and Litigation – With Implications for Corporate Counsel,”  New York State Bar Association Journal, March/April 2013.

*The authors benefit from the thoughts of fellow advisors, in this case, Al Fenichel and Steve Grace.


Connect with a global network of over 30,000 business law professionals


Login or Registration Required

You need to be logged in to complete that action.