Business lawyers, both internal and external counsel, occupy an important leadership role in the ongoing evolution of organization governance built on “checks and balances.” Further, business lawyers can contribute to carrying the concept of “checks and balances” and “transparency” down through the organization, thereby benefitting the entire organization. As is set out here, business lawyers can contribute to the leadership of their organizations—legal and otherwise—by encouraging the discussion of and aiding in the implementation of the appropriate checks and balances within a transparent environment. Business lawyers can lead by exploration and examination, and thoughtful inquiry without dictating. That exploration and examination can reach to all levels in an organization.
Leadership Through Governance
A good starting position for the business lawyer is to keep in mind what has been set out by recognized authorities. There are three to whom we have often turned and continue to turn:
- Retired Delaware Supreme Court Chief Justice E. Norman Veasey, in his Pennsylvania Law Review article of May 2005, stated that stockholders should have the right to expect that “the board of directors will actually direct and monitor the management of the company, including strategic business plans and fundamental structural changes.”[1]
- Further to the point that directors have management as well as oversight responsibilities, then–Delaware Chancery Court Chancellor William B. Chandler stated in his 2005 opinion in the Disney shareowner derivative suit, “Delaware law is clear that the business and affairs of a corporation are managed by or under the direction of its board of directors. The business judgment rule serves to protect and promote the role of the board as the ultimate manager of the corporation.”[2]
- In a discussion of internal controls and director responsibilities on the Federal Reserve website, the Fed describes a board’s responsibility to create and enforce prudent policies and practices with the following statement: “Directors are placed in a position of trust by the bank’s shareholders, and both statutes and common law place responsibility for the affairs of a bank firmly and squarely on the board of directors. The board of directors of a bank should delegate the day-to-day routine of conducting the bank’s business to its officers and employees, but the board cannot delegate its responsibility for the consequences of unsound or imprudent policies and practices.”[3]
These well-recognized authorities provide a basis for the business lawyer to interact with, not dictate to, other members of senior management and the board who are accountable for addressing these responsibilities. The task is not simple; business lawyers and their clients, be they organizations, boards, or senior management, are seeking to address expectations for enhanced oversight and governance and face many challenges.
Not to address the intertwined set of governance, oversight, and management responsibilities can be catastrophic, as occurred in the Wells Fargo fake accounts scandal of the late 2010s and the Boeing crashes of 2018 and 2019. There was criticism of all of the Wells Fargo directors by the Board of Governors of the Federal Reserve based on their lack of performance, followed by a procession of director departures including the chair/CEO and the lead director.[4] And in the 2021 In re The Boeing Company Derivative Litigation decision,[5] Delaware Chancery Court Vice Chancellor Zurn set out a balanced, but scathing, review of the Boeing board’s actions and lack thereof with respect to the loss of 346 passenger lives in two Boeing 737 Max crashes and other safety lapses.[6] Regarding Boeing, U.S. District Judge Reed O’Connor said that “Boeing’s crime may properly be considered the deadliest corporate crime in U.S. history.”[7]
Economists have long recognized that the division of labor of a firm is unique to each firm at each point in time. Similarly, there is no single standard and no single metric for what constitutes effective governance—no sole best practice, no “one size fits all” approach to follow. But there are the fundamental issues of governance, oversight, and management to be addressed.[8]
Governance, oversight, and management are necessarily both organization-specific and time-specific. Models and practices are useful sources of information to consider in designing governance-oversight-management structures, but what is required in an organization will inevitably change over time, sometimes unexpectedly and rapidly in response to a crisis or other change in circumstances.[9]
These factors position the business lawyer to employ an approach of exploration and examination to promote thoughtful inquiry. It is the authors’ view that the business lawyer brings to this examination and exploration the critical role of checks and balances and the importance of transparency.
Checks and Balances
The concept of checks and balances in corporate governance is not new. In the March 2002 issue of The CPA Journal, five senior executives (three large public companies, one large private company, and a large public-private organization), including one of these authors, authored an op-ed titled “From ‘Tone at the Top’ to ‘Checks and Balances.’”[10]
Shortly afterward, a senior executive from the Securities & Exchange Commission relayed its concurrence with the position taken in the op-ed regarding checks and balances.
Not long afterwards, writing in the Wall Street Journal in 2004, Paul Volcker, former chair of the Federal Reserve, and Arthur Levitt Jr., former chair of the SEC, were direct on the need for checks and balances: “Two years ago this summer, Congress passed the Sarbanes-Oxley Act, the most far-reaching corporate reform legislation in 60 years, with the support of all but three members of Congress who voted. It was a moment of rare bipartisan action in response to the breakdown in corporate checks and balances that cost investors hundreds of billions of dollars in losses.”[11]
Note that no mention was made of “tone at the top.”
Economics and political history have long pointed to the value of checks and balances. Volcker and Levitt locked their value in place.
Going Forward
The ABA Business Law Section understands well the benefits to an organization from effective business lawyer involvement and guidance, and recently joined with the three authors here and a colleague in publishing the book Corporate Governance: Understanding the Board-Management Relationship (2024).[12]
The business lawyer cannot only raise the issues of “checks and balances” and “transparency” but, within the context of those issues, needs to focus on questions of stress testing the organization, the adequacy and effectiveness of internal reporting, the monitoring of cash flows, the usefulness of an executive committee of the board, and other questions, doing so from the position of an involved insider opening and maintaining a dialogue on these and other matters.
An important avenue exists for the business lawyer to offer valuable legal leadership via maintaining an organization’s focus in general, and in addressing governance, oversight, and management issues throughout the organization.
E. Norman Veasey with Christine T. Di Guglielmo, What Happened in Delaware Corporate Law and Governance from 1992–2004? A Retrospective on Some Key Developments, 153 U. Pa. L. Rev. 1399, 17 (2005). ↑
In re The Walt Disney Co. Deriv. Litig., 907 A.2d 693, 746 (Del. Ch. 2005) (footnotes omitted). ↑
Management and Internal Controls Evaluation, Bd. Governors Fed. Rsrv. Sys. (last updated Apr. 20, 2026). ↑
H. Stephen Grace Jr., S. Lawrence Prendergast & Susan Koski-Grafer, Board Oversight and Governance: From Tone at the Top to Substantive Checks and Balances, Bus. L. Today (Feb. 14, 2019). ↑
No. 2019-0907-MTZ, 2021 WL 4059934 (Del. Ch. Sept. 7, 2021). ↑
Suzanne H. Gilbert, H. Stephen Grace Jr. & S. Lawrence Prendergast, Boeing and the Ongoing Evolution of Director Responsibilities, Bus. L. Today (Dec. 14, 2021). ↑
David Shepardson, Boeing 737 MAX Plea Deal Withstands Challenge from Crash Victims’ Families, Reuters (Feb. 10, 2023). ↑
H. Stephen Grace Jr., Suzanne H. Gilbert, Joseph P. Monteleone & S. Lawrence Prendergast, Corporate Governance: Understanding the Board-Management Relationship 6 (2024). ↑
Business Roundtable, in its updated Principles of Corporate Governance 2016, sets out: “No one approach to corporate governance may be right for all companies, and Business Roundtable does not prescribe or endorse any particular option, leaving that to the considered judgment of boards, management and shareholders. Accordingly, each company should look to these principles as a guide in developing the structures, practices and processes that are appropriate in light of its needs and circumstances.” ↑
James N. Clark, R. Hartwell Gardner, H. Stephen Grace Jr., John E. Haupert, & Robert S. Roath, From ‘Tone at the Top’ to ‘Checks and Balances,’ CPA J. (Mar. 2002). ↑
Paul Volcker & Arthur Levitt Jr., In Defense of Sarbanes-Oxley, Wall St. J. (June 14, 2004) (emphasis added). ↑
Our colleague and fourth author, Joe Monteleone, recently passed away. ↑
