Corporate governance determines whether a company survives scrutiny or collapses under it.
Business lawyers—both in-house and external—are now viewed as the architects of that survival. Their role is not to dictate policy but to guide organizations toward a system of checks and balances that applies at every level, from the C-suite to the factory floor. The objective is not perfection but transparency, accountability, and a structure capable of withstanding crises without unraveling.
The legal foundation of oversight
Three legal authorities have shaped the modern understanding of corporate governance, providing clear guidance for lawyers handling these responsibilities.
Retired Delaware Supreme Court Chief Justice E. Norman Veasey stated in a 2005 law review article that shareholders should expect boards to actively direct and monitor company management, including strategic plans and structural changes. This expectation requires more than passive approval—it demands real oversight rather than rubber-stamping decisions.
Then-Delaware Chancery Court Chancellor William B. Chandler reinforced this perspective in the same year during the Disney shareholder derivative suit. He ruled that Delaware law protects and promotes the board’s role as the ultimate manager of the corporation. The business judgment rule exists to shield boards—but only if they engage in actual management rather than blind delegation.
The Federal Reserve’s guidance on internal controls is direct: “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.” While day-to-day operations can be delegated, the consequences of failure cannot.
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These principles are not abstract legal theories. They serve as the guardrails that failed in two of the most damaging corporate scandals of the past decade.
When governance fails
The Wells Fargo fake accounts scandal developed over time. The Federal Reserve found that the board had failed in its oversight duties. The fallout was immediate: the chair and CEO resigned, followed by a wave of director departures. The damage extended beyond reputation, exposing how quickly a company can spiral when checks and balances are treated as optional.
Boeing’s 737 Max crashes were more severe. In 2021, Delaware Chancery Court Vice Chancellor Morgan Zurn issued a ruling that, while restrained, was scathing. She wrote that the board’s failures contributed to the deaths of 346 people. U.S. District Judge Reed O’Connor later called it “the deadliest corporate crime in U.S. history.” The issue was not just technical but cultural—a breakdown in oversight so severe that engineering flaws led to mass casualties.
These cases serve as warnings. Governance is not a static set of rules but a living system that degrades if left unchecked. The challenge for business lawyers is to keep this system adaptive rather than merely compliant.
No universal template exists for effective governance. What works for a Fortune 500 company may not suit a startup, and what was sufficient in 2010 may be outdated by 2025. The only constant is the need for continuous evaluation—stress-testing reporting structures, monitoring cash flows, and ensuring executive committees function beyond ceremony. Lawyers cannot handle this alone, but they can establish the framework for these discussions.
The concept of checks and balances in corporate governance has long been recognized. In 2002, five senior executives argued in The CPA Journal that the focus should shift from “tone at the top” to substantive oversight. The Securities and Exchange Commission later supported this view. Two years afterward, former Federal Reserve Chair Paul Volcker and former SEC Chair Arthur Levitt Jr. wrote in the Wall Street Journal that the Sarbanes-Oxley Act responded directly to “the breakdown in corporate checks and balances that cost investors hundreds of billions of dollars.” Their article did not mention “tone at the top.”
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Economists and political theorists have long valued divided authority. In corporations, this division is not just about power but perspective. A board that only hears what management chooses to share operates without full visibility.
Lawyers as catalysts, not commanders
The American Bar Association’s Business Law Section recently released a book on corporate governance, co-authored by three contributors to this discussion. The key insight? Lawyers do not need all the answers. They need to ask the right questions—about risk, reporting, and whether existing systems are functional or merely exist on paper.
This role requires balance. Lawyers cannot dictate to boards or executives, but they also cannot remain passive. Their responsibility is to sustain dialogue, push for transparency even when uncomfortable, and ensure governance evolves with the company rather than becoming a checkbox exercise.
The alternative is a return to past scandals. Not every failure is as dramatic as Boeing’s, but the pattern remains consistent: oversight treated as an afterthought, checks and balances ignored until it is too late. The legal profession’s challenge is not only to prevent these failures but to redefine governance in an era where trust is fragile and scrutiny relentless.
This work rarely makes headlines. It lacks press releases or ribbon-cuttings. Yet it represents the kind of leadership that prevents companies—and those who depend on them—from becoming cautionary tales.
Clear contract terms help maintain these governance structures by removing ambiguity in agreements.
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