A shareholder lawsuit asserting that corporate board members’ fiduciary duties should extend beyond generating profits for investors to include upholding broader societal and economic interests was dismissed by a Delaware judge this week, setting the stage for greater debate over whether corporations should be held responsible for potentially detrimental effects their products might have on society and the global economy.
According to a report from AP News, Vice Chancellor J. Travis Laster rejected shareholder James McRitchie’s lawsuit that claimed Meta Platforms’ board of directors and founder Mark Zuckerburg breached their fiduciary duties because its social media platforms emphasized profits without taking into account external factors of corporate governance. Judge Laster’s decision found that the plaintiff did not make a persuasive enough argument that Meta, which owns Facebook, Instagram, Messenger and WhatsApp, was potentially responsible for “mental health problems among young Instagram users, online human trafficking, ‘vaccine hesitancy,’ incitements to violence, and ‘election misinformation’.” Such problems, the lawsuit theorized, could “negatively affect investment portfolios of Meta shareholders who also invested in other companies.”
Judge Laster’s ruling is a welcomed development for corporate directors who have taken on many more responsibilities in recent years due to rapidly changing technology, increased regulations and other factors. However, this development doesn’t mean an end to similar lawsuits in the future. In fact, it may stimulate greater discussion among corporate directors about the role the board should take in dealing with social problems. As a result, boards might want to:
Anticipate continued shareholder efforts to expand directors’ responsibilities. Shareholders and advocates who believe companies should take an active role solving societal challenges may continue to file lawsuits. Boards may need to engage with shareholders and stakeholders to determine if there are any social issues they may want the company involved in. Boards can develop strategies to communicate whether the company’s values dictate support for any social causes or other concerns. Developing strategic arguments on why the company should not engage with specific social issues can also prepare for potential lawsuits in the future.
Review D&O insurance coverage. Lawsuits claiming director liability are a constant risk for many companies to manage. The Meta shareholder lawsuit is a reminder that D&O insurance should be periodically updated to protect board members and other executives. Would your company’s current insurance cover claims that allege its products caused harm to communities the company serves?
Proactively determine the effects of company products on society. Shareholders may still be motivated to sue corporate boards over perceived negative effects their products may have on society and the communities they serve. Practicing effective corporate governance includes evaluating and ensuring the safety of company products and services. Creating processes and systems to identify and correct any potential product quality or safety issues should minimize the impact of any lawsuits in the future.
