Courts Must Continue to Innovate and Learn from Rapid Changes

Throughout the past 18 months, the pandemic has been a shared experience across our state, our country, and our world, yet everyone has experienced it uniquely. The same is true of our courts, which have taken different paths to the same goal: continuing access to justice and continuity of services—be it virtually or in person. The challenges they faced brought innovation at a scale and pace that we’ve never seen before, amounting to a year-long national pilot project for both state and federal courts.

Moving forward, the pandemic will have lasting implications for our justice system. The immediate focus on keeping the doors of justice open will inevitably shift to growing case backlogs, reduced funding, increased demand for low-cost legal assistance, inequities in access, and deepening concerns regarding public trust and confidence. Our justice system must be ready, but how do we create paths forward to achieve justice for all?


Reducing the Costs and Delays of Civil Litigation

In the last 15 years, there has been a significant focus on the cost, delays, complexity, and barriers to access in the American civil justice system, at both the state and federal levels—and a significant effort to address these concerns. We’ve made progress through rule changes, case management, technology innovation, and efforts to change the overall culture, but change has been slow. Committees and task forces often take years to develop recommendations before launching multi-year pilot projects.

Enter the pandemic. We’ve seen rapid, inspirational change and disruption to norms that have the potential to lead to significant and long-term changes to how our civil justice system functions—and to the ultimate delivery of civil justice in this country. This is an excellent time to ask a key question: what are the emergent reforms that courts, attorneys, litigants, and others in the justice system have made during this time that have helped our civil justice system become more efficient and less costly, while also ensuring the system is accessible, fair, equitable, and accountable? 

The convenings highlighted a number of lessons learned that help answer that question:

  • Flexibility already exists and is largely built into the rules.
  • Case management is more critical than ever.
  • Much of the pre-trial process works well and can be done more efficiently, remotely.
  • Trials are a separate matter, and one size doesn’t fit all.
  • Cooperation, civility, and professionalism remain paramount.
  • Virtual proceedings have made courts more participatory.
  • The courtroom still matters.
  • The quality of technology also matters, as does security.

These conversations also highlighted an important takeaway: we are still in the midst of the pandemic, with challenges that we have not yet fully tackled. The impacts of the pandemic will continue for many years to come, as the justice system deals with the backlog of trials and the increase in certain cases as a result of the pandemic’s effect on people’s lives and businesses. We are learning that the hybrid world brings new complexities. Managing different views will be more challenging as judges and attorneys navigate more choices, and differences of opinions between the parties regarding in-person versus remote appearances.

Around the country, task forces, committees, individual judges and attorneys, and numerous other stakeholders are engaged in this process of determining lessons learned and recommendations for what changes should be continued. A key piece of this analysis must be further research. Courts had to respond to the crisis quickly, putting in place changes without long-term study or research. We have seen the value of innovation in this moment, and we should continue to encourage an agile approach to change management. We should bolster these efforts with data wherever that is possible. And, we need to identify the places where it is essential to slow down and conduct research, particularly where key system values are at stake, such as due process. Research into jury trials and virtual versus in-person presence (including concerns of attention span, credibility determinations, and witness interference and misconduct) are key areas for focus.

Ensuring Access to Justice in High-Volume Cases

The National Center for State Courts’ Landscape of Civil Litigation in State Courts study in 2015 highlighted that the makeup of civil litigation in our state courts had changed dramatically over the last several decades, and that today state court dockets are dominated by lower-value contract and small claims cases, with attorney representation on both sides in only 24 percent of cases.

These “high-volume” cases share a number of common characteristics. Plaintiffs tend to be represented, with more knowledge of the rules and procedures, as well as greater access to resources. Defendants, on the other hand, are likely to be self-represented, of low or modest income, and face numerous barriers to access to justice. These cases are where most people in our communities experience the justice system, and where civil justice reform efforts have urged more flexibility, creativity, and new solutions to address the gap in access to justice in our system. Innovation during the last 18 months has been particularly impactful and transformative for these cases.

A few key lessons learned stand out for high-volume cases:

  • We need to shift the paradigm to think about courts as a service, not just a location.
  • Holistic upstream solutions have huge potential to solve justice needs in our communities.
  • Technology has allowed more people to access the courts in high-volume cases.
  • Not all virtual access is equal.
  • Technology has exposed a digital divide in high-volume cases especially.
  • Communication is crucial for a court service approach.
  • Streamlined and relaxed procedures are more important than ever.
  • Court funding, staffing, and technology are crucial to address high-volume matters.

Just as with standard and complex cases, there remain continuing challenges around high-volume cases. Innovation has happened on a national scale, but has manifested in very different ways in each state, local jurisdiction, and virtual courtroom. The lack of uniformity is particularly concerning for fairness and equity in high-volume cases, where self-represented litigants may be navigating vastly different circumstances without any knowledge or expertise regarding what to expect or do.

We need more discussion and empirical research regarding remote appearances, as well as a framework for determining in-person versus remote appearances. A key question that has been raised around the country is who decides who gets to appear remotely and who appears in person? While judicial discretion plays a role, as does the type of case and type of hearing, it is also essential that the litigants and users of our system have a voice as well.

Board Structure Is Key to Oversight

The primary role and responsibility of boards of directors is management oversight. Recent lawsuits against public company directors for oversight failures should prompt boards to consider whether their current governance structures are optimal for maximizing oversight effectiveness. It is common, but potentially problematic, for the audit committee to be tasked with all compliance oversight. This scenario can create an opportunity for a plaintiff to claim that the audit committee had insufficient resources to provide effective oversight of the compliance function. This claim may be even stronger when it relates to critical company-specific and industry-specific risks, particularly in heavily regulated industry sectors. Boards of directors should thoughtfully review their board committee structures to determine if there is sufficient management oversight of mission-critical company and industry risks and, where appropriate, consider reallocating responsibilities among various board committees, with corresponding updates to committee charters.

Avoid Overburdening the Audit Committee

Audit committees tend to have more and longer meetings than other board committees. While financial oversight is at the core of the audit committee’s mandate, it is frequently the case that audit committees are tasked with significant compliance oversight in addition to their traditional responsibilities, despite the fact that financial oversight alone is a critically important and time-consuming job. Unfortunately, given the importance and burden of financial oversight, the directors on the audit committee may have inadequate bandwidth to fully consider and address non-financial compliance issues. This could mean that potentially significant risks receive only summary review, and management presentations may lack sufficient depth for directors to adequately assess and mitigate potential risks and compliance failures.

The potential lapses in oversight that may occur when all compliance is within the remit of the audit committee have become an issue in several recent Delaware lawsuits. In the ongoing Delaware Chancery Court litigation involving the Boeing Company’s 737 MAX airplane, the court cited the following plaintiff allegations, in rejecting a motion to dismiss: “None of Boeing’s Board committees were specifically tasked with overseeing airplane safety, and every committee charter was silent as to airplane safety…. The Audit Committee was Boeing’s primary arbiter for risk and compliance.” Similarly, in a 2019 case involving Blue Bell Creameries, the Delaware Supreme Court reversed the Chancery Court’s dismissal, citing the allegation that Blue Bell “had no [board] committee overseeing food safety, no full board-level process to address food safety issues, and no protocol by which the board was expected to be

advised of food safety reports and developments.” These cases indicate how some courts are likely to consider a generalized approach to compliance oversight, and they illustrate the dangers of not assigning industry compliance oversight to a specific committee. This is particularly problematic where failures of compliance oversight pose a direct threat to a company’s reputation and commercial viability.

Reconsider Board Structure

One possible approach to updating board structure would be to divide compliance oversight responsibilities among committees by subject matter. For example, audit committees could be charged with overseeing only those risks that relate to financial matters, while the compensation committee could become a more fully developed workforce committee that takes the lead on workforce oversight issues such as those relating to unions, contractor policies, diversity and inclusion, and sexual harassment as well as executive and employee compensation matters. For its part, the nominating and corporate governance committee could provide oversight with respect to governance and other related risks.

Some boards may need—and few have in place—an industry-specific committee that has responsibility for oversight of the most significant compliance and EESG (environmental, employee, social, and governance) risks that relate directly to that particular company’s business and industry. Some boards have a health and safety committee in place already that could address many of these issues. For those that do not, an industry-specific risk committee could have the mandate to focus on core non-financial business issues such as product safety and thus would be tasked with recognizing and, where appropriate, elevating to the full board any red flags raised by executives or whistleblowers as well as considering the steps being taken by management to address and mitigate these risks.

Boards that have a risk oversight committee may already be incorporating elements of this approach. The key is to ensure that the risk committee does, in fact, address the most salient risks facing the enterprise, including legal, cyber, and EESG risks, and that the allocation of responsibilities across committees situates compliance, EESG, and business review of a given issue within one committee. All financial compliance and risk oversight would be within the remit of the audit committee; all human resources compliance and risk oversight would rest with the compensation/workforce committee; all governance compliance and risk oversight would rest with the nominating and corporate governance committee; and core consumer, product liability, and environmental compliance risk oversight with the industry or risk committee. It is particularly important for the board to review and, if needed, update committee charters so that they accurately reflect the mandate and authority of committees and to ensure that no important area of oversight is unallocated or unaccounted for. In some companies, boards of directors may decide that certain risks are so essential to the operation of the business that they should rest with the full board rather than with a committee, but in that case the board must make sure that adequate time and resources are deployed to consider such risks as well as mitigation strategies. This board-level focus could be documented in the board’s corporate governance guidelines to make clear that the entire board is exercising the oversight function with respect to specified issues or risks.

Effective execution would require expertise on the board that enables directors on this committee to evaluate a range of industry-specific risks. For example, a pharmaceutical company could have at least one or two directors who are doctors or scientists (or have other sufficient capabilities) to focus on oversight of product safety and FDA compliance. Audit committees are composed primarily of financial experts, yet the fact that a director is a financial expert does not mean that he or she is knowledgeable about other key issues such as product safety compliance, human resources, or environmental risk. The same scientist who would be a valuable addition to an industry-specific committee likely would not have the right expertise for the audit committee; yet currently, companies often have former accountants and CEOs overseeing complex risks in which they have no subject-matter expertise. Indeed, many professionals with significant industry expertise lack the financial expertise qualification for the audit committee, which can make it more difficult for them to be nominated to a board in the first place. Fortunately, a need for diversity in function and expertise corresponds with the current momentum to increase racial and gender diversity on boards. A broader approach spreads the oversight workload rationally and enables a board to use more effectively the wide range of expertise brought by directors with diverse talents and professional experience.

Distributing compliance oversight responsibilities among board committees would also allow boards to benefit from diversity in the executive management team.

Committees would have more time with a larger number of executives and thereby have greater exposure to the range of backgrounds, experience, and viewpoints within the company.

Separating compliance oversight by subject matter would enable executive officers to interact with board committees that are specifically focused on their areas and have the time and energy to consider thoughtfully any issues that are raised. This scenario can only improve oversight by helping to ensure that company policies are followed and that the board becomes aware of issues before they become crises. While it remains the case that the audit committee and the full board should approve the company’s compliance/EESG policies, and that inter-committee communication should be encouraged, empowered and involved committees are nonetheless essential. Ensuring that committees beyond the audit committee are focused on key elements of compliance would mean that these committees will have more time and ability to surface issues that need full board attention.

Employ Common-Sense Oversight

In light of the recent Delaware cases suggesting a focus on board oversight on the part of both plaintiffs and courts, boards should conduct an annual review to evaluate whether the company’s effect on its stakeholders is adequately reflected in the information that is reported to the board. Of note in the allegations made in the Boeing and Blue Bell cases is that product safety—an existential risk in terms of profitability and reputation—was not specifically an area of focus for board reporting and oversight. Similarly, corporate governance guidelines and board committee charters should be reviewed and reconsidered annually (and updated accordingly) to make sure that all relevant material risks are being appropriately addressed.

Priorities for compliance should be driven by business judgment and common sense, not by checklists or possibly outdated reporting and oversight structures. The oversight responsibility of directors was famously described by Delaware’s Chancellor Allen in the landmark Caremark case of 1996: “[A] director’s obligation includes a duty to attempt in good faith to assure that a corporate information and reporting system, which the board concludes is adequate, exists.” This is an opportune moment for boards to consider whether structural changes would be helpful in meeting this obligation.

The New Corporation: How “Good” Corporations are Bad for Democracy

On August 19, 2019, the Business Roundtable, led by JPMorgan Chase’s Jamie Dimon and composed of more than two hundred of America’s top CEOs, heralded the dawn of a new age of corporate capitalism. Henceforth, the CEOs proclaimed, the purpose of publicly traded corporations would be to serve the interests of workers, communities, and the environment, not only their shareholders. The declaration capped a two-decades-long trend of corporations claiming to have changed into caring and conscientious actors, ready to lead the way in solving society’s problems. I call it the “new” corporation movement.

To find out more about it, I visited the movement’s global hub, the World Economic Forum’s annual meeting in Davos, founded and run by economist Klaus Schwab, who originated the idea of ‘stakeholder capitalism’. “Companies recognize that they have a special responsibility in the world, social and environmental responsibility,” Schwab told me in an interview. “Today it is, and has to be, part of corporate action and decision-making.” Everyone I met in Davos agreed. Richard Edelman, for example, told me how today’s corporations embrace social and environmental values as core values, “in the supply chain, in the hiring practices, throughout the corporation,” no longer just as peripheral “philanthropic exercises.” Michael Porter added “it’s quite remarkable how big a shift that’s been—the corporation has really reshaped and redefined itself.”

Davos is not, of course, the only place such notions hold sway. Corporate commitments to social and environmental values are now the global norm. Companies routinely promise carbon neutrality, zero waste to landfills, renewable energy, racial justice, climate change mitigation, equality, sustainability, and helping people in need, among other things. They see themselves as major contributors to solving world problems, and as flag ships for an entirely new kind of capitalism—conscious capitalism, creative capitalism, connected capitalism, inclusive capitalism, green capitalism, and, of course, Schwab’s stakeholder capitalism, as it’s variously described.

It all looks like real change and progress. But there’s a hitch, and it’s a big one. Corporations have not actually changed—at least not in terms of their legal mandates and institutional natures. Despite some tweaks to corporate law, that make it slightly more accommodating of social and environmental values, it continues to demand companies prioritize their own best interests by maximizing shareholder value and pursuing profit, growth, and competitive advantage. In an earlier work (The Corporation book and film), I diagnosed the corporation as an institutional psychopath because of its fundamentally self-interested institutional character. That character hasn’t changed, though it’s better hidden now by a veneer of charm.

None of this denies that corporations can do good, and that they do. But they cannot, and do not, do good at the expense of doing well. ‘Doing well by doing good’ is the guiding principle. Doing good for its own sake is out of bounds. Which limits profoundly how much and what kind of good corporations can do, while licensing them to do bad if that, rather than doing good, is the best way to do well.

There’s the further problem that despite not having really changed, corporations leverage an image of change to secure policies favorable to them, but not necessarily to society. Casting themselves as ‘good actors’, they push governments to free them from regulations designed to protect public interests and citizens’ well-being, claiming they can be trusted to regulate themselves. They take over public services—like schools, water systems, and social services provision—claiming they can run them better and more efficiently than governments. And they push for tax cuts with promises of jobs and other societal benefits.

It’s a key premise of the new corporation movement that because corporations have become good actors, they can, and should, take over government roles. “There’s a real lack of faith in government, and companies are standing up and filling that void,” Michael Porter told me in Davos. Klaus Schwab added that what we really need is “strong collaboration between government and business, a permanent platform for public-private cooperation.” And Richard Edelman—after exclaiming that corporations had evolved into “good actors” and “agents of change,” and that they are now ready to “fill a void left by government”—said: “I’m not much of a believer in political citizenship. I actually believe much more in the power of the marketplace.”

Now, that’s a chilling belief when you consider that political citizenship is, in effect, democracy. But Edelman was just articulating the widely held view among new corporation advocates that “good” corporations deserve greater domain, and democratic governments less. Which helps explain how corporations justify fighting government attempts to protect the same social and environmental values they claim to care so deeply about.

Shortly after President Trump was elected, for example, Jamie Dimon and his Business Roundtable asked the Trump administration to make cuts to a list of “top regulations of concern,” ones, they claimed, were “unduly burdensome” to big business. Among those were ozone and coal-fired plant emission standards, clean water rules, worker overtime and fair pay requirements, and net neutrality rules. In other words, those same new corporation leaders who, like Dimon, often criticized President Trump’s stances on social issues were working to leverage his deregulation agenda to their advantage—all the while claiming to be champions of the very social and environmental values their efforts would deprive of legal protection.

That same dynamic also operates in relation to corporate taxation. Leading new corporations—including Dimon’s JPMorgan Chase, and also companies like Apple, Walmart, and General Electric—say they care about social and environmental values while, at the same time, lobbying against and strategically avoiding taxes that governments rely upon to operationalize those values. It was telling in this regard in Davos when Klaus Schwab—the undisputed godfather of the new corporation movement—turned to Donald Trump, while introducing his address, and said: “On behalf of the business leaders here in this room, let me particularly congratulate you for the historic tax reform package passed last month, greatly reducing the tax burden of U.S. companies.”

Joseph Stiglitz later told me he was surprised by Schwab’s fawning over Trump. But, really, he shouldn’t have been. Schwab was merely reflecting a key belief of the new corporation movement he helped spawn—namely, that corporations, now good actors, could and should be freed from the burdens imposed upon them by democratic governments. In the end, despite all their progressive talk and walk, new corporations and their leaders—like Reaganites in the 1980s, and Trumpites more recently—believe that state regulation, taxation, and social provision should be diminished, and corporate power and control expanded.

Which is why I believe, as the subtitle of my new book suggests, that “good” corporations are bad for democracy.

Companies are Trust Leaders. Here’s What That Means for Boards

Confidence in the institutions that form the bedrock of society is perilously low. Surveys show that many people have lost faith in government, the media, and the police, among other institutions. Meanwhile, corporations have emerged as leaders. They’re now the most trusted institution in the US according to the Edelman Trust Barometer. Maintaining this trust, and seizing the opportunities it presents, should be a priority for every company.

Of course, there will be challenges as well. Corporate strategy needs to account for this “crisis of institutional legitimacy,” as described by Blair Sheppard, PwC’s Global Leader for Strategy & Leadership, in his book Ten Years to Midnight. It’s one of the most important macro trends facing companies—and the world. As we continue our exploration of the board’s role in setting and overseeing strategy, let’s take a closer look at what directors need to know.

Shifting perceptions

The institutions that were founded to help society function were once seen as “the good guys.” They are essential to creating social stability and for a long time were trusted to provide benefits to society fairly, efficiently, and consistently. Increasingly, that’s no longer the case. Calls for change have become more common and change is needed to keep institutions relevant. However, it is institutions’ inherent slowness to adapt that gives them their stability—and the stability they provide to society—that is at odds with the need to become more agile to better meet the current needs of society. This is the central paradox facing institutions today, and around which companies must operate.

Like the crisis of prosperity and the crisis of technology, which we discussed in earlier editions, the crisis of institutional legitimacy is systemic, and must be addressed by a wide range of stakeholders across society. The challenge for companies, then, is to develop a long-term strategy that takes account of the risks the crisis of institutional legitimacy poses that may affect them. Social disruption is one of the biggest of these risks. Increasing polarization and rising distrust of people of different backgrounds and viewpoints is another.
Doing business as trust declines

What can companies and their boards do when confronted with these difficulties? They should ask how eroding confidence in institutions will affect their business going forward. When faith in government declines, do consumers still give credence to product safety guidance? If fewer families are willing to pay for their children to attend colleges they see as biased, what will the impact on the future workforce be?

In addition, boards may wish to consider how their own company’s actions appear in a world defined by lower trust in institutions. It’s true that many people hold businesses in higher esteem than government, the media, or NGOs. But if companies take trust for granted, that may not always be the case.

The evolving business landscape will present companies with opportunities to continue earning the public’s trust. Take the increasing focus on environmental, social, and governance (ESG) matters, for example. As demands rise for greater transparency around ESG, companies with a clear strategy supported by high-quality disclosure will be more likely to win the confidence of stakeholders.
What the corporate board can do

Here are three areas where it may be especially important for boards to keep the crisis of institutional legitimacy in mind.

Corporate culture. A company’s culture encompasses the beliefs and often unspoken understandings that influence how managers and employees act. Boards can help make sure the management team is fostering a culture that engenders trust both inside and outside the company.
Human capital. Trust in companies remains high. That isn’t a given, however. Effective oversight of human capital matters by the board can help ensure that workers continue to feel their employer is on their side.
Social action. More and more, corporate leaders are taking a stand on key social issues facing the world. When companies weigh in on hot-button issues or seek to influence public policy, boards have an important role to play in ensuring there is a process for evaluating these stances.