Main Content

Casebook Read Credits
Corporate Risk and Compliance: Theory and Practice
Section 3 . 5

Hypo: Did COVID Board violate duty of good faith?

Kim Otte

*Generated by ChatGPT with prompt: I am a law professor. Please draft a hypo/scenario for a Board during Covid that tests the business judgment rule. Include facts that are debatable under the law.

During the onset of the COVID-19 pandemic, XYZ Corporation's board of directors faced significant uncertainty. While the company had a mandatory in-person work policy, some board members believed that strict adherence to public health guidelines was unnecessary for their industry, which primarily involved desk-based work with minimal public contact.

Despite the escalating health crisis and new government mandates, the board chose to:

  • Not hold any virtual or in-person meetings for three months, relying solely on the CEO’s reports and informal communications.
  • Fail to establish a COVID-19 task force or consult with health or safety experts in the initial months, although they eventually did so after complaints emerged and some employees tested positive.
  • Implement limited health and safety protocols only after the first COVID-19 case was confirmed at the company, rather than proactively.
  • Ignore public health guidance at the outset, believing the company’s minimal physical contact did not warrant strict controls, even though many industry competitors adopted more aggressive safety measures.
  • Revisit safety policies after some employees tested positive and a class-action lawsuit was filed alleging unsafe working conditions.

A few board members argued that the company’s leadership was under unprecedented stress and that the pandemic was an unpredictable event, while others believed that voluntary industry standards should suffice. Moreover, the CEO had assured the board that the company’s low-contact operations minimized the risk, influencing their decision not to act more aggressively.

Now, the question remains:
Would the board members’ actions more strongly suggest a breach of the duty of good faith, or could some argue that their decision was within the bounds of informed business judgment given the circumstances?

This book, and all H2O books, are Creative Commons licensed for sharing and re-use with the exception of certain excerpts. Any excerpts from the Restatements of the Law, Principles of the Law, and the Model Penal Code are copyright by The American Law Institute. Excerpts are reproduced with permission, not as part of a Creative Commons license.