The Business Judgment Rule as an Immunity Doctrine

The business judgment rule is a judicially created doctrine that protects directors from personal civil liability for the decisions they make on behalf of a corporation. In today’s era of corporate scandals, global financial meltdowns, and directorial malfeasance, it has become especially important in setting the bar for when directors are appropriately responsible to shareholders for their actions. Traditionally the business judgment rule has been regarded as a standard of liability, although it has never really been explored or enunciated as such. This view determines eligibility for business judgment rule protection of a directorial decision after an examination of certain preconditions. An alternate view has developed that posits the business judgment rule is actually an abstention doctrine, and should be applied automatically absent the establishment of the same preconditions as the liability standard approach, only to be used as nullifying factors, to shield directors from having to account. The difference between the two positions essentially comes down to the order of the requirements, and who has the burden of establishing the existence of the factors that would grant or deny business judgment rule protection. This Article disagrees with both of the above approaches, and instead explores the business judgment rule as a type of immunity by comparing it to selected public and private immunities. The policy underpinnings of the business judgment rule mirror those of immunities, as does the practical impact. This means that the business judgment rule, properly construed, would require the director to establish entitlement to protection by proving that all preconditions for application of the rule are met. Much of the confusion between the courts and circuits could be alleviated by approaching the business judgment rule as a type of immunity, where the procedures and philosophies are much more enunciated. This helps place the business judgment rule back as a crucial part in the balancing act between directorial autonomy and accountability, which is especially timely given the current economic climate

The Business Judgment Rule, Disclosure, and Executive Compensation

Despite its ubiquity in corporate law, the business judgment rule remains a doctrinal puzzle. Both courts and scholars offer different understandings of the Rule\u27s role in litigation brought against corporate directors and different justifications for its deployment to insulate such directors from liability for breaches of fiduciary duties. This Article rejects all existing justifications for the Rule and argues that the Rule is no longer needed to protect directors from liability either because the justifications offered never made any sense or because directors are now protected by other, statutory means. Rather, the Rule is needed today not to protect directors, but the corporations they serve from the irreparable harm corporations would suffer if forced to disclose prospective business plans in order to defend decisions taken by their boards. This Article follows some recent scholarship in arguing that the Rule is best understood as an abstention doctrine and argues that courts should invoke the Rule and abstain from the review of the business judgment of corporate directors when the litigation that gives rise to such review would compel the corporation to disclose information relating to its prospective business plans. The Article then Illustrates why the Rule should not apply in cases involving challenges to board decisions relating to executive compensation through a detailed discussion of the ongoing litigation relating to the hiring and dismissal of the Walt Disney Company\u27s former President Michael Ovitz

Corporate Auctions And Directors\u27 Fiduciary Duties: A Third-Generation Business Judgment Rule

This Note proposes a rationale and a methodology for applying the business judgment rule when directors resist a hostile bid during the auction phase of a control contest. Part I examines the changes that occur in the responsibilities of target directors when a corporate auction is initiated. This Part describes the Unocal business judgment rule test and discusses its usefulness in the auction phase of a takeover. While the test requires modification if it is to complement effectively the auction-phase duties announced in Revlon, this Part suggests that the business judgment rule continues to be relevant and important during a corporate auction. Finally, this Part discusses target resistance in the auction phase, and closely examines the standard of review employed in CTS II to determine whether this case represents an undue departure from the use of the business judgment rule developed in Unocal and Revlon. Part II defines those situations in which the duty of loyalty analysis should supersede the business judgment rule. This Part distinguishes suspected conflicts of interest from manifest conflicts of interest, and argues that business judgment rule protection should be available in cases involving no more than a suspected conflict of interest. Finally, Part III formulates a standard of review for applying the business judgment rule in the auction phase. This Part suggests that the reasonableness of target resistance be measured using Delaware\u27s policy of facilitating corporate auctions for the maximization of shareholder gain

Aufsichtsrat und Business Judgment Rule

Fazit: Im Gegensatz zu ihrem US-amerikanischen Vorbild ist die deutsche Business Judgment Rule kein „sicherer Hafen“, der Organmitgliedern das Privileg eines haftungsfreien Raums für unternehmerische Entscheidungen eröffnen würde. §§ 93 Abs. 1 Satz 2, 116 Satz 1 AktG formulieren vielmehr lediglich – mit ihrerseits ausfüllungsbedürftigen Begriffen – die Anforderungen an die Entscheidungsfindung eines ordentlichen und gewissenhaften Geschäftsleiters oder Überwachers. Dementsprechend gelten für Entscheidungen außerhalb des unmittelbaren Anwendungsbereichs der Business Judgment Rule keine grundsätzlich anderen Anforderungen. Bei der Festlegung dieser Voraussetzungen an einen ordnungsgemäße Entscheidung ist zu beachten, dass die organschaftliche Sorgfaltspflicht und die Haftungsfolgen für den Fall ihrer Verletzung sich nicht etwa das Gremium insgesamt, sondern an jedes einzelne seiner Mitglieder richten. Daher sollten insbesondere die Standards an eine angemessene Information und an die Plausibilitätskontrolle eingeholter Auskünfte und Expertisen nicht so hoch angesetzt werden, das sie realistischerweise von niemandem erfüllt werden können.Angesichts des zunehmenden Bewusstseins für die mit einer Organmitgliedschaft verbundenen Haftungsgefahren dürfte es sonst in Zukunft schwieriger werden, qualifizierte Aufsichtsratsmitglieder für deutsche Unternehmen zu gewinnen

The Modest Business Judgment Rule

This article argues that Delaware mis-formulates and mis-uses the business judgment rule. Properly understood, the business judgment rule\u27s function in corporate law is quite modest. It is a narrowly-drawn judicial policy of nonreview which, in duty of care cases, shields the merits of board decisions from judicial scrutiny. The article contends that the business judgment rule, therefore, should be de-emphasized as an analytical construct in the law of director fiduciary duties and should be sharply differentiated from the broader-gauged duty of due care. Doing so will pave the way for Delaware courts to rethink the importance of articulating a robust, generally applicable ? but concisely formulated ? director duty of due care

Demise of the Director\u27s Duty of Care: Judicial Avoidance of Standards and Sanctions Through the Business Judgment Rule

Courts love the so-called business judgment rule. It dispenses quickly and easily with derivative actions against corporate directors and officers, and other challenges to corporate conduct. Unfortunately, the business judgment rule has come to mask its underlying premise, i.e. that there must have been a business judgment made. This article examines the dominance of the business judgment rule over the underlying requirement of the duty of care and suggests reform measures that will bring the duty of care back to its appropriate role in determining the merits of management decision-making processes

Risky Business: Directors Making Business Judgments in Washington State

Section 23B.08.300 of the Revised Code of Washington (RCW) defines the general standards of conduct for directors in discharging corporate duties. The Washington State Legislature developed these standards to govern the manner in which directors perform their duties, rather than to impose liability on directors for negligent business decisions under the business judgment rule. Indeed, the business judgment rule, as defined by leading corporate-law jurisdictions and the American Bar Association, generally protects directors from liability associated with negligent business decisions so long as the director makes decisions in good faith, on an informed basis, without self-interest, and in accordance with the director\u27s belief of what is best for the corporation. Nevertheless, the Washington State Supreme Court has suggested in dicta that the ordinary due-care standard of conduct included in RCW 23B.08.300 is an element of the business judgment rule standard of liability. Under the court\u27s interpretation of the business judgment rule, the quality or substance of a director\u27s business decision will not be protected from liability unless an ordinarily prudent person would have made the same decision under like circumstances. This Comment first argues that the standards of conduct set forth in RCW 23B.08.300 are separate and distinct from the business judgment rule standard of liability, and should not impose liability on directors for unfavorable business decisions. Second, this Comment proposes a legal framework for applying the business judgment rule in Washington state that is consistent with court precedent and the legislative intent underlying RCW 23B.08.300. Finally, this Comment proposes that Washington state courts adopt section 8.31 of the Model Business Corporations Act to provide the judiciary, directors, and the corporate bar with additional guidance in applying the business judgment rule

Directors\u27 Duties in Failing Firms

Despite many cases with seemingly contrary dicta, corporate directors of failing firms do not have special duties to creditors. This follows from the nature of fiduciary duties and the business judgment rule. Under the business judgment rule, the directors have broad discretion to decide what to do and in whose interests to act. There is some authority for a limited creditor right to sue on behalf of the corporation to enforce this duty. However, any such right does not make the duty one owed to creditors. The creditors individually may sue the corporation for breach of specific contractual, tort, and statutory duties, particularly on account of fraudulent conveyances. But the creditors are not owed general fiduciary protection even if they are subject to a special risk of abuse in failing firms