The U.S Business Judgment Rules (BJR) was put in place to help protect corporation’s boards of directors from ridiculous legal allegations
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by Jose Lenfers
The U.S Business Judgment Rules (BJR) was put in place to help protect corporation’s boards of directors from ridiculous legal allegations about how their business is ran. However, this does not make it that you can run the shadiest business and still be fully protected by the BJR. Boards of directors are presumed to always act in good ways, meaning directors owe some care and loyalty to its shareholders. If there is evidence that the board violates the rules of conduct of the BJR, courts wont even review or question its decision. Boards also have an obligation to always be informed and act on an informed basis. Finally boards must put the interests of the corporation and its shareholders over the interests of others. I completely agree that directors should not be liable for an honest mistake with a history of solely doing good things. There must be evidence that they are breaking rules and blatant bad faith in order for them to be penalized.
The United Kingdom’s BJR is the company law. They were the first country to draft modern corporation statutes and it is a bit similar to the one in the United States. Management of the corporation is also ran through a board of directors and it limits liability to their commercial creditors in case a business is unable to pay debt. The UK company law also states that it is mandatory to act in good faith of investors.
I would not change anything about the U.S BJR because i think it is extremely fair. If blatant bad faith is present, they should 100% be held liable. It is not an easy task running a business and requires that you make thousands of different decisions, even a person acting in perfect honest good faith can mess up sometimes and they should not be help liable for that one time.
https://www.investopedia.com/terms/b/businessjudgm…
http://self.gutenberg.org/articles/United_Kingdom_…
By Bryan Castillo
The U.S. Business Judgment Rule is based on helping protect a corporations head directory of any flippant legal allegations about how the business is ran. Directors making a business decision is what surrounds the topic. I agree with the fact, a corporate director will not be liable and accountable to the corporation for honest mistakes of bad business decisions. If there is evidence of bad faith then of course they should be penalized but if there isn’t a clear reason, I do not see the point of having them liable. Having a rational basis for the decision they made is one of the three requirements to apply the business judgment rule. In Canada for example, the rules comply the same due to the fact that Canada courts have a similar approach towards U.S. laws. They enforce the duty of care that respects the fact that directors and officers often have expertise that courts do not. Even though in Canada, the business judgment rule is not really a stand-alone rule as a illustration of how the director took care of the duty is presented. Considered decisions and reasonable have to be presented but they do not have to be perfect. Again, the reason Canada has it’s similarities with U.S. is because they are counterparts with them. I believe this is due to the fact U.S. has developed a law that is understandable enough and an appropriate degree of diligence is presented. I would not change anything about the U.S. rule due to the fact that if relevant facts are presented, why hold them liable? Business decisions come with risks and sometimes lead into critical situations but that is what holds companies together. If the evidence shown is valid and the person has acted with good faith then that should be good enough to not hold them liable. “They are not insurers of business success” is what it states in the text and that is the most effective aspect of the rule, because leaving a decision based on a person’s knowledge can vary. Whatever results are presented are held accountable for the entire company for allowing a head officer to decide.
References
https://www.lerners.ca/lernx/business-judgment-rul…
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