What is the “business judgment rule” and why should I care?

The business judgment rule is a longstanding legal doctrine that bars courts from inquiring into the propriety of actions taken by corporate directors in good faith and in the exercise of their honest judgment to further corporate purposes. Under the business judgment rule, questions of corporate policy and management are left solely to the directors, whose decision making powers may not be questioned by the courts, even if the results ultimately show that a particular decision was unwise. Not only does the business judgment rule protect corporate decisions from judicial scrutiny, but it can also immunize directors from personal liability if something does goes wrong, so long as their decisions are made honestly and unselfishly, with the best interests of the corporation in mind. If the decisions are made in good faith, the protections of the business judgment rule extend to all aspects of corporate management, such as determining salaries and settling internal disputes. So if some shareholders complain about the propriety of a corporate decision, the directors can seek the protection of the business judgment rule, especially if the directors can point to comprehensive minutes showing that they considered all aspects of the issue before arriving at the decision in question. For more information on the business judgment rule, see The Benefits Corporate Minutes Provide Board Members.