Business Judgment Rule
Updated 2026-08-15
INTRODUCTION
English translation pending.
CORE DEFINITION
The business judgment rule is a principle of corporate law under which a court will not second-guess a director's decision, and will not hold the director liable for a poor outcome, provided the decision was made on an informed basis, in good faith, without a conflict of interest, and in the honest belief that it served the company. Its core proposition is that the law should protect the decision process rather than the result, because punishing hindsight errors would make directors refuse every uncertain bet. The key qualification is that the shield covers process, not dishonesty or self-dealing.
SCAFFOLDING EFFECT
Reduce cognitive load
- Use process record: write the information reviewed and the reasons for the decision. - Use conflict removal: disclose any interest and recuse yourself when it is material. - Use informed basis: confirm the information is current and complete before the vote.
Anchor fast decisions
Uncertainty means that even a well-made decision can fail, and if a failed outcome brought liability, then every director would refuse any risky project. Protecting the process instead keeps the incentive to gather information and decide, while the outcome risk stays where it belongs, with the company. The record is what converts the principle into a defense, because a court can only inspect the process if the process left a trace.
MINIMUM ACTION
In progress 0/1Practice this model in one real situation:
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Source support: Explicit
- en.wikipedia.orghttps://en.wikipedia.org/wiki/Business_judgment_ruleverified
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