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Journal Article


In recognition of the risky nature of most business, courts are reluctant to intrude into the boardroom and second-guess directors’ decisions. Providing the directors have performed their duties without personal interests being served, have informed themselves, and have acted in what they believe are the company’s best interests, the courts will not interfere, unless the decisions are really very foolish. Only then will honest directors have to face actions for negligence. Certainly, they can make bad decisions and not be pursued. This notion or principle, which shields directors from all but the most egregious carelessness, is called the business judgment principle. In some jurisdictions, as in Australia, the principle has been set out in the statute as the business judgment rule. It blunts the blade of the director’s duty of care and diligence.

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This document has been peer reviewed.