I just came across the following video, that discusses the business judgment rule in the non-profit audit committee setting. Go to 1:20 for the details.
Remarkably, the commentator (the dog if you will), qualifies the business judgment rule as a standard of conduct for directors to follow, apparently referring to California corporate law.
That doesn't seem to be in line with the general approach that the business judgment rule is primarily a standard of review by the court, a tool of judicial review, not to be conflated with the fiduciary duties of care and loyalty resting on directors. See, e.g., Omnicare, Inc. v. NCS Healthcare, Inc., 818 A.2d 914 (Del. 2002) and Moran v. Household International, Inc., 490 A.2d 1059 (Del. Ch. 1985). Although there is a connection between these duties and the rule, they're not the same and should not be treated as such. For the gist of the rule, properly understood a policy of judicial non-review, see here.
Maybe this is just a "Californian" thing; see for example Briano v. Rubio, 54 Cal. Rptr. 2d 408, 415 (1996), Barnes v. State Farm Mutual Auto. Ins. Co., 16 Cal. App. 4th 365, 378 (1993) and Gaillard v. Natomas Co., 208 Cal. App. 3d 1250, 1264 (1989), oddly suggesting that California's statement of the duty of care in Section 309(a) of the Corporations Code codifies the business judgment rule. I guess codifying legal concepts doesn't always clarify things.
Updated
Steve Bainbridge weighs in on the discussion.
Comments