On Corporate Purpose, Director Primacy, and the Business Judgment Rule

Historically, how a corporation invests and pursues its goals has been recognized as within the discretion of the board of directors. The business judgment rule insulates directors from liability for exercising that discretion by restricting second-guessing from shareholders absent a showing of fraud, illegality, or self-dealing.  In other words, a business decision that doesn’t turn out well shouldn’t be questioned as long as the directors acted in good faith.

In recent years, though, the business judgment rule seems to have been eroded by forces from both the political right and the political left.  Those leaning right assert that the obligation … Read more