The Business Judgment Rule Has Served For Decades As The Most Important Protection Against Personal Liability

1246 Words Nov 11th, 2015 5 Pages
The business judgment rule has served for decades as the most important protection against personal liability for directors and officers. And it also has been criticized frequently as providing too much protection for the directors and officers of corporations. It is the time for some changes to be made to business judgment rule. A: Economic Environment Changes The business judgment rule is designed to prevent courts from second-guessing the quality of a decision, which made by directors and officers. Because the modern organizational structure of corporations allows shareholders, who actually own the corporation to elect a board of directors to manage the corporation, these directors and officers have more business experience and are more familiar with the needs, strengths, and limitations of the corporation than shareholders and the courts. Therefore the business judgment rule recognizes that the directors and officers are best able to make business judgments. The business judgment rule originated in 1945 in Otis & Co. v. Pennsylvania R. Co [2], the corporate directors were sued because they only dealing with one investment house and not “shop around ” for the best possible price available in the sale of securities. The federal district court held that the directors chose the wrong course of action in good faith therefore “do not subject to liability for negligence in the discharge of their appointed duties.” This case offers two primary…
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