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Unpublished Paper
Supplying the Adverb: Corporate Risk-Taking and the Business Judgment Rule
ExpressO (2008)
  • David Rosenberg
Abstract

The business judgment rule precludes judicial review of most decisions by corporate directors. The rule is necessary to protect directors from potential liability for “good faith” decisions that ultimately end in failure. Courts and legal commentators have long emphasized the importance that the rule has in promoting the kind of risk-taking by corporations that has resulted in new ideas, new technologies and new markets. In recent years, Delaware courts have shown so much deference to risk-taking that they have misapplied the still-evolving doctrine of good faith. Professor Rosenberg argues that courts should use the same standards of good faith to evaluate accusations of excessive risk-taking that they use to evaluate other kinds of director misconduct such as disloyalty and a failure to be adequately informed. This would go a long way to making Delaware fiduciary law more consistent as it is applied to a variety of alleged director misconduct, but would do little to damage the ability of directors to take the kind of beneficial risks that have been so central to the historical success of the American corporation.

Keywords
  • good faith,
  • business judgment rule,
  • fiduciary duty,
  • risk
Disciplines
Publication Date
September 6, 2008
Citation Information
David Rosenberg. "Supplying the Adverb: Corporate Risk-Taking and the Business Judgment Rule" ExpressO (2008)
Available at: http://works.bepress.com/david_rosenberg/1/