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Article
Corporate Officers and the Business Judgment Rule
Business Lawyer
  • Lyman P.Q. Johnson, Washington and Lee University School of Law
Document Type
Article
Publication Date
1-1-2005
Abstract
This article argues that the business judgment rule - a cornerstone concept in corporate law - does not and should not extend to corporate officers in the same broad manner in which it is applied to directors. The argument proceeds along both descriptive and normative lines. After first reviewing judicial decisions, the article concludes that, notwithstanding frequent, broad assertions to the contrary, application of the rule to corporate officers is not firmly established in case law. The article next examines the policy case by assessing three conventional rationales for applying the rule to directors and concluding, on balance, that the rationales do not fully translate into the officer context. The upshot is that courts should more closely scrutinize officer conduct than they now examine director performance. Those companies not wishing to expose officers to heightened liability risks may, by decision of the board of directors, refrain from asserting rightful claims ex post, or may contract around that risk ex ante, either by eliminating liability altogether or substantially reducing it.
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Citation Information
Lyman P.Q. Johnson, Corporate Officers and the Business Judgment Rule, 60 Bus. Law. 439 (2005),