Business Judgment

'The concept of business judgment' by Andrew Keay and Joan Loughrey  in Legal Studies comments

Categorising something as a business judgment can provide directors with a powerful shield from accountability. It has been said that the courts in England and Wales defer to directors’ business judgments and directors’ decisions are protected from review in other jurisdictions by a business judgment rule. Yet what a business judgment is has never been addressed, and so precisely what is being protected, and why, is unclear. This paper analyses case law in England and Wales and key Australian and US cases to answer this question. It argues that the courts use the term judgment in two senses: an ability, and a decision sense, and that business judgment in both senses can be linked to Knight's concept of entrepreneurial judgment, and directors’ wealth creation function. Conversely, decisions that are linked to directors’ corporate governance function and are less easy to categorise as entrepreneurial are less likely to be viewed as business judgments.