Duke Law

Global Capital Markets Center

Professor Deborah A. DeMott

Legislating Business Judgment - A Comment from the United States

Deborah A. DeMott
16 Company & Securities Law Journal 575 (1998)

ABSTRACT:

Published in an Australian journal, this article addresses the proposed Corporate Law Economic Reform Bill of 1998 being considered in that country from the point of view of a US scholar. The proposed bill presented a statutory formulation of what is known as the business judgment rule, a doctrine that limits directors' liability for consequential losses based on actions taken in good faith. In general, the note assesses the Australian statute based on US history and recent development in the United States. In her analysis of the Australian statute, Professor DeMott points out the subtle differences between the business judgment rule as it is interpreted in the US and as it is proposed in the pending Australian statute. She then goes on the use several United States cases to examine the differences in detail and the questions that are raised by the pending Australian legislation. The article discusses In re Caremark Int'l, Inc. as it relates to the question of a director's liability for the actions of delegates and their responsibility to monitor; liability of directors for actions of subordinates; Rothenberg v. Santa Fe Pacific Corp. and the differences between the responsibility of directors to shareholders found to exist in that case and the proposed Australian standard of proper purpose and best interests of the corporation; Kahn v. Tremont Corp. and the impact of the business judgment rule in the context of dealings with controlling shareholders. The article concludes by looking at the differences in the impact of the rule on shareholder derivative action in the two countries, especially in the context of the oppression statute in Australia, which is not explicitly connected to the proposed business judgment rule legislation.

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