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The Business Judgement Rule

January 29, 2017 5 comments

The last Spanish Corporate Governance reform introduced the Business Judgement Rule (BJR) concept, stemming basically from the US courts in Delaware.

We will make an effort to give a broad and modern vision on the BJR in this post, given its prevalence in modern Corporate law or practice. In this effort we will primarily follow D. Gordon Smith`s article on “The Modern Business Judgement Rule”, (1).

business-judgment-rule-reasonableness_responsive_reference

An initial BJR formulation by courts is recognized in 1927 Delaware court´s decision in the Bodell vs. General Gas & Electric Corporation case. A first approach would outline the BJR protects directors from liabilities stemming from “honest mistakes”either as to law or fact, somehow recognizing the human fallability, but also the fact that it reduces legal costs as directors find it difficult to please every shareholder, as S. Samuel Arsht stated in 1979 (2). Read more…

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The ecoDa/AIG Guide to Directors’ Duties and Liabilities

October 12, 2015 Leave a comment

Ecoda (www.ecoda.org) and AIG have jointly published a Guide to Directors regarding risks they face when acting as such. Both entities have published press releases, (1) and the guide itself, (2). We strongly recommend directors to read the guide. (3)

The landscape remains similar although several changes appear: regulators will be less permissive; fiduciary duties are better defined so that compliance will also be better and more easily demanded; companies (even SME`s) are becoming global, so that directors should assess their liability landscape in geographies in which the company operates.

Directors need to keep themselves out of the firing line by: (i) proactively fulfilling their duties, requiring to receive all necessary information, etc.,  (ii) asking their position to be noted in the minutes and taking private notes, (iii) being wise in procedures to be sure the Business Judgement rule will be applied, (iv) having a goog D&O insurance, etc.

(1) See them here (http://www.aig.co.uk/insights/guide-to-directors-duties-and-liabilities?cmpid=SMC-TWITTER-AIGemea-EMEADirectorsDuties-20151012110500) and here (http://ecoda.org/news-details/article/press-release-report-on-european-directors-duties-and-liabilities-published-by-ecoda-and-aig-1/),

(2) See it here: http://ecoda.org/all-publications/publication/article/report-on-european-directors-duties-and-liabilities-published-by-ecoda-and-aig/

(3) I thank @excellencia_ltd for tweeting the report, which made me aware of its existence.