Business judgment rule (BJR)

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A rule in which courts will not scrutinize a board’s decision if the board can demonstrate that it followed a reasonable process by which it informed itself of relevant facts and arrived at the decision in good faith, even if the decision led to a negative outcome. The BJR applies in the United States, United Kingdom and, in various forms, in many other jurisdictions. It constitutes a presumption that directors, by default, act while (1) sufficiently informed, in (2) good faith, and with (3) an honest belief that they have the best interest of the corporation and stockholders in mind.

Good faith requires that the board act without conflicting interests and that it not turn a blind eye to issues within its responsibility. If the board can demonstrate that it satisfied these criteria, the courts will not intervene.

See also: Duty of Care.


Cornell Law School - Business judgment rule