Business Judgement Rule
In the business field, it is impossible to achieve success without taking possible risks. The Business Judgement Rule acknowledges that businesses are required to make controversial decisions and that for them to make higher profits, taking greater risks is unavoidable. The rule thereby seeks to protect companies from frivolous court cases by assuming that except proved else, the management is acting in the best interest of the shareholders. In this discussion, therefore, I am going to look at the rule in the United States and in Australia and how the rule relates or compares in both nations.
True to the statement of the Business Judgement Rule in the United States, the management needs protection due to the nature of risks that are always involved in decision making. I agree with the entire judgment rule since it draws a boundary between the decision-makers and the shareholders. The board is allowed to freely make decisions in good faith and for an appropriate purpose, without having any selfish interests. This allows the board to make the decisions without the fear of being prosecuted by the shareholders. If the board flouts any of these rules, then the shareholders can file a lawsuit with the evidence. This means that both parties are protected and work towards the success of the company.
In Australia, the rule of Judgement is similar to that of the U.S. this is because all directors or decision-makers are entitled to good protection to take higher risks for the advancement of the companies. Shareholders also rest well with the knowledge that the decisions made are in line with their interests and with the assurance that they can take legal action if the board acts in bad faith.
I would not change the judgment rule. The aspect of the directors acting in good faith as well as believing in their judgment is among the most practical aspects. This is because they ensure that the decision-makers are not limited in any decision they take and that they have room for making mistakes and then rising again from these mistakes without any form of fear.
In a nutshell, the Business Judgement Rule not only seeks to protect the board from the decisions they make but also the shareholders if the judgments made work out for the success of the business. Risky policies or strategies do not necessarily mean that the judgment was wrong but that it did not work as expected. Therefore, the business can learn from the mistake and take another bold step towards success.