Business Judgment Rule: A Generally Applicable Principle?

Abstract:

This article examines the reach and applicability of the business judgment rule as developed by US case law to civil law countries – especially countries from the European judicial area – that hold for an objective standard of due care and a wide margin of discretion for managers in making business decisions. The economic crisis and the awareness of the lack of predictability of all relevant economic parameters when making business decisions, make the applicability of the business judgment rule highly relevant.

In light of this, the present article elaborates on the concrete functioning of the business judgment rule and focuses on its different components. Thereby, the business judgment rule is divided into a substantial and a procedural part. The paper’s findings are that only the substantial part of the business judgment rule may be applied in civil law countries that hold for an objective standard of due care for managers. However, the procedural part of the rule is likely to conflict with more specific national procedural rules that usually prevail.

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