About this Event
Should the courts review directors’ business judgment? This question has been canvassed extensively in academic literature. Arguments against such review include the dangers of judging directors’ decisions with the benefit of hindsight; the fact that judges lack business expertise and should not, therefore, second guess business decisions; that review of business judgment with liability would deter individuals from becoming directors; or that it would lead to more risk adverse decisions. Arguments for review include improving standards; deterring unfit directors; and, significantly, accountability of directors for harms they have caused through careless decisions.
This paper reassesses the debate, drawing on the findings of a two year Arts and Humanities Research Council funded study Business Judgment and the Courts. This project examined what was meant by business judgment; identified how the courts apply this concept; and assessed to what extent directors’ decisions in England and Wales should be subject to review by the courts. It took into account the position in Australia as well as the US as comparators. We interviewed directors, company secretaries, legal practitioners and judges for their views on these issues, and this surfaced new arguments relating to whether judgments should be reviewed as well as new perspectives on old arguments. The newer arguments centred on an understanding of accountability that looked beyond shareholders and the company. This paper is the culmination of that study and provides conclusions on the desirability of the courts reviewing directors’ business judgment and significance of considerations of director accountability.