The Abstract Void in Practice: Has the Statutory Business Judgment Rule Changed the ‘Acoustic Separation’ Between Conduct and Decision Rules for Directors’ Duty of Care?

22 Pages Posted: 4 Nov 2017

See all articles by Sergio Alberto Gramitto Ricci

Sergio Alberto Gramitto Ricci

Clarke Program on Corporations & Society

Jake Miyairi

King & Wood Mallesons - King & Wood Mallesons-Sydney

Date Written: March 31, 2017

Abstract

A recent outpouring of director sentiment claims that the stringency of directors’ duty of care is stifling entrepreneurial growth. This article explores whether the statutory business judgment rule has enhanced directors’ protection for legitimate commercial decisions, or clarified their liability for due care — the two express justifications behind its enactment. Directors’ protection for entrepreneurial decision-making cannot be amplified without broadening the pre-existing abstract void between the duty of care — as a conduct rule — and the general law ‘business judgment principle’ — as a decision rule. But Parliament’s desire to clarify and confirm the existing general law business judgment principle, and not lower it, has neutered the statutory rule’s potential to safeguard directors’ entrepreneurial discretion in practice. This article explores the inherent tension underlying the current rule, investigates its practical ramifications, and cautions that any future legislative proposals must address this tension to overcome the current rule’s shortcomings.

Note: This paper has been published by Lexis Nexis in the Australian Journal of Corporate Law (citation included on this page).

Keywords: Mariner, Corporation Act, Duty Of Care, Standards Of Conduct, Stakeholders, Corporation, Business Judgement Rule, Regulatory Reform, Ali,

Suggested Citation

Gramitto Ricci, Sergio Alberto and Miyairi, Jake, The Abstract Void in Practice: Has the Statutory Business Judgment Rule Changed the ‘Acoustic Separation’ Between Conduct and Decision Rules for Directors’ Duty of Care? (March 31, 2017). Australian Journal of Corporate Law Vol. 31, No. 107; Cornell Legal Studies Research Paper No. 17-18. Available at SSRN: https://ssrn.com/abstract=2944111 or http://dx.doi.org/10.2139/ssrn.2944111

Sergio Alberto Gramitto Ricci (Contact Author)

Clarke Program on Corporations & Society ( email )

Myron Taylor Hall
Cornell University
Ithaca, NY 14853-4901
United States

Jake Miyairi

King & Wood Mallesons - King & Wood Mallesons-Sydney

Governor Phillip Tower
1 Farrer Place
Sydney, New South Wales 2000
Australia

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