Corporate officers and the business judgment rule: A reply to Professor Johnson

With increased attention to potential liability of non-director officers for breach of fiduciary duty, the largely neglected question of the appropriate standard of judicial review of their conduct is finally getting broad attention. In the February 2005 issue of The Business Lawyer, 60 Bus. Law. 439, Professor Lyman P.Q. Johnson questions court rulings adopting the business judgment rule and a deferential standard of care. In this reply, however, the authors urge that those rulings-as well as the ALI Principles of Corporate Governance and the Official Comment to the Model Business Corporation Act-have been correct. The same policies that justify judicial deference to director action likewise justify such deference to actions of corporate officers, at least when they act, without conflict of interest, in carrying out their delegated discretionary authority. A more demanding standard, the authors argue, would impinge upon the ability of the board of directors to delegate its decision-making authority as well as encourage officers to place more decisions in the hands of the board and to take fewer, less-risky initiatives on their own.