V Indonesian Journal of International & Comparative Law 147-96 (April 2018)
Keywords: Legal Transplant, Business Judgment Rule, Corporate Law, Comparative
Law, Civil Law Tradition, Corporate Governance.
e business judgment rule (the “Rule”) is one of the most widely dis-
cussed legal doctrines on U.S. corporate law.1 e basic tenet of the
Rule, as formulated by Delaware courts, has been captured by academic
commentary by stating that: “absent a showing of fraud, illegality, or
conict of interest, the court must abstain from reviewing the directors’
decision.”2 Notwithstanding the controversy over its application and
limits,3 the Rule has been widely transplanted into several jurisdictions
all over the world, regardless of their legal tradition.4
1. See e.g., A. P F. P, C: A C A
542 (2010) (noting that the leading case of Smith v. Van Gorkom is one of the most
widely criticized and cited corporate law cases). See also Stephen M. Bainbridge, e
Business Judgment Rule as Abstention Doctrine, 57 V. L. R. 83 (2004) (“Countless
cases invoke the rule and countless scholars have analyzed it.”); and Gagliardi v. Tri-
Foods Intern., Inc., 683 A.2d 1049 (1996) (describing the Rule as an “elementary precept
of corporate law”).
2. S M. B, C L (3d ed. 2015). A complete description
of the Rule is provided by the Supreme Court of Ohio: “[e Rule] has traditionally
operated as a shield to protect directors from liability for their decisions. If the directors
are entitled to the protection of the rule, then the courts should not interfere with or
second-guess their decisions. If the directors are not entitled to the protection of the
rule, then the courts scrutinize the decision as to its intrinsic fairness to the corporation
and the corporation’s minority shareholders.” Gries Sports Enterprises., Inc. v. Cleveland
Browns Football Co., 496 N.E.2d 959 (Ohio 1986). Although not usually codied in the
U.S., versions of the Rule may be found in the Model Business Corporation Act (2016
Revision) (“MBCA”) § 8.31(a)(2), and in the American Law Institute (ALI) Principles
of Corporate Governance, § 4.01(c).
3. See B, supra note 2, at 109 (noting that agreement about the Rule ends be-
yond the idea that it insulates directors from liability for negligence). See also Ralph
A. Peeples, Use and Misuse of the Business Judgment Rule in the Close Corporation 60
N D L. R. 456 (1985) (“Both commentators and courts have deplored the
inexact and expansive language that frequently is used to describe the purposes and
functions of the business judgment rule.”). Already in 1967, Henry Manne held that the
Rule was “probably one of the least understood concepts in the entire corporate eld”.
Henry G. Manne, Our Two Corporation Systems: Law and Economics, 53 V. L. R.
259, 270 (1967). On the topicality of Professor Manne’s statement see: Lyman Johnson,
Corporate Ocers and the Business Judgment Rule, 60 B. L. 439, 454 (2005).
4. For an overview of dierent jurisdictions which have adopted some version of the Rule