Modernizing Colombian Corporate Law: The Judicial Transpalant of the Business Judgment Rule

Author:Sebastián Boada Morales
Position:Superintendence of Companies
e Indonesian Journal of International & Comparative Law
ISSN: 2338-7602; E-ISSN: 2338-770X
© 2017 e Institute for Migrant Rights Press
For their helpful and kind comments to a previous version of this article, I would like
to thank Holger Spamann, Patrick Del Duca, Darío Laguado, Sebastián Ocampo, and
Juan Pablo Amaya. e usual disclaimer applies.
ModErnizing ColoMBian CorporatE law
The Judicial TransplanT of The Business JudgmenT rule
Sebastián Boada Morales
Superintendence of Companies
e business judgment rule (“Rule”) is one of the most widely discussed legal
doctrines on US Corporate Governance Law. Various jurisdictions outside of
the US have adopted some version of the Rule. Recently, a specialized corporate
law court in Colombia transplanted the Rule to such jurisdiction. e adoption
process constitutes an example of functional convergence of corporate law, an
instance of the development of Colombian law, and a case study on the possibil-
ity of bridging the perceived dierences between the Common Law and the Civil
Law traditions. Notwithstanding, such transplant has not been without contro-
versy. On the one hand, some local commentators and members of the judiciary
utterly reject the application of the Rule in Colombia. Under this view, positive
law is altogether contrary to the adoption of the Rule by means of judicial ac-
tion. On the other hand, proponents of the Rule have fashioned an ingenious
interpretation whereby the Rule may be eectively extracted from existing leg-
islation. Consequently, the debate over the Rules local application is essentially
a matter of legal interpretation. is controversy provides an interesting case
study on the development of local corporate law, and constitutes a prime exam-
ple of the use of comparative law for the development of legal systems. Indeed,
there is a noticeable shi in local legal culture; from abstract “legal” reasoning,
typical of Napoleonic style jurisdictions, towards more concrete and practical
use of legal materials, based primarily on an eciency criterion. A similar evo-
lution process may be seen in other jurisdictions from both the Common Law
and the Civil Law traditions. is article posits that the judicial transplant has
been successful, in view of the limitations imposed by the local institutional and
political arrangements. Notwithstanding the growing body of case law, propo-
nents of the Rule have repeatedly attempted to codify it, arguably seeking greater
certainty by converting it into legislated law.
V Indonesian Journal of International & Comparative Law 147-96 (April 2018)
Boada Morales
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
conict 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 codied 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 Ocers and the Business Judgment Rule, 60 B. L. 439, 454 (2005).
4. For an overview of dierent jurisdictions which have adopted some version of the Rule
Modernizing Colombian Colombian Corporate Law
Boada Morales
Recently, the Rule was judicially introduced into Colombian law by
the local specialized corporate law court, amid deep controversy over
its applicability. is paper discusses the process of such legal transplant
and argues that it constitutes an example of functional convergence
of corporate law, as well as an instance of Latin American jurists
accomplishment of bridging some of the perceived dierences between
the Common Law and Civil Law traditions. is case study also helps to
highlight the ongoing process of development of Colombian corporate
la w.
e transplant process has not been exempt from debate. e
acceptance or rejection of the Rule depends on the prevailing
construction of the local standard of care applicable to the acts of
corporate ocers and directors. e discussion throughout this
paper will show that proponents of the Rule put forward an ingenious
interpretation of legal provisions which already exist locally, eectively
extracting the Rule from statutory law. Contrary to this view, local
objectors of the Rule provide a dierent interpretation of statutory
materials by denying the Rules applicability under current law.
Despite resistance from traditional local sectors of academia and
the judiciary which reject the application of the Rule, the jurisdictions
specialized corporate law court has managed to insert the Rule into
the local legal environment by creating a somewhat consistent body
of case law,5 by largely building on American academic writing and
legal precedents.6 is process constitutes a struggle between two
see e.g., Aurelio Gurrea, Re-Examining the Law and Economics of the Business Judgment
Rule: Notes for Its Implementation in Non-U.S. Jurisdictions, J.  C S.
(2018), available at (last visited Nov. 29, 2017);
Accord Luca Enriques et. al., e Basic Governance Structure: Minority Shareholders and
Non-Shareholder-Constituencies, in T A  C L: A C-
  F A 91 (Reinier Kraakman et. al., eds, 3rd ed., 2017)
(indicating that court practice in most jurisdictions shows that judges are reluctant to
second-guess business decisions).
5. Partially available in Spanish at:
cantiles/Normatividad/Paginas/default.aspx (last visited Nov. 29, 2017)
6. Although there are examples of previous judicial transplantation of the Rule to other
Civil Law jurisdictions, such as Germany (see Hanno Merkt, Germany, in C-
 C G: A F  I A 543
(Andreas M. Fleckner & Klaus J. Hopt eds, 2013)) or Spain (see José M. Embid, La
protección de la discrecionalidad empresarial: artículo 226, in Régimen de debeRes y
Responsabilidad de los administRadoRes en las sociedades de capital (Luis H. Cebriá
ed., Editorial Bosch, 2015)), the Colombian specialized court has not shied away from

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