Paul Miller, ‘Fiduciary Liability and Business Judgment’

ABSTRACT
This chapter provides a comparative interpretive analysis of the business judgment rule and its relationship to principles governing the fiduciary liability of corporate directors. In broad outline, principles providing for the fiduciary liability of directors under Delaware law are in alignment with those of foreign jurisdictions. However, Delaware charts its own course in the spirit and finer doctrinal detailing of its law. And if any doctrine may be said to singularly reflect the spirit of American corporate law, it is the business judgment rule. American law stands apart for the sheer breadth of latitude it asserts for managerial discretion. And that assertion is made, and thought to be policed, through the business judgment rule.

The business judgment rule appears anomalous in comparative context. First, it seems anomalous within the context of American fiduciary law for, as Julian Velasco has observed, there is no ‘fiduciary judgment rule’ applicable to all fiduciaries. Second, the rule seems distinctive as a matter of comparative corporate law. Aside from legal transplants inspired by Delaware law, most foreign jurisdictions have done without a business judgment rule.

In this chapter I test the appearance of anomaly as well as conventional views about the nature of the business judgment rule and its relationship to basic precepts of fiduciary liability. The interpretive project is one of rational reconstruction: it acknowledges doctrinal irresolution but asks what sense may be made of the rule when presented it is in its best light. The comparative analysis probes the apparent distinctiveness of the business judgment rule. I suggest that, surprisingly, the reconstructed rule is not anomalous, save in being given doctrinal expression (ie, in being posited as a ‘rule’). Fiduciary administration is, elsewhere, protected by implicit norms of deference by judges to decisions lawfully made by fiduciaries. I conclude by querying whether the effectiveness of the business judgment rule in the United States – something achieved despite persistent doctrinal irresolution – and the reported ineffectiveness of the rule in other jurisdictions might suggest that causal factors shaping judicial behavior in conformity with the rule’s aims are primarily social rather than legal.

Miller, Paul B, Fiduciary Liability and Business Judgment (May 18, 2022) in Martin Petrin and Christian Witting, eds, Research Handbook on Corporate Liability (Elgar, forthcoming).

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