71 CBLJ 304​

BUSINESS JUDGMENT RULE, REDUX

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Simone M. Sepe

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ABSTRACT 

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The business judgment rule (BJR) is usually framed as a deferential standard that shields good faith, informed board decisions from judicial second-guessing. This article instead treats the BJR as a jurisdictional doctrine that allocates authority inside the firm. It compares how Delaware and Canadian corporate law embed the BJR in their procedural frameworks and thereby redistribute legal positions among directors, shareholders, and stakeholders. In Delaware, the BJR operates as an ex ante presumption that structures standing, exculpation, and pleading rules, converting many investors’ claim-rights into what are effectively no-rights and concentrating meaningful review in a narrow band of loyalty and bad faith cases. Business judgment deference — and the associated immunity from liability — functions as a predictable reward for satisfying specified process predicates. Canada adopts a deferential posture but uses the BJR mainly as part of an ex post reasonableness standard. Read through an incentive lens, the article contrasts the two approaches and traces how each design shapes managerial incentives, stakeholder expectations, and the practical reach of corporate accountability. It closes by drawing design lessons for jurisdictions seeking to calibrate director immunity within an inevitably incomplete corporate contract.