Duty of Care and Business Judgement Rule

Question 1

Generally, what is the duty of care in the corporate setting?

Answer 1

The duty of care requires an officer, director, or other controlling agent of the business to exercise the level of care that a reasonable person would exercise under the circumstances.

Question 2

What does the duty of care require an actor to do?

Answer 2

The duty of care in turn requires an actor to be attentive to the corporation’s affairs and to make informed decisions.

Question 3

How does an actor make informed decisions under the duty of care rule?

Answer 3

In general, a fiduciary must

review information provided,
actively participate in meetings, and
gain reasonable familiarity with the context for any decision.

Question 4

What triggers the business judgment rule analysis?

Answer 4

Lawsuit alleging that an officer/director violated the duty of care.

Question 5

What is the business judgment rule?

Answer 5

Under this rule, a court will presume that the director acted

in good faith,
upon reasonable information, and
in the honest belief that the decision was in the corporation’s best interests.