On Business Judgment Rule

Business Judgment Rule (BJR) is a case law rule established by the U.S. courts for long- term practice. The core of the rule is to judge the conduct of directors, and let the directors be free of responsibility for wrong management. Business Judgment Rule can not only encourage the directors to make decision boldly for the interests of the company, but also be a judicial review rule.This article is designed to explain the conception and the elements of BJR. After analyzing the relationship between BJR and the director's duty of care, the author point out that they are very close but independent to each other. Then, the article analyzes the use of BJR in the cases of derivative suits and the cases of anti-takeover, discussing development of BJR and its special function. At last, compare experiment of Japan and Australia, put forward the constructive suggestions for the completion of Company Law of China by using the successful experience.There are four parts of the whole article.The first part is the general theory on BJR. Although there is no uniform definition given by legislator for BJR, the mainly content is that if directors act in good faith and in he best interests of the corporation when becoming informed, the rule releases the director and the decision he made or joined to make. Two contradictory theories hold by both the American scholars and the Chinese scholars about the relationship between the Business Judgment Rule and Duty of Care. One theory is that BJR is different from Duty of Care while the other the same. Based on the conclusion, the author put forward the essence of the Business Judgment Rule, considered that the Business Judgment Rule is just the supplement of Duty of Care, and Duty of Care is the target of BJR. BJR is a standard of judicial review on the basis of an assumption, in order to protect the decision making of directors.After analyzing the basic theory of BJR, the second part goes on with cases. BJR is placed in the case law environment. The article intends to analyze the different criterions of BJR when courts apply the rule in different type of case. In the cases of derivative suits, the decision of repealing derivative suits made by Special Litigation Committee (SLC) is also protected by BJR, because the business consider in making a decision to repealing a derivative suit by SLC is not less than that in striking a new deal or appointing a new manager. In the cases of anti-takeover, facing the conflict of the interests of the target firm, its stockholders and the directors, the directors will probably render a business judgment, which is not for the best interests of the stockholders, for remaining their own positions or for the long-term interests of the firm. This is not fair for the stockholders. So, the traditional criterion of BJR had to be broken up, with the result that the presumption was canceled and the criterion of judicial review on substance was added to.The third part of the article discusses experiment of BJR in Japan and Australia. After several years of study and practice, the basic theory of BJR has been confessed by courts in Japan. There is no specific article in statute law in Japan, only courts use this rule in different cases. There are several typical cases in Japan, BJR was used by courts .The norm that a case law rule is directly introduced to statute law country, is a feature of Japanese law. On the other hand, Australia put BJR in its statute law. It is the first country that put a case law rule into statute law.The last part of the article concentrates on how to complete Company Law of China by using the successful experience of BJR for reference. There is no article about Duty of Care in Corporate Law of China before it is revised. Revised Corporate Law of China has article about Duty of Care, so it is going to be possible to induce BJR. As a judicial review rule in American Corporation Law, BJR stemmed from the case law circumstance, and its background is that the self-government in corporations is held in respect by courts and judges evaluate the action and conduct of directors by which they exercise the power of a corporation. On the contrary, China has a statute law system and never has a tradition of respecting the self-government in corporations. So it isn't a good choice to replant BJR from case law system into statute law system in a short time.