# Business judgment rule `kaal:entity:business-judgment-rule` **Status.** derived This node is assembled mechanically from the 15 claims that carry the concept tag `business-judgment-rule`. It is a roster of what the corpus says under this term. It is **not** an adjudicated definition: no single statement here has been ruled canonical, and no first-appearance call has been made. Read the claims and judge for yourself. ## Every claim under this term 15 claims across 3 works, 2010 to 2025. **2010** - [1558614-005](https://wulfkaal.github.io/claims/1558614-005) [condition/argued] *(failure mode)* -- Law generally declines to adopt a general principle barring managers from incurring risk above a defined standard because such a standard is hard to define; corporate law instead insulates managers' risk decisions through the business judgment rule. > The law does not do so in most instances because defining such a stan- dard is difficult. Corporate law instead protects the risk decisions of bank managers from challenge through a concept known as the "business judgment rule." Painter and Kaal, Initial Reflections on an Evolving Standard Constraints on Risk Taking by Directors and Officers in (2010). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1558614 - [1558614-006](https://wulfkaal.github.io/claims/1558614-006) [empirical/argued] -- Although the business judgment rule is articulated differently in the two countries and German law leaves somewhat more room to challenge risky decisions, in both the United States and Germany the rule is highly protective of corporate managers. > the business judgment rule is articulated differently in the United States and in Germany, and there may be more latitude to challenge some risky decisions in Germany, but in both countries the rule is highly protective of corporate managers Painter and Kaal, Initial Reflections on an Evolving Standard Constraints on Risk Taking by Directors and Officers in (2010). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1558614 - [1558614-007](https://wulfkaal.github.io/claims/1558614-007) [failure/argued] *(failure mode)* -- The business judgment rule can be read not as a balanced middle ground but as excessively deferential to management, signaling that corporate law is ceding risk regulation to targeted rules aimed at particular risks in particular institutions. > Alternatively, one could view the business judgment rule as be- ing too deferential to management, and an indication that corporate law is abandoning the field of risk regulation to more specific rules aimed at specific types of risk in specific types of institutions Painter and Kaal, Initial Reflections on an Evolving Standard Constraints on Risk Taking by Directors and Officers in (2010). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1558614 - [1558614-016](https://wulfkaal.github.io/claims/1558614-016) [mechanism/argued] -- U.S. corporate law centers so heavily on shareholder manager conflicts of interest that, absent a demonstrable conflict, it treats risk taking as a situation where managers' and shareholders' interests are aligned and legal intervention is unwarranted. > Risk taking is one of those situations where U.S. corporate law assumes that managers' and shareholders' interests are aligned, or at least not sufficiently di- vergent that legal intervention is justified. Painter and Kaal, Initial Reflections on an Evolving Standard Constraints on Risk Taking by Directors and Officers in (2010). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1558614 - [1558614-022](https://wulfkaal.github.io/claims/1558614-022) [definitional/argued] -- The German and U.S. business judgment rules diverge most sharply at the German rule's fifth element, the requirement of no hazard decision or excessive risk taking, which German law presumes but allows to be rebutted. > As pointed out below, it is in this last element where the business judgment rules in the United States and in Germany diverge the most. German law presumes no hazard and excessive risk, but this presumption can be rebutted. Painter and Kaal, Initial Reflections on an Evolving Standard Constraints on Risk Taking by Directors and Officers in (2010). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1558614 - [1558614-023](https://wulfkaal.github.io/claims/1558614-023) [failure/argued] *(failure mode)* -- Because U.S. law frames the inquiry around corporate waste, and most risk taking does not meet the waste standard, showing that a decision was hazardous or excessively risky is not enough to rebut the business judgment rule in the United States. > Because most risk taking does not meet the definition of corporate waste, a showing of hazard or excessive risk is insufficient to rebut the 98 business judgment rule in the United States. Painter and Kaal, Initial Reflections on an Evolving Standard Constraints on Risk Taking by Directors and Officers in (2010). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1558614 - [1558614-024](https://wulfkaal.github.io/claims/1558614-024) [condition/asserted] -- Under the German business judgment rule's benefit of the corporation element, management cannot be acting for the corporation's benefit when its actions threaten the corporation's existence and economic survival. > management does not act for the benefit of the corporation if its actions threaten the existence and economic survival of the corporation Painter and Kaal, Initial Reflections on an Evolving Standard Constraints on Risk Taking by Directors and Officers in (2010). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1558614 - [1558614-031](https://wulfkaal.github.io/claims/1558614-031) [mechanism/argued] -- The United States compensates for its lenient corporate law treatment of risk taking under the business judgment rule with a comparatively strict disclosure regime and a robust securities class action litigation regime; substantive corporate law pushes the monitoring requirement toward leniency while securities enforcement pushes it back toward stringency. > In sum, what the United States lacks in its lenient approach to risk taking in the application of the business judgment rule the Unit- ed States may make up for with its relatively strict disclosure regime and robust securities class action litigation regime. Painter and Kaal, Initial Reflections on an Evolving Standard Constraints on Risk Taking by Directors and Officers in (2010). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1558614 - [1558614-033](https://wulfkaal.github.io/claims/1558614-033) [failure/argued] *(failure mode)* -- U.S. courts applying the business judgment rule give little or no weight to the overall health of the company or to whether the risk jeopardizes the company's very existence, so managers are permitted to incur most of the risks they wish to incur. > courts applying the business judgment rule in the United States give little or no consideration to the overall health of the company or even whether the risk is jeopardizing the company's very existence Painter and Kaal, Initial Reflections on an Evolving Standard Constraints on Risk Taking by Directors and Officers in (2010). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1558614 - [1558614-034](https://wulfkaal.github.io/claims/1558614-034) [failure/argued] *(failure mode)* -- The U.S. approach left both of its risk controls ineffective: the securities disclosure regime failed to prevent the 2008 financial crisis, while the expansive business judgment rule that permitted the risk taking in the first place survived the crisis unchanged. > The much-touted U.S. securities disclosure regime failed to prevent the 2008 financial crisis, yet the expansive U.S. version of the business judgment rule in cor- porate law that allowed the risk taking to begin with has remained in- tact. Painter and Kaal, Initial Reflections on an Evolving Standard Constraints on Risk Taking by Directors and Officers in (2010). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1558614 **2013** - [kaal-2013-acomparativeperspectiveo-005](https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-005) [empirical/evidenced] -- Under Delaware law as applied in In re Citigroup, directors' incorrect evaluation of business risk and their inability to predict the future do not violate the duty of oversight, so the Caremark duty to monitor is not extended to business risk. > According to the Delaware Chancery court, directors' incorrect evaluation of business risk and their inability to predict the future did not violate directors' duty of oversight. Kaal, A Comparative Perspective on the Limitations of the Duty of Oversight – A Comment on Lisa Fairfax (2013) - [kaal-2013-acomparativeperspectiveo-011](https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-011) [empirical/argued] -- Germany has taken a much stricter approach than the United States to cases involving a breach of the duty of oversight, even though the German business judgment rule formally requires a showing of the same elements as the American one. > For instance, Germany has taken a much stricter approach to cases involving a breach of the duty of oversight. Kaal, A Comparative Perspective on the Limitations of the Duty of Oversight – A Comment on Lisa Fairfax (2013) - [kaal-2013-acomparativeperspectiveo-012](https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-012) [condition/evidenced] -- Under German law, directors' business decisions lose the protection of the business judgment rule where the business risk taken was inappropriately excessive, a standard German courts announced in ARAG/Garmenbeck. > explained that if the "business risk was inappropriately excessive," directors' business decisions are not protected under the 23 German business judgment rule. Kaal, A Comparative Perspective on the Limitations of the Duty of Oversight – A Comment on Lisa Fairfax (2013) - [kaal-2013-acomparativeperspectiveo-013](https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-013) [empirical/evidenced] -- German commentators, whose expertise German courts rely on heavily, concluded after the financial crisis that managers do not act reasonably under the German business judgment rule if the risks they take on behalf of the corporation result in the demise of the corporation. > German commentators (contrary to their counterparts in the United States, German courts rely heavily on the expertise of commentators) concluded that managers do not act reasonably in terms of the German business judgment rule if risks Kaal, A Comparative Perspective on the Limitations of the Duty of Oversight – A Comment on Lisa Fairfax (2013) **2025** - [5583610-032](https://wulfkaal.github.io/claims/5583610-032) [condition/argued] -- Using LER to secure say-on-pay support falls within Delaware's business judgment rule, which presumes good faith board decisions absent self-dealing or gross negligence. > LER in executive compensation aligns with Delaware's business judgment rule, which presumes that boards act in good faith unless self-dealing or gross negligence is evident, as upheld in Aronson v. Lewis. Wulf A. Kaal, Liquid Equity Rewards in Corporate America (2025). SSRN: https://ssrn.com/abstract=5583610 ## Verify Every claim above resolves to a record carrying a verbatim source quote, the sha256 of the source PDF, and a preformatted citation. Nothing here asks to be taken on trust. curl -s https://wulfkaal.github.io/entities/business-judgment-rule.md | sha256sum **Canonical form.** This markdown file is the canonical hashed representation of this entity node. Its sha256 is the content hash.