Business Judgement Rule as a Safeguard for ESG Minded Directors and a Warning for Others

Bruno Ferreira () and Manuel Sequeira ()
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Manuel Sequeira: PLMJ Advogados

Chapter Chapter 14 in The Palgrave Handbook of ESG and Corporate Governance, 2022, pp 267-286 from Springer

Abstract: Abstract The business judgement rule (BJR) has since the nineteenth century, helped set out the limits to the judicial review of company management decisions. Originating from common law courts, the BJR has spread across civil law jurisdictions, seeking to balance management’s expected actions and results, but it evolved into a comprehensive safety valve for directors. Based on the idea that companies should consider non-financial factors as part of their analysis process to identify material risks and growth opportunities, the rising of stakeholder capitalism is increasing the gap between traditional corporate governance doctrines regarding whose interests should directors pursue in their management decisions. By introducing additional stakeholders’ interests in companies’ activity, the consideration of environmental, social and governance (ESG) factors creates for investors and directors a new range of expected behaviours, reshaping the traditional management “duty of care” within the ordinary course of business. Notwithstanding, for effective enforcement of these new standards of performance, it is mandatory to simultaneously tackle and reshape BJR, since directors are directly appointed by shareholders and, apart from markets and public opinion’s judgement, most of the existing incentives are to follow only their controlling shareholder’s interests.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-99468-6_14

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DOI: 10.1007/978-3-030-99468-6_14

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