The business judgment rule has been a centerpiece of corporate law for almost two centuries. But over the last several decades, courts and commentators have struggled to find a rationale for the business judgment rule that, at once, reconciles the judicial deference granted to corporate managers with the more demanding standards applied to other professionals, such as doctors and lawyers. This Article attempts to end this struggle by offering a fuller account of the relationship between the preferences of diversified shareholders, on the one hand, and liability rules, on the other. Based on this account, this Article contends that the protections of the business judgment rule are necessary to address a concern unique to the corporate setting: the need to prevent diversifiable risk from dominating agent (i.e., managerial) decision making.
Peter V. Letsou,
Implications of Shareholder Diversification on Corporate Law and Organization: The Case of the Business Judgment Rule,
Chi.-Kent L. Rev.
Available at: https://scholarship.kentlaw.iit.edu/cklawreview/vol77/iss1/9