When does the Business Judgement Rule protect corporate directors or officers?

The Business Judgment Rule provides protection to corporate directors or officers when they make decisions in good faith, with the care that an ordinarily prudent person would exercise, and in the best interest of the corporation. The rule primarily comes into play when assessing whether directors acted in accordance with their fiduciary responsibilities.

The correct answer acknowledges that the action was taken based on an informed decision. This means that the directors or officers had sufficient information available at the time of making the decision and considered all relevant facts before proceeding. When a director makes an informed decision after due diligence, courts are less likely to second-guess that decision, thus providing protection under the Business Judgment Rule.

The presence of a conflict of interest undermines this protection because it raises questions about whether the decision was made in the best interest of the corporation. If directors or officers have a conflict of interest, it necessitates a higher level of scrutiny regarding their decisions. Hence, protecting decisions made under conflicting interests would contradict the essence of the Business Judgment Rule.

By recognizing that informed decision-making is a key element in this context, one can understand how directors or officers can be protected under the Business Judgment Rule, while also considering the implications of conflicts of interest on that protection.