The Courts ‘Evaluation’ of Directors’ Business Judgment

Abstract

What happens to company directors when they are sued in respect of adverse effects of their judgment? This unique and systematic empirical study of judgment at law about judgment in business combines social and administrative theorizing with legal scholarship to provide new insight into the relationship between company director authority and accountability at law. It contrasts entitative and performative approaches to thinking about judgment to research how judges act vis-à-vis the business judgment of directors. Analysis is set in the context of English and Welsh case law, using 130 cases supplemented by interviews with judges and legal practitioners. Study findings reveal directors being held to account for actions which have adverse outcomes, and though each case is unique there are patterns in the action and judgments associated with cases of liability and non-liability. The study thus provides understanding about discretion actually afforded to company directors when faced with a legal challenge to their action and effects. Within a context of concern about director accountability, the research has public, as well as theoretical significance. There are also implications for debating institutional relations between the law and business; arguments for enforcement and reform of directors duties; and education of directors in respect of their role and responsibilities.