Introduction
The business judgment rule is a presumption that in making a business decision, the directors of a corporation acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interest of the company.
Directors owe a fiduciary duty to the companies they administer and are required to observe the utmost good faith in transactions they enter into with or on behalf of the company. Usually, where a director breaches the duties imposed by law or fails to take reasonable steps to comply with the prohibitions imposed by law on exceeding the powers conferred on the director or the director acts or omits to act in a manner contrary to the power so conferred, the director is to be personally liable to pay to the company or to any other person the monetary value of the damages caused as a result of the act or omission of the director. Shareholders are also allowed by statute to hold managers and directors of the company to account through fiduciary-duty litigation, the threat of which is capable of causing directors to behave loyally towards the shareholders and stakeholders of the companies they administer. The quest for economic efficiency in relation to companies of going concern makes it imperative to not hold directors liable for every business decision they make, in their capacity as directors. In deserving situations where directors are able to meet the precondition of having been reasonably informed and not self-interested in the making of the business decision, it is suggested that they be shielded from liability. This essay contends that the business judgment rule strikes a workable balance between the role of the director in exercising independent and unrestrained judgment on one hand, whilst also exacting accountability, on the other hand, so as to safeguard the interests of the stakeholders of the company
Duties of Directors under Ghanaian law
Under Ghanaian law, a director of a company stands in a fiduciary relationship towards the company and accordingly is required to observe the utmost good faith towards the company. This connotes a fiduciary obligation of loyalty and a duty of care owed by directors to the companies they administer. Generally, a director is required to act in what one believes is the best interest of the company as a whole so as to preserve the assets, further the business and promote the purposes for which the company was formed in the manner that a faithful, diligent, careful and ordinary skilful director would act in the circumstances. A director of a company is required to act in accordance with the constitution of the company and must only exercise powers for the purposes for which those powers are so conferred. In considering whether a particular transaction or course of action is in the best interest of the company as a whole, a director is allowed to consider the interests of the employees, as well as the shareholders and members of the company but at all times the director is required to exercise independent judgment though they may rely in good faith upon information provided to them by employees, other directors, shareholders or experts. A director of a company is prohibited by the Companies Act from placing oneself in a position in which the duties of the director to the company conflicts or may conflict with the personal interests or the duties to other persons. This prohibition is only excused where the director obtains the consent of the company. A director, is duty bound to avoid using to the advantage of that director any money or property of the company or confidential information obtained by that director in the capacity of director. Furthermore, a director must not be interested whether director or indirectly in a business which competes with that of the company and such director must not be personally interested in a contract or transaction entered into by the company unless that director declares the nature and extent of the interest at a meeting of directors. Overall, a director must unselfishly and in an undivided loyal manner refrain from doing anything that works injury to the company or deprives the company from gain or profit.
The Business Judgment Rule as integral part of Corporate Governance
Business decisions form an integral part of the duties of directors to act in the best interest of the company as well as to act with care, skill, diligence and loyalty. Accordingly, the business judgment rule serves as a much-needed response to the need to ensure good corporate governance whilst enforcing compliance of directors to the legal duties owed to the company and stakeholders of the company. The business judgment rule creates a presumption of good faith business judgments of corporate management and by so doing shifts the burden to someone who faults the directors, for decisions they have made, to show that the decision made was made recklessly, irrationally and without good faith for which reason action should be taken against the directors involved. The rule acknowledges that the daily operation of a business requires making complex and controversial decisions that have the propensity to put the company at huge risks but highly guaranteeing huge profits to the company. The business judgment rule serves as a protection for the business decisions of corporate directing minds who are sued by members of the companies they manage on the basis that they have breached their duties and fiduciary obligations owed to the companies as directors. The rule ensures that if the actions of the directors in question are supported by an appropriate degree of due diligence, are in good faith and do not create conflict of interest, such directors should be protected from liability even if their decisions are wrong and bring loss to their companies. This means that in the absence of an abuse of direction, the business judgment of a director ought to be respected by the courts. Thus, in practice, the rule operates as both a restraint on judicial behaviour and a standard of managerial conduct and is designed to protect corporate directing minds from civil liability for the decisions they make on behalf of the company concluded in good faith and upon an informed basis for the best interest of the company in circumstances where the decision-maker had no personal interest in the outcome.
Conclusion
The Companies Act of Ghana,currently, does not codify the business judgment rule in Ghana. Thus, there is no presumption in favour of directors that in making business decisions, directors are deemed to have acted on an informed basis, in good faith and in the honest belief that the action taken is in the best interest of the company. The Companies Act only seeks to establish the duties of directors of companies in Ghana and the limits of their powers. It is imperative to set the bar below which directors are allowed to exercise business risks in their capacity as directors without having to be responsible to the shareholders for their actions. A codification of the business judgment rule would strike a workable balance between the role of the director in exercising independent and unrestrained judgment on one hand, whilst also exacting accountability on the other hand so as to safeguard the interests of the stakeholders of the company. Overall, an honest and informed board of directors should not be held liable for decisions that go wrong and that were not made in a grossly negligent manner. Courts should be encouraged to give meaning to it. The business judgment rule, as it has been shown, has the capacity to protect directors against liability for every business decision they take that leads to undesirable consequences as long as those business decisions are not illegal, reckless or done in bad faith.
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