What must directors demonstrate to be protected by the business judgment rule?

To be protected by the business judgment rule, directors must demonstrate that they acted with good faith and reasonable care. This principle is foundational in corporate governance, as it acknowledges that directors must make decisions in the best interest of the company and its shareholders, while also applying their skills and knowledge effectively.

Good faith refers to the intention of directors to act in a manner they believe to be in the best interests of the corporation, without malice or ulterior motives. Reasonable care encompasses the expectation that directors will make informed decisions based on research, consideration of the relevant facts, and an understanding of the potential consequences of their actions. By fulfilling these criteria, directors can rely on the business judgment rule to shield themselves from liability for decisions that may not yield favorable outcomes, as long as those decisions were made in alignment with their fiduciary duties.

The other options do not provide the correct framework necessary for the protection under the business judgment rule. For instance, the idea that directors owed no duties contradicts the fundamental responsibilities they hold. Making popular decisions or consulting shareholders, while possibly part of a good governance framework, is not a legal requirement for business judgment protection. Instead, it’s the demonstration of good faith and due diligence that grants directors the leeway to make calculated risks