Business Judgment and Director Accountability: A Study of Case-Law Over Time

It is often assumed that judges are reluctant to review directors’ business judgments, which contributes to a lack of director accountability, particularly in large companies. Yet this claim has never been systematically interrogated. To address this, this paper analyses English and Welsh cases to ascertain the extent to which judges review and impose liability for directors’ judgments, whether this has altered from the mid-nineteenth century until the present, or varies by cause of action, and what types of company or claimant are involved. It finds that challenges to business judgment have been successful over the whole time period, with a marked increase in legal liability since 2007. This cannot be linked to changes in substantive law, but probably a greater willingness by claimants in insolvent companies to mount challenges to business judgment and by judges to impose liability. Nevertheless liability levels remain low, and largely confined to private companies.