Business Judgment Rule

Decision Process

Thorough preparation is the primary requirement for protection. When evaluating a move from prototype to production, the manager must gather all available data and document the reasoning behind the choice. This audit trail proves that the individual acted with the care of a prudent business person.

Risk Allocation

Commercial ventures require the acceptance of uncertainty. The business judgment rule acknowledges that a demonstrated rate of output may differ from a supplier’s forecast despite perfect planning. By insulating leaders from the cost of honest failure, the rule maintains the capacity of the firm to innovate.

Evidence Requirement

Burden of proof rests on the manager to show the prerequisites were met. Documentation of the readiness question answers provides the necessary defense. A failure to perform due diligence on a new facility renders the protection void.