The business judgment rule is a legal principle that provides a level of protection to corporate directors and officers when making business decisions. The rule states that as long as the decision-makers act in good faith, with the reasonable belief that their decisions are in the best interest of the company, and without any conflicts of interest, their decisions are typically considered valid and not subject to challenge or liability.

In other words, the business judgment rule provides a degree of deference to the decisions of corporate leaders, recognizing that they are in the best position to understand the company’s business and strategic goals. This principle is often used to protect directors and officers from legal action brought by shareholders or other parties who disagree with their decisions.

It is important to note that the business judgment rule is not a guarantee of immunity from legal action. If there is evidence of fraud, bad faith, or a breach of fiduciary duty, corporate leaders may still be held liable for their actions. However, it does prevent “20/20 hindsight” type of logic from holding someone liable for a decision that later on turned out to be a bad decision for the company or its shareholders.